Brookfield v Real Estate Now Pty Ltd

Federal Court of Australia|2019-06-27|Before: Beaumont J, Derrington J

The application dated 12 December 2018 is dismissed.
Each party bear their own costs of the application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 The application before the Court is for the winding up of the company Real Estate Now Pty Ltd. It is brought by Mr Ian Walter Brookfield who claims to be a creditor of the company as the result of an assignment of rights or benefits under a contract. The matter has an unfortunate history and involves a significant amount of enmity and animosity between Mr Brookfield on the one hand and Mr Mark Mergard, the director of the company, on the other. 2 The procedural steps required for the winding up of the company have been complied with and only a few questions remain. In particular, whether Mr Brookfield is a creditor of the company and to what extent and, secondly, whether the company is insolvent. To some extent the latter depends on the answer to the former. 3 There are two significant features of this matter. The first is that the issue of whether Mr Brookfield is a creditor of the company has been considered and determined in other proceedings although that is now contested by the respondent company. Second, the respondent company denies that it is indebted to Mr Brookfield as he claims, however, it failed to make an application within time to set aside the statutory demand served by Mr Brookfield on it which relied on that asserted indebtedness.

Background 4 The genesis of Mr Brookfield's claimed debt of approximately $290,000 is an agreement apparently entered into between the company and Blueprop Pty Ltd on 6 July 2015. By that agreement the company agreed to purchase a "rent roll" from Blueprop for the sum of $100,650. Although the terms of the sale agreement are poorly worded it seems clear enough that, from the date of contract to the date of completion, Mr Mergard was to take over the existing rent roll and operate it using his licence as a real estate agent. That said, it appears that, until completion, the profits of the rent roll were to remain with or be paid to Blueprop. Relevantly, the contract made provision in respect of the assignment of rights under the contract. Clause 12.5 provided: 12.5 Assignment A party must not assign or permit a third party to obtain the benefit of its rights and interests under this Agreement except with the prior written consent of the other party. 5 Mr Brookfield says that the contract was performed to the extent that the rent roll was transferred to the company but, so he asserts, the purchase price was not paid. It should be acknowledged that Mr Mergard now asserts that he acquired the rent roll under a different agreement to the one identified by Mr Brookfield. 6 On 31 October 2016, a deed of assignment was entered into between Blueprop on the one hand and Mr Brookfield on the other. By that agreement Blueprop purported to assign the debt arising under the sale agreement to Mr Brookfield. It appears that notice of the assignment was given to the company on 31 October 2016. However, the company refused to pay Mr Brookfield any money. This led to both a number of attempts by Mr Brookfield to wind up the company as well as numerous collateral disputes. In an affidavit of Mr Mergard filed 24 April 2019 some of that disputation is evidenced by what appear to be Facebook messages, text messages and emails. Some of those messages or posts seem to refer to another business operated by Mr Mergard and his wife which involves marine passenger operations to Lady Musgrave Island. Mr Brookfield apparently conducts a competing passenger business. Although many of the texts or Facebook posts are not dated, the dates which do appear all seem to show that the relevant conduct occurred between 2015 and early 2017. The relevance of this becomes clearer subsequently in these reasons. 7 On 23 December 2016, Mr Brookfield made an application to wind up the company. That application was dismissed by Reeves J of this Court on 12 September 2017 as a result of defects in Mr Brookfield's material. The substance of the application was not considered. 8 Subsequently, a statutory demand was issued by Mr Brookfield on the company, 1770 Marina Pty Ltd (another company controlled by Mr Mergard) and Ms Katrina Mergard. An application was made by the recipients of the statutory demand to have it set aside. The matter came on before Justice Brown of the Supreme Court of Queensland on 8 November 2017. The debt relied upon by Mr Brookfield was the debt allegedly arising under the sale of the rent roll and the assignment to him of that debt. Brown J allowed the application and set aside the statutory demand. Her Honour found that the statutory demand was deficient because it was directed to more than one alleged debtor. Further, the debt identified in the statutory demand could not be said to be owing by the recipients jointly. In addition, the demand was defective because it claimed a debt for multiple creditors. Her Honour also found that Mr Brookfield did not properly set out or verify the debt said to be due and owing by the company to him. Her Honour indicated that she would set the notice aside because of those defects. It is also to be noted that the company, with others, sought an order that Mr Brookfield not start any similar proceeding in the Court against any of them. Her Honour expressly refused to make such an order identifying that she had made no determination as to the actual merits of any claim that was being made by Mr Brookfield. Again, the nature of the decision of Brown J becomes relevant later in these reasons. 9 In the course of the curial skirmishing between the parties, Real Estate Now accrued a number of costs orders against Mr Brookfield. They were assessed and became the subject of a bankruptcy notice which was served on Mr Brookfield. Mr Brookfield did not comply with that notice and, on 7 June 2018, the company presented a creditor's petition for the sequestration of his estate. That matter came on before his Honour Judge Jarrett of the Federal Circuit Court on 5 October 2018. The company was represented at that hearing by counsel and instructing solicitors. Mr Brookfield appeared on his own behalf. The application for the sequestration order was dismissed. The reasons for that dismissal are important. In them, Judge Jarrett identified that the first ground of opposition to the creditor's petition was that the company was and remains indebted to Mr Brookfield in an amount of $285,000. A number of other grounds were raised but they were rejected. Judge Jarrett identified the contractual basis on which Mr Brookfield made his claim for debt including the rent roll sale agreement and the assignment to him of the debts. His Honour noted that none of Mr Brookfield's evidence was answered in the proceedings by the company. The learned judge was not taken to any evidence to suggest that the contract of sale relied upon was not the relevant contract of sale or was not otherwise enforceable as between the parties to it. He was also not taken to anything which might suggest the assignment of rights under the contract was not effective. His Honour concluded at [15]: In those circumstances, and notwithstanding that there is perhaps no legal proceedings to enforce those legal transactions in the way in which I have described them, it is tolerably clear and I am satisfied that the respondent establishes that he has a debt owed to him by the petitioning creditor which arises in the way in which I have explained. It is a matter which is the subject of specific grounds of opposition in his notice of grounds of opposition filed on 27 July, 2018. 10 His Honour made no specific finding as to the amount owing but concluded that he was satisfied there was a debt owed by the petitioning creditor which far exceeded the debt owed by Mr Brookfield. That was regarded as sufficient to displace the petitioning creditor's prima facie entitlement to a sequestration order. As a result, Judge Jarrett refused to make the sequestration order. 11 There was no appeal from that decision. 12 On 31 October 2018, Mr Brookfield issued a further statutory demand to the company. Again he relied upon the assigned debts, being the failure to pay the purchase price as well as amounts which he claimed became owing monthly under the sale agreement in respect of the money received from the rent roll. 13 Towards the end of the 21 day period for disputing the statutory demand the solicitors for the company filed an application in the Supreme Court of Queensland to set it aside. It is alleged that due to apparent administrative difficulties in the Registry of the Supreme Court, the application was not issued by the Registry and it could not be served within the prescribed period. No application was made to extend the time in which the notice might be issued. No explanation has been given for that failure even though it had, apparently, been realised that such an application could be made. 14 The matter proceeded in this Court to a hearing for the winding up of the company. Given the nature of the contested issues raised by the company, the matter was referred by the Registrar to Judge of the Court. Directions were made for the hearing including that the company identify its grounds of opposition to the winding up. In the identified grounds the company claimed: it was solvent; that the debt the subject of the statutory demand was disputed; that it has a debt against Mr Brookfield; and that Mr Brookfield has no standing to bring the application. 15 Orders were made for the filing of affidavits and submissions by the parties. By the time the matter came on for hearing several documents had been filed although none of the submissions filed were of any significant assistance in ventilating the relevant issues.

Whether Mr Brookfield is a creditor of the company 16 The first question was whether the evidence established that Mr Brookfield was a creditor of the company so as to have standing. This involves a consideration of whether the determination of Judge Jarrett in the Federal Circuit Court created any issue estoppel in relation to these issues. That is, did the determination by his Honour foreclose in these proceedings the question of whether Mr Brookfield was a creditor of Real Estate Now? 17 There is no doubt that an issue which was considered by the Federal Circuit Court when dismissing the application for a sequestration order was the same as that which is now before this Court, namely whether the company owes a debt to Mr Brookfield. There is also no doubt that Judge Jarrett determined, on the evidence before him, that such a debt did exist and that it substantially exceeded the debt claimed by the company. It can be observed that, for some unexplained reason, the company did not really dispute the evidence adduced by Mr Brookfield in the matter before the Federal Circuit Court. It did not suggest, as it does now, that the contract on which Mr Brookfield relies was not that which actually effected the transaction to sell the rent roll and that significant amounts were paid by it in discharge of its obligations to pay the purchase price. 18 Although, prima facie, it appears that the issue of the indebtedness between the parties was one determined by the Federal Circuit Court and, therefore, within the scope of the issue estoppel principle as articulated in decisions such as Blair v Curran (1939) 62 CLR 464, 531-533 and Yates Property Pty Ltd v Boland (2000) 179 ALR 664, 685-688, [72]-[78], it would appear that the decision not to make the sequestration order did not have that effect. The question before the Federal Circuit Court on the application for a sequestration order was whether it was satisfied as at that time a sufficient debt was owing and whether, in the exercise of the Court's discretion, the sequestration order should be made. This was explained by Beaumont J in Gye v McIntyre (unreported, Beaumont J, 26 May 1992; sometimes cited as [1992] FCA 235). In that case a judge had previously refused to make a sequestration order on the basis that he was not satisfied that a sufficient debt was then due and owing. In subsequent proceedings by the petitioning creditor, the debtor alleged an issue estoppel existed as to the question of indebtedness. His Honour held that no issue estoppel arose because the only question before the first judge was whether there existed a relevant debt at the time of the application and, as that had not been established, the discretion was exercised to refuse to make the sequestration order. His Honour said: Moreover, the dismissal of a creditor's petition in bankruptcy does not, in any final or conclusive sense, create an estoppel on the issue whether the petitioner's claim is a good debt (see In Re Vitoria Ex parte Vitoria [1894] 2 QB 387; King v Henderson [1898] AC 720 at 729-30; Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 per Isaacs J at 518-9). As Isaacs J pointed out in Dowling, whatever be the position at common law, a bankruptcy court, as a court of equity, has a discretion to look behind a judgment in a proper case "even if the existence of the debt as a matter of law may be undoubted and unchallengeable" (see also Wren v Mahoney (1972) 126 CLR 212 per Barwick CJ at 224-5). Put differently, there is no issue estoppel here because the present question is not the same question as that before Einfeld J (see O'Donel v The Commissioner for Road Transport and Tramways (NSW) (1938) 59 CLR 744; Lizzio v Ryde Municipal Council (1983) 155 CLR 211 per Deane J at 232; Marr (Contracting) Pty Limited v White Constructions (ACT) Pty Limited, Neaves, Beaumont and Burchett JJ, 15 November 1991, unreported). Nor, in my view, can it be appropriate here to apply any Henderson extension of the issue estoppel principles. In the Bankruptcy Court, the question for determination, depending on a finding of insolvency, actually inferred or assumed, is whether the Court, in its discretion, will make a sequestration order. If the Bankruptcy Court declines to exercise that discretion, it does not follow that the Court has finally determined that no debt actually exists. That is a different question. 19 The observations of Beaumont J have been referred to and relied upon subsequently: Makhoul v Barnes (1995) 60 FCR 572, 581-582; where it was identified that the rationale for this principle was that, when called upon to make a sequestration order, the judge in bankruptcy is not required to determine the rights as between the parties but to determine whether they are satisfied that the discretion ought to be exercised to make the order sought: In re Vitoria; Ex parte Vitoria [1894] 2 QB 387; King v Henderson [1898] AC 720. In the first of those authorities, A L Smith LJ said: It is said by way of preliminary objection, that, by reason of the order of the Croydon County Court, it is res judicata that there is not a petitioning creditor's debt which will support an adjudication of bankruptcy or a receiving order. In my opinion, the registrar of the county court did not decide anything of the kind, and he had no jurisdiction to do so. He had no power to decide that there was not a valid judgment. He has only power under s. 7, "if he is not satisfied with the proof of the petitioning creditor's debt, or of the act of bankruptcy, or of the service of the petition, or is satisfied by the debtor that he is able to pay his debts, or that for other sufficient cause no order ought to be made," to dismiss the petition. 20 The provision there referred to is relevantly similar to s 52(2) of the Bankruptcy Act 1966 (Cth) which gives the Court the discretion to refuse to make a sequestration order if it is satisfied that the debtor is able to pay their debts or "for other sufficient cause a sequestration order ought not to be made". That being so, these authorities apply precisely to the question before this Court. It is unfortunate that neither party referred to them. Nevertheless, it follows that because Judge Jarrett was not called upon to "determine as an issue between the parties the ultimate question whether the judgment debtor is indebted to the judgment creditor in the amount claimed": Makhoul v Barnes at 581; no issue estoppel arises from the dismissal of the sequestration order. It can be observed that the above authorities concerned the question of whether the existence of the petitioning creditor's debt was finally determined. Here, of course, the debt in question was that claimed by Mr Brookfield which he set up against the petitioning creditor. Nevertheless, the principle referred to applies with equal force to that issue. 21 The above is sufficient for the purposes of establishing, on the hearing of the winding up application, that the company was entitled to contest that it was not indebted to Mr Brookfield despite the existence of the reasons and judgment of Judge Jarrett. 22 The company submitted that, on the winding up application, the Court could go behind the judgment of Judge Jarrett to ascertain whether or not a real debt exists which justifies the winding up of a company. Reference was made to a number of authorities including Re Gasbourne Pty Ltd [1984] VR 801. In that decision, which was relied upon by the company, Nicholson J specifically held that, on a winding up application, the Court had power to go behind a judgment on which the debt relied upon by the petitioning creditor was based. That was so despite a number of authorities to the contrary. His Honour said (at 855-856): I think that it would make a mockery of the legislation to adopt a principle which would have the effect of enshrining a default judgment whereby it could not be challenged in winding-up proceedings when it has been obtained in circumstances such as these, and I can find no statement of principle in the authorities which requires me to do so. Accordingly, in these cases, I think it appropriate to go behind the judgments so obtained and having done so, I have found that there is in each case no debt to support them. 23 The matter had previously been considered carefully by Powell J in Re Quatrovision [1982] 1 NSWLR 95 where his Honour reached the contrary view. At 102 his Honour concluded: While it is, strictly, not necessary for me, in this case, to determine what is the correct position when a challenge is made to the judgment upon which a petition is based, it is my belief that this Court would not, on the hearing of such a petition, go behind the judgment. Rather, I am disposed to think that the court's approach would be that adopted by the House of Lords in Bowes v Hope Life Insurance and Guarantee Co (1865) 11 HL Cas 389; 11 ER 1383; namely, that if a petitioner has obtained a judgment in his favour, he cannot upon an allegation that the judgment was obtained by fraud or collusion, be called upon, as a preliminary to his right to obtain an order, to go into further evidence to support his claim; but that if the company or opponents to the petition were to undertake to commence proceedings to have the judgment set aside it would be appropriate then to adjourn the petition. Such an approach would not [be] unlike the approach of the court in cases where the petitioner's debt - not being the subject of a judgment - is disputed by the company. 24 It is not unfair to say that the observations of Nicholson J have not received any great support since the decision in Re Gasbourne: see Mooloolaba Development Corp Ltd v Evans Harch Constructions Pty Ltd (1992) 33 FCR 524. 25 There must be real doubt as to whether a court can or should go behind the terms of a judgment debt, especially where the judgment has been obtained after a contested hearing. However, there is no need to reach any conclusion on that topic in the present case as the existence of the debt was not something which was required to be determined on the application for a sequestration order and there is no relevant judgment to "go behind".

Leave to dispute the existence of the debt 26 As mentioned above, Real Estate Now did not dispute the statutory demand which had been served on it, but it now seeks to assert that it was not insolvent because it was indebted to Mr Brookfield as was alleged in the demand and supporting material. This calls into consideration the operation of s 459S of the Corporations Act 2001 (Cth) which provides: 459S Company may not oppose application on certain grounds (1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground: (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). (2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent. 27 It is abundantly clear that the company could have relied upon the assertion that it was not actually indebted to Mr Brookfield had it sought to set aside the statutory demand but it did not do so. Necessarily, it now asks the court to grant leave to allow it to dispute the debt in its defence of the winding up application. That was opposed by Mr Brookfield. 28 The discretion to grant leave is enlivened in this case as it is apparent that the ground sought to be relied upon is material to proving the company is solvent. Here Mr Brookfield claims that he is owed a debt in the vicinity of $270,000. That is discussed in more detail below, however, for present purposes it can be observed that the financial statements of the company show that it has current assets of approximately $120,287 and total assets of $182,681 such that if the debt claimed by Mr Brookfield is owing it could not be met by the company out of its assets. There was no evidence that it had any other resources on which to draw for the purposes of meeting the debt. It follows that the existence of the alleged debt owing to Mr Brookfield is material to the question of whether the company is solvent. 29 Although the evidence relating to the reasons for the company's failure to dispute the statutory demand is scant it does show that an application was filed in the Supreme Court of Queensland to set aside the statutory demand now relied upon, and that due to some difficulties in the Registry of that Court the documents were not issued in sufficient time to serve on Mr Brookfield. That seems to have been the reason why the application to set aside the statutory demand could not be prosecuted. This is not a case where the company was aware of the demand but ignored it. Although nothing was said as to why the filing of the application was left so late, the evidence does establish that the company did not agree nor did it accept that it was indebted as alleged in the demand. It is also relevant that the grounds of dispute now sought to be agitated go to the substance of the claimed indebtedness rather than being mere technical objections. These matters are to be set in the context of a long history of litigation between the parties over a number of years during which Mr Mergard and the company have denied the alleged indebtedness. Whilst the failure of the company to take steps to set aside the statutory demand reveals some delinquency on its part, overall it has shown sufficient to warrant the exercise of discretion in its favour of the granting of leave to defend the winding up application by denying that it is indebted to Mr Brookfield as he alleges. 30 As the discussion below demonstrates there is a serious question as to whether the company is truly indebted to Mr Brookfield. There are real grounds on which the debt is disputed. That being so the company should have leave to oppose the application on the grounds that it is solvent, including that the alleged debt claimed by Mr Brookfield is not owing.

Whether a debt was owing 31 Mr Brookfield submitted that the debt owing by the company arose out of the contract for the sale of a rent roll under which the rent roll was transferred but, it is alleged, the company failed to pay the purchase price. He asserts that, after the transfer of the rent roll, he took an assignment of the debts and is entitled to recover them being the purchase price and other liabilities owed by the company. Assuming the sale agreement is valid on his material there is some force in Mr Brookfield's submission, at least to the extent to which it relies on the obligation to pay the purchase price of approximately $100,000. The other $150,000 or $190,000 which Mr Brookfield claims is owed arises, so he says, pursuant to a term in the contract under which the purchaser will pay to the vendor the profits of the rent roll from the date of the contract to the date of completion. Mr Brookfield asserts that, at the time of transfer, the rent roll was returning $5,000 per month profit. At the date of his claimed debt he says that thirty months had elapsed since the contract was entered into with the result that the further amount was owing. The difficulty with this analysis that the amount of $150,000 is merely an estimation or approximation of the obligation to pay the profits of the rent roll. It also rests upon an assertion that the contract has not yet been completed even though the date for completion has passed some long time ago. In any event, the amount of $150,000 is not a debt or liquidated demand arising under the contract. It is a guess of what a liquidated demand might be and it is based on mere assertion. It may be that, in time and after adducing admissible evidence, Mr Brookfield may be able to establish what amount is owing. However, that will depend upon the evidence of the takings from the rent roll properties. Mr Brookfield also relied upon what he said were amounts owing by the company to Ms Angela Nightingale, the former director of Blueprop, in the sum of $37,000. It was said that under the sale agreement Ms Nightingale was to be employed by the company and the sum represents amounts of unpaid wages. It was not possible to discern any basis on which that amount was payable by the company to Mr Brookfield. On these facts it is only the sum of about $100,000, representing the unpaid purchase price, which might possibly be owing. 32 However, Mr Mergard asserts that the agreement on which Mr Brookfield relies was not executed by the company. In an affidavit that was produced for the purposes of setting aside the statutory demand on which this application is based, he deposed that he refused to sign the agreement which Mr Brookfield had prepared. He claims that the signature on the document relied upon by Mr Brookfield is not his. He also claims that he entered into a separate agreement with Blueprop on 1 September 2015 and he executed the same along with the director of Blueprop, Ms Angela Nightingale. He says that he made regular monthly payments under that contract of $2,500 until 2 June 2016 at which time a dispute arose between Ms Nightingale and the company. He further deposes that the outstanding sum payable under that agreement was $34,120. 33 Neither party sought to cross-examine the other in relation to the evidence given in the affidavits. It follows that it is not possible to resolve the conflict of evidence in the material about the identity of the relevant sale contract. All that the Court has are contradictory affidavits about the identity of the contract of sale and nothing on which it can act to determine which is likely to be correct. It would, therefore, appear that debt on which the applicant relied for the statutory demand and on which he relies for the purposes of standing is disputed and it is not possible to resolve that dispute on the evidence before the Court. Mr Brookfield carries the onus of establishing all matters relevant to the winding up and, necessarily, a conclusion that the debt on which he relies is genuinely disputed necessarily undermines his claimed status as a creditor. 34 As mentioned above, the existence of the debt of $100,000 creates a serious question as to whether the company is solvent. In this case the company failed to set aside the statutory demand with the result that it is deemed to be insolvent. That being so it carries the onus of establishing that it is solvent: Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1, [33]. It sought to do so in the hearing by producing some accounts which were said to be a balance sheet and recent profit and loss statement. They were sworn to be accurate by Mr Mergard. The balance sheet showed that the company had net assets of $182,681 and the profit and loss statement for the period from 1 July 2018 to 25 May 2019 disclosed a profit of $125,818. Whilst Mr Brookfield made some valid points in submissions to the effect that the accounts were of a poor quality and perhaps inconsistent in some respects, Mr Mergard was not cross-examined on them and, despite their apparent lack of professionalism, they are sufficient to establish, in a prima facie way, that, absent the disputed debt, the company can pay its debts as and when they fall due. In general terms the company had very few creditors and not insignificant current assets with which the debts might be discharged. 35 Mr Brookfield suggested that an attached record of the company's business activity statement in relation to GST could not have been accurate because it showed a nil balance, even in relation to the amounts which were not yet due. However, I accept the explanation that the Australian Taxation Office information would only have entries made to it once the next BAS is lodged and that the statement from the ATO shows the state of the account following the last lodgement. 36 It can also be accepted that the balance sheet was somewhat misleading as it was originally described by Mr Mergard. He referred to an amount of $105,000 as being owing by the company to other companies owned by him. However, by a late affidavit, he corrected his description of that amount and identified it as being a debt owing to the company. Whilst the lack of professionalism in the evidence as to the state of the company's accounts is patent and there exists cause for concern as to the veracity of the material before the Court, in the absence of any cross-examination on it, it cannot be disregarded and it does have some substance to it. Given that the evidence of Mr Mergard as to the financial position of the company must be accepted, the company would appear to be solvent if the debt allegedly owing to Mr Brookfield is disregarded. 37 From the above it can be concluded that the company has been able to show that there are clear and persuasive reasons to believe that there is a bona fide dispute as to the debt on substantial ground. It has also established that it is or is likely to be solvent in the absence of the disputed debt. In these circumstances the company submitted that the winding up application was a form of abuse of process in the sense that it is being used for an improper purpose because it would amount to the applicant seeking to use the winding up process to force a solvent company to pay a disputed debt: ASIC v Lanepoint, [16]. There is force in that submission in the present matter where the underlying liability, being the existence of a debt said to be owing by the company to Mr Brookfield, has never been the subject of direct determination by a court. Whilst it may be that Mr Brookfield strongly believes that the debt is owing and that belief would have been given some support by the decision of Judge Jarrett, aided by the failure of the company to adduce substantial evidence, and by the fact that the statutory demand was not set aside, the fact remains that there is a substantive dispute about the debt and it is not something that can be finally determined on this application. If that alleged debt is not due, the company would be solvent.

Dispute as to the ability to assign the debt 38 The company also submitted that even if there were a debt owing under the contract between it and Blueprop, it was not capable of being assigned to Mr Brookfield such that he could not be a creditor. Even though this matter seemed to be pivotal to the company's defence of the application, there was very little consideration of it in its written or oral submissions. 39 The terms of cl 12.5 of the alleged contract of sale are set out above. By it, the parties covenant not to assign or permit a third party to obtain the benefit of the rights and interests under the agreement save with the written consent of the other party. It was submitted that, because there had been no written consent of the company, the purported assignment was invalid and of no effect. That submission should not be too readily accepted. 40 It is apparent by the terms of cl 12.5 that the rights under the agreement were capable of being assigned. That was contemplated by the fact that written consent of the other party was required in order to assign in accordance with the contract. All that occurred here is that the assignment took place without Blueprop obtaining the company's consent. That may be a breach of the covenant but it did not necessarily render the assignment void. Whether it did or not depends upon the terms of the contract. This question of the assignability of contract debts was the subject of consideration by Bergin J in Whyked Pty Ltd v Yahoo Australia and New Zealand Pty Ltd [2006] NSWSC 650. In that case an agreement between two commercial parties included the covenant that neither party may assign its rights or novate its obligations under the agreement without the prior consent of the other party. One party purported to assign its rights under the agreement to a third party, the plaintiff, who commenced proceedings against the other party, Yahoo. Yahoo sought to have the proceedings summarily dismissed on the basis that the plaintiff had no title to sue. Her Honour (at [15]) referred to the well-established principles that "parties may expressly or impliedly prohibit assignment of rights otherwise prima facie assignable: Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 (Finn, Sundberg and Emmett JJ) per Finn and Sundberg JJ at [32]. Such contractual conditions are legally effective: Don King Productions Inc v Warren [2000] Ch 291 at 319." However, it was also observed that a distinction has been drawn between assigning the right to future performance of an agreement and assigning the benefit of the contract in that a prohibition on assignment may prevent the assignment of the former but not of the fruits of performance. It was observed that the matter is one of the construction of contractual prohibition and that will necessarily involve consideration of the nature of the contract and the degree of personal performance required. Nevertheless, Bergin J identified that, in the case before her, the "benefit" assigned was different to the rights under the contract and that the nature of the contract was such that no legitimate inhibition on the assignment of rights would be detected. For that reason her Honour declined to summarily dismiss the proceedings. 41 In the matter before the Court it appears that Mr Brookfield has taken an assignment of the debt owed under the contract of sale of the rent roll. That is made clear from the terms of the assignment. That being so, it may be argued that the assignment was only of the benefit of the contract or its fruits rather than the rights of performance. However, the prohibition on assignment in cl 12.5 was of "the benefit of its rights and interests under this Agreement" and that may mean that the prohibition applied to prevent the assignment of the debt in this case. As was pointed out by Professor Roy Goode in his note Inalienable Rights? (1979) 42 MLR 553, which concerned a discussion of the decision in Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262, there are four potential constructions of a clause prohibiting assignment in a contractual context. They were summarised by Lord Browne-Wilkinson in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 as follows: In his Note, Professor Goode rightly pointed out that where a contract between A and B prohibits assignment of contractual rights by A, the effect of such a prohibition is a question of the construction of the contract. There are at least four possible interpretations, viz., (1) that the term does not invalidate a purported assignment by A to C but gives rise only to a claim by B against A for damages for breach of the prohibition; (2) that the term precludes or invalidates any assignment by A to C (so as to entitle B to pay the debt to A) but not so as to preclude A from agreeing, as between himself and C, that he will account to C for what A receives from B: In re Turcan (1888) 40 Ch.D. 5; (3) that A is precluded not only from effectively assigning the contractual rights to C, but also from agreeing to account to C for the fruits of the contract when received by A from B; (4) that a purported assignment by A to C constitutes a repudiatory breach of condition entitling B not merely to refuse to pay C but also to refuse to pay A. 42 In argument before the Court neither party sought to descend into any analysis of the contractual provision and the correct construction. The submissions made were at a high level of abstraction. Nevertheless, it was for Mr Brookfield to establish his standing as a creditor and, as matters stand, there is doubt as to whether he has taken a valid assignment of any debt arising under the alleged contract for the sale of the rent roll. Given the above conclusions there is no need for me to make any final decision on this point, but it might be observed that Mr Brookfield may have some difficulty overcoming the terms of the prohibition. At the very least, this issue adds to the uncertainty as to whether a debt is due and owing by the company to Mr Brookfield and supports the submission that there is a genuine dispute about it on substantial grounds.

Abuse of process 43 The company also sought to have the application dismissed as an abuse of process on the basis that the application to wind up the company was brought for an extraneous purpose, being a purpose other than that for which it was designed. Aside from the ground referred to above, being the attempt to obtain payment of a genuinely disputed debt, the company submitted that the application was brought as part of a prolonged pattern of intimidation of the company and Mr Mergard by Mr Brookfield. In support of that it was observed that Mr Brookfield had twice previously sought to wind up the company on the basis of the claimed debt arising from the sale of the rent roll which was allegedly assigned to him and, on both occasions, he had failed. An application to wind up the company on the basis of an unsatisfied statutory demand failed in this Court on 12 September 2017: Brookfield v Real Estate Now Pty Ltd [2017] FCA 1083. On that occasion the substance of the application was not considered because of fatal defects in the material. A second statutory demand was served on the company but that was set aside by the decision of Brown J of the Supreme Court of Queensland on 8 November 2017. Contrary to the submissions by the company that her Honour determined that Mr Brookfield's claim could not amount to a debt, her Honour did not deal with the substance of the claims and, indeed, expressly identified that she did not do so. On each occasion an order for costs was made in favour of the company. 44 Whilst it can be accepted that the company has experienced inconvenience by Mr Brookfield's attempts to wind it up, his application has not been heard on its merits before this occasion due to his lack of legal ability. The company submitted that Mr Brookfield ought to have known that, by reason of the company's actions in defending the previous winding up application and in setting aside the last statutory demand, the debt was disputed on substantial grounds. It further submitted that to issue a third statutory demand is a clear abuse of process. Were the circumstances to have been only as identified above there may have been some force in the company's submissions. However, it must not be forgotten that in October 2018 the company did not seek to deny the existence of the debt in its application for a sequestration order against the estate of Mr Brookfield. That conduct would surely have given succour to Mr Brookfield's belief that the company accepted that it was indebted to him as would have its failure to set aside the statutory demand. Whilst the categories of what constitutes abuse of process are not closed: Owen-Pearse v Lander Land Co Pty Ltd [2018] FCA 2077 at [77]; here the repetition of the applications was caused by Mr Brookfield's inability to follow the requirements of the Corporations Act rather than any deliberate course of conduct involving frivolous applications. Moreover, at its heart, Mr Brookfield's claim for the payment of the purchase price is not so hopeless as to believe that it is some "imperfectly articulated claim for damages" rather than a claim for a debt: RH Mortgage Corporation Ltd v Kerry Ann Properties Pty Ltd [2011] NSWSC 298, [25]. The application for a winding up order was not, per se, an abuse of process. 45 The company also sought to support its claim that the winding up application was part of a concerted and orchestrated scheme of intimidation by Mr Brookfield, by adducing evidence of a series of emails, texts and internet posts which Mr Brookfield had sent or uploaded to the internet. The company also relied on an email from an officer of the Queensland Police Service in relation to charges which have been preferred against Mr Brookfield. The two matters appear to be related. As mentioned above, to the extent to which it is possible to ascertain, the internet posts and emails appear to have been sent or posted in the period between 2015 and 2017. For reasons which are not immediately clear, the Queensland Police appear to have only now sought to charge Mr Brookfield with various offences relating to the misuse of a carriage service and stalking. That said, the correspondence produced might suggest that the charging has occurred as a result of the intervention of the company's solicitors. On 26 May 2019, a person described as Andrew Self, Detective Acting Senior Sergeant of the Bundaberg Criminal Investigation Branch, sent an email to the solicitors acting for the company and Mr Mergard. It has Mr Self's official Queensland Police footer on it. The purpose of the email is not immediately apparent but it has the appearance of a statement purportedly setting out the conduct of the police investigation, the arrest of Mr Brookfield and the bail conditions. Mr Self identifies a number of charges which he says are brought against Mr Brookfield. The statement of the offences are remarkable for the lack of any reference to the dates on which the alleged offences occurred. That is important, as the email of Mr Self was sent only a few days prior to the hearing of this application and, it might seem, to assist the company and Mr Mergard in this litigation. One must wonder why, if the harassment occurred or at least commenced a number of years ago, the police have only recently arrested Mr Brookfield and why full details of police operations and the manner of the investigation were disclosed as they were. Given the historical practice of police forces in Australia not to disclose their methods of investigation and processes it is a remarkable document indeed. Even disclosing to alleged victims of crime the conduct of investigations and the steps taken to prosecute could not be thought to be common amongst police forces. 46 Given the long history of hostilities between the parties I pay little attention to the unsworn allegations made by Mr Self in his email. Regardless of what the circumstances are in the present case, it would be a matter of great regret to find that members of the police force would involve themselves in assisting particular parties in civil litigation. Not in the least is that it tends to undermine the confidence that the public might have that the police undertake their tasks in an unbiased and dispassionate manner. 47 The arrest of Mr Brookfield shortly before the hearing gives cause for concern. It may well have been coincidental. If, however, there was evidence that it had been arranged for the purposes of this matter, reference to the proper authorities would be required. Fortunately, there is no such evidence. 48 In the result, the circumstances are not such that it can be said that the application was brought for the purpose of intimidation or harassment of the company and Mr Mergard or his wife. It follows that the company has failed to establish the abuse of process it alleged.

Conclusion on application for winding up 49 In the result the company has satisfied the Court that, absent the disputed debt, it is solvent and that the debt is disputed by it on substantial grounds. In those circumstances the winding up application should be dismissed: ASIC v Lanepoint; National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441; Re Allco Newsteel Pty Ltd (1990) 2 ACSR 609 at 613.

Costs 50 The company seeks an order for costs in its favour upon the dismissal of the application. Whilst that may not have been inappropriate were the circumstances different, in this case the company is the author of much of its own difficulties. First, the company did not effectively seek to set aside the statutory demand. For that reason it required the leave of the Court to defend the application on the grounds which it did. Had it made the necessary application within time and supported it by appropriate material this hearing would not have been necessary. Secondly, its attitude towards contesting the claimed indebtedness appears to be erratic. There is no doubt that Mr Brookfield considered his success before the Federal Circuit Court as an indication that he had a valid debt of which the company did not really dispute. The company did not explain why it was that it did not adduce relevant material on the hearing of the application for a sequestration order to properly demonstrate that the debt may not have been owing. Third, the parties appear to be involved in ongoing litigious disputation and it is not apparent that the manner in which this application was conducted by the company was not partly designed to or, at least, could have been expected to increase costs. On a number of occasions the matter was adjourned to allow the company to obtain an expert's report on its solvency. None was forthcoming and all that was produced was an affidavit of Mr Mergard on the day before the hearing in which he inaptly described the company's financial position. The substance of that affidavit had to be corrected and improved by an affidavit on the day of the hearing. Fourthly, the company failed on a number of its substantial arguments. 51 In those circumstances, the appropriate order is that each party bear their own costs of the application. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington.

At a glance

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Legislation Cited (2)

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