Abigroup Ltd v Abignano

1. The petition against Stephanie Susan Muirhead is dismissed, with costs.

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

IN THE FEDERAL COURT OF AUSTRALIA No QG 7002 of 1997 GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND RE: GEORGE ARTHUR ROBERT MUIRHEAD AND STEPHANIE SUSAN MUIRHEAD Debtors EX PARTE: COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 Petitioning Creditor CORAM: Drummond J DATE: 13 May 1997 PLACE: Brisbane REASONS FOR JUDGMENT

This is a defended creditor's petition. The creditor is proceeding only against Mrs Muirhead, not having yet served Mr Muirhead.

The act of bankruptcy relied on is the debtor's failure to comply with a bankruptcy notice served on her on 25 August 1995. The notice was founded on the judgment of Thomas J of 5 June 1995 where his Honour granted the petitioning creditor's application for summary judgment against Mr and Mrs Muirhead in the sum of $1,722,984.49. The Muirheads appealed this judgment and, on 19 July 1996, the Court of Appeal made the following orders:

"Appeal dismissed with costs. The appellants have leave to amend their defence as they may be advised but are ordered to pay the costs of and incidental to any such amendment."

In order to obtain a sequestration order, the petitioning creditor must show that the judgment of Thomas J is a final one, for the purposes of the Bankruptcy Act 1966 (Cth): that is critical to proving the act of bankruptcy on which the petition is founded, a proof required by s 52(1)(a) of the Act, and also to proving the particular indebtedness of Mrs Muirhead alleged by the petitioning creditor.

In dealing on 14 October 1996 with an application by the Muirheads to set aside the bankruptcy notice demanding payment of the moneys due under Thomas J's judgment, Spender J held that, in the light of the judgment of the Court of Appeal, Thomas J's judgment was not a final one for the purposes of the Bankruptcy Act, saying:

"It is clearly not an interlocutory judgment. It is final in that sense. Notwithstanding that the application the appeal to the Court of Appeal was concerned with posed the question of whether a judgment for summary judgment should be confirmed, it was still open for some other ground to be argued by the Muirheads as a defence to that claim, or even as a cross-claim to that claim. Having regard to what I see as the paramount consideration of the bankruptcy law in this area, namely, that a person should not be exposed to bankruptcy proceedings if in truth, at the end of the day, there might be a balance of account in his favour, it would seem to me to be wrong to permit bankruptcy proceedings to be based on a summary judgment application in circumstances where the Court of Appeal has decreed that there may be circumstances of defence or a cross-claim in relation to the claim by the CBA on which the summary judgment was obtained."

Despite this, his Honour did not set aside the bankruptcy notice, but apparently considered it necessary to determine whether the Muirheads' affidavit was to the effect required by s 41(7) the Bankruptcy Act. He held it did not answer the requirements of that sub-section because it did not set out a factual basis sufficient to show the possible existence of a cross-demand and, for that reason, he dismissed the Muirheads' attack on the bankruptcy notice. I respectfully agree with Spender J's conclusion that the judgment of Thomas J cannot be regarded as a final one.

The form of the Court of Appeal's judgment might be thought to be unusual. But senior counsel for the petitioning creditor could not suggest any explanation for the grant by the Court of Appeal of leave to amend the defence other than that that order was made erroneously. That is a bold submission, given that the reasons of McPherson JA, who gave the leading judgment, and of the Chief Justice in his supplementary concurring judgment, show that the order granting leave to amend was made quite deliberately. The submission is even bolder when regard is had to the fact that the solicitors for the petitioning creditor made a written submission to the Court of Appeal immediately after judgment was delivered to that very effect, concluding:

"If the Court agrees with our view then we consider that this matter can be corrected by use of the slip rule prior to the formal entry of the order without the need for any further appearance [or] submissions by either party. Alternatively, we are of course ready to appear on our client's behalf and address the Court about this matter."

The Registrar of the Court of Appeal, in reply, said:

"I refer to your letter of 24 July 1996 which I have referred to the members of the Court who heard this appeal.

I have been instructed to advise that the Court does not consider that any error appears in the Court's order nor does it wish to hear further submissions in relation to this matter. Accordingly, the order of the Court will remain as it presently stands."

Whether Thomas J's judgment, in the light of the Court of Appeal judgment, is a final one depends, in my view, on the proper construction of the orders made by the Court of Appeal. Thomas J's judgment, when pronounced, was a final one. If the Court of Appeal had simply dismissed the Muirheads' appeal against it, the finality of that judgment would have been unimpaired. But the Court dismissed the appeal against Thomas J's decision and, as the same time, ordered that the Muirheads have leave to amend their defence. By granting leave to file an amended defence, not, it is to be noted, a counter-claim, the Court of Appeal can only be taken to have expressed in its formal orders the intention that the petitioning creditor's claim, in respect of which Thomas J had given summary judgment, might still be answered by matters of defence which, by its second order, it gave the Muirheads the opportunity to raise. I cannot therefore regard the orders of the Court of Appeal as involving a final and definitive command that the Muirheads should pay the amount of Thomas J's judgment; rather should the Court be taken by its orders to have intended Thomas J's judgment to be provisional or defeasible: cf Pepper v McNiece (1941) 64 CLR 642 at 647. Accordingly, there can be no merger of the cause of action sued on by the petitioning creditor which resulted in that judgment. See Halsbury's Laws of England, 4th Ed, Vol 26, para 551, note 3; Spencer-Bower and Turner, The Doctrine of Res Judicata, 2nd Ed, paras 163 and 164.

Australian Energy Ltd v Lennard Oil NL (No 2) [1988] 2 Qd R 230 is authority that, in interpreting the judgment or order of a court framed in unambiguous language, regard should still be had to the reasons given by the court for making the order: they form part of the context in which the order was made and need to be looked at in order to fully understand the effect of the judgment pronounced. See particularly p 232. Where a judgment is framed in language that presents some difficulty, the case for going to the reasons for decision is even stronger. In my opinion, a reading of the reasons of McPherson JA, particularly at pp 16 to 18 and 21 to 22, confirms that the Court of Appeal intended, by its orders, to give the Muirheads further opportunity to defeat the petitioning creditor's claim even though, in terms, it dismissed the appeal against the summary judgment on that claim. His Honour summarised the evidence relied on by the Muirheads before Thomas J, which he held, in effect, was sufficient to raise a triable issue that the receiver had sold the Muirheads' properties over which the petitioning creditor held a mortgage at a very substantial under-value. His Honour then considered whether the petitioning creditor was liable to the Muirheads in respect of this sale because of its own breach of statutory duty, an allegation made by the Muirheads in their original pleading. McPherson JA considered ss 85 and 92 the Property Law Act 1974 (Qld) and held that the receiver, having been appointed by the petitioning creditor under a common form mortgage that made the receiver the Muirheads' agent in realising the secured properties for the benefit of the petitioning creditor, the petitioning creditor was not under the particular statutory duty imposed by s 85 to take reasonable care to ensure that the properties were sold at market value.

But, as his Honour observed, the Muirheads had pleaded that the petitioning creditor had known of and acquiesced in the sale which the receiver had allegedly misconducted and it was after referring to this and other aspects of the Muirheads' existing pleading that his Honour then considered their evidence before Thomas J dealing with the way the receiver conducted the sale. His Honour also referred to the absence of any application by the Muirheads, either before Thomas J or on the appeal, to amend their defence, but observed that O 18 r 3 the Queensland Rules of the Supreme Court permitted a defendant, on an application for summary judgment, to show cause not only by affidavit but for other reasons why summary judgment should not be granted. Ordinarily, a defendant, in order to avoid summary judgment, will need to put sufficient factual evidence before the Court to show the existence of a triable issue between the parties. But, as O 18 r 1(1A) and r 3 show, the Court retains a residual discretion to refuse summary judgment where the defendant does not do that, but nevertheless satisfies the judge "that there ought for some other reason to be a trial", a discretion the scope of which it is said in Queensland Supreme Court Practice, Ryan Weld & Lee, para 18.3.4, has not yet been authoritatively stated by the Supreme Court.

I think that McPherson JA, in deliberately concluding that the Muirheads should have leave to amend, considered that they should have an opportunity to plead a case that sheeted home to the petitioning creditor responsibility for the receiver's alleged misconduct on some basis other than that which his Honour ruled was not open to them under s 85 the Property Law Act, on their existing plea of breach of statutory duty owed to them by the petitioning creditor. The order dismissing the appeal can perhaps be explained by the fact that, on the material before the Court of Appeal, it could not properly set aside Thomas J's judgment because a possible defence was not raised on the affidavit evidence, but nevertheless considered that this was a case in which there was sufficient other reason for giving the Muirheads opportunity to answer the petitioning creditor's claim on which it had obtained its judgment, based on the evidence as to the circumstances of the sale and the allegation of the petitioning creditor's involvement in it.

In my opinion, the Muirheads might be able to fix the petitioning creditor with such loss as may have been occasioned by any misconduct by the receiver in selling the properties at a substantial under-value. Since the receiver accepted appointment by the petitioning creditor as the Muirheads' agent to realise the properties, the receiver owed the Muirheads fiduciary and other duties. See Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 at 834. That the receiver was primarily bound to realise the properties for the benefit of the petitioning creditor would not be sufficient to exclude all his fiduciary duties to the Muirheads, as his principals; if he did, in fact, sell at an unjustifiably low price, he might well be in breach of those duties. And if the petitioning creditor intermeddled in the receiver's sale by, eg, directing him or urging him to sell at a substantial under-value, the petitioning creditor might itself be liable to the Muirheads for the losses thereby caused, by procuring that breach of duty by the receiver: see Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410; American Express International Banking Corp v Hurley [1985] 3 All ER 564 and Fisher & Lightwood's, Law of Mortgage, Australian Ed, para 19.42. Moreover, if the petitioning creditor did nothing more than acquiesce in what it knew to be misconduct by the receiver, it might also come under a direct liability to the Muirheads: see Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 at 317. At least this is, I think, sufficiently arguable to show a good explanation for the Court of Appeal's order giving leave to amend the defence.

The Muirheads have taken advantage of the leave granted by the Court of Appeal to amend their defence. They now allege, among other things, misconduct by the receiver, including the sale of the properties at a substantial under-value, and that the receiver only sold the properties "following consultation with the" petitioning creditor. It is questionable if such an allegation is sufficient to enable the Muirheads to lead evidence designed to show that the petitioning creditor had such an involvement in the receiver's allegedly misconducted sale as to make it directly liable to the Muirheads for losses resulting therefrom. But even if this allegation is insufficient to enable the Muirheads to run such a case against the petitioning creditor, that does not, I think, matter. It was the Court of Appeal's judgment, in my opinion, that deprived Thomas J's judgment of its final quality for the purposes of the Bankruptcy Act. Subsequent events, viz, the failure of the Muirheads to take effective advantage of the leave to amend their defence granted by the Court of Appeal, could not convert Thomas J's judgment into a final judgment. In the context of the Bankruptcy Act, the question whether a judgment or order is final or not must be determined upon a view of it at the time at which it is made (or, here, at the time the Court of Appeal spoke). If a judgment is not final at that time, it cannot be made so by circumstances that may arise thereafter. In Re Henderson; Ex parte Henderson (1888) 20 QBD 509 at 510; Pepper v McNiece at 647.

Moreover, the unconditional right to issue execution is an important element in determining whether a judgment or order is final or not for the purposes of s 40(1)(g) the Bankruptcy Act: Pepper v McNiece at 657; Abigroup Ltd v Abignano (1992) 39 FCR 74 at 80. A judgment or order will lack the finality required by the Bankruptcy Act even if no order staying enforcement of the judgment debt has been made, but circumstances exist in which the debtor would be entitled to obtain from the Court a stay of execution on the judgment: Re Neal; Ex parte Neal v Duncan Properties Pty Ltd (1993) 114 ALR 659 at 663. Given the provisional nature of Thomas J's judgment resulting from the appeal court's judgment, I do not think that, at least immediately thereafter, the petitioning creditor retained an unfettered entitlement to execute on Thomas J's judgment. Immediately the appeal judgment was pronounced, the Muirheads, in reliance on leave to amend their defence, would have, in my opinion, become entitled to a stay of any attempt by the petitioning creditor to enforce Thomas J's judgment, at least for a time. That judgment ceased to be a final judgment for that reason also.

I am therefore not satisfied of two of the matters stated in the petition, viz, that the debtor failed to comply with the bankruptcy notice that demanded payment of the amount of a judgment that was a final one and that the debtor was at relevant times indebted to the petitioning creditor under a final judgment.

I certify that this and the preceding 9 pages are a true copy of the reasons for judgment herein of the Honourable Justice Drummond. Associate: Date: 13 May 1997 Counsel for the petitioning creditor: P D McMurdo QC and D A Mullins Solicitor for the petitioning creditor: Gadens Ridgeway Counsel for the debtor: R A I Myers Solicitor for the debtor: Woodgate Morgan Date of hearing: 12 May 1997