Guss v Johnstone

the proceedings in the supreme court of victoria 9 In order to understand the contentions advanced by the appellant, it is necessary to refer to proceedings commenced by the appellant against the Building Society in the Supreme Court of Victoria. 10 The debt due by the appellant to the Building Society, as her Honour found, amounted to $201,305.91 as at 11 November 1998. This sum represented the amounts due by the appellant to the Building Society in respect of certain costs orders made in proceedings between the appellant and the Building Society, after allowance had been made for the net proceeds of a sale of a property at Portsea in Victoria (the "Property") of which the appellant and his daughter were the registered proprietors. The Property was sold by the Building Society, in the exercise of its power of sale as mortgagee, on 5 February 1995 for a price of $1,650,000. Although the Property consisted of two separate allotments, it was sold in a single parcel. 11 On 14 September 1998, some two months prior to the hearing of the creditor's petition before the primary Judge, the appellant and his daughter, as plaintiffs, commenced proceedings in the Supreme Court of Victoria. The plaintiffs claimed damages from the Building Society on the ground that it had breached the duty imposed by s 77 of the Transfer of Land Act 1958 (Vic) on a mortgagee exercising a power of sale. The particular of the Building Society's alleged breach of duty most relevant to the present proceedings was the following: "(a) failing to market, or properly consider marketing the property for sale as two allotments (in respect of each separate title), rather than as one allotment." The Supreme Court proceedings have remained on foot notwithstanding the making of the sequestration order against the appellant. As already noted, that order was stayed by another Full Court on 20 May 1999.

THE APPEAL TO THIS COURT 12 The appellant put forward four contentions: · First, it was said that the primary Judge erred in refusing to grant an adjournment by reason of the pending application for special leave to appeal to the High Court from the decision of the Full Court of this Court given on 13 November 1997. · Secondly, the appellant submitted that the primary Judge had applied an incorrect test in determining whether, by reason of a claim by the appellant against the Building Society in the Supreme Court of Victoria, she was satisfied that "for other sufficient cause a sequestration order ought not to be made": see Bankruptcy Act, s 52(2)(b). · Thirdly, the appellant argued that, even if the primary Judge had stated the test correctly, she had misapplied it. The error occurred (so it was said) because the primary Judge purported to decide finally, rather than provisionally, whether the appellant had a good claim against the Building Society for breach of the latter's duty as the mortgagee exercising a power of sale. · Fourthly, the appellant relied on evidence, which was not before the primary Judge but which it invited the Court to receive pursuant to s 27 of the Federal Court of Australia Act 1976 (Cth) ("the Federal Court Act"). According to Mr Garde QC, who appeared with Mr Watts for the appellant, the additional evidence undercut the critical finding made by the primary Judge, namely that the Building Society's agents had considered but rejected for good reason the option of selling the Property in two allotments.

REFUSAL TO GRANT AN ADJOURNMENT 13 The appellant's written submissions contended that her Honour's discretion in relation to the adjournment had miscarried because the grant of special leave to appeal by the High Court on 14 May 1999 demonstrated that the appellant's application for leave to appeal had always been based on "genuine and arguable grounds". According to Mr Garde, it followed that her Honour should have applied the principle laid down in Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 136 (FC), at 148 and followed in Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 (FC), at 531-532, that "in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds". 14 The oral submissions took a somewhat different course. Mr Garde put, or at least adopted, a submission that her Honour's refusal to grant an adjournment was founded on the mistaken assumption that the outcome of the special leave application was irrelevant to the determination of the creditor's petition. 15 There is considerable force in that submission. Her Honour appears to have followed the reasoning of Finn J, who had refused an earlier application by the appellant for an adjournment of the hearing of the creditor's petition. Finn J stated that he was unable to discern what bearing the special leave application had on the creditor's petition, even if the High Court were to grant leave (as it ultimately did). But the special leave application, if successful, did have a bearing on the creditor's petition. Its significance was that, if the application were granted and the appeal allowed, the bankruptcy notice served on the appellant would presumably have been set aside. This would have removed the foundation for the act of bankruptcy committed by the appellant (that is, non-compliance with the bankruptcy notice) and also removed the basis for the making of a sequestration order against his estate: Bankruptcy Act, s 43(1)(a). 16 The fact that the primary Judge's discretion may have miscarried in relation to the adjournment application does not necessarily mean that the sequestration order made by the primary Judge should be set aside. The decision by her Honour to refuse to adjourn the proceedings was interlocutory in character. An erroneous interlocutory decision may justify setting aside the final orders made in the proceedings if the "error infects the final judgment": Cockerill v Westpac Banking Corporation (unreported, Drummond J, 7 April 1997) at 4. In particular, an erroneous refusal to grant an adjournment may justify setting aside the final orders on appeal if the refusal occasioned the appellant injustice: cf Sali v SPC Ltd (1993) 116 ALR 625 (HC). 17 In my opinion, the primary Judge's refusal to grant the appellant an adjournment, even if erroneous, did not occasion the appellant any injustice. Mr Garde accepted that it was appropriate, in determining the significance of her Honour's refusal to grant an adjournment, to take into account events occurring after the date of the decision. These events included not only the grant of special leave to appeal, but the High Court's dismissal of the appeal from the decision of the Full Court. The High Court's decision left the bankruptcy notice undisturbed and meant, as her Honour correctly found, that the appellant had committed an act of bankruptcy on 30 May 1997. As was said in oral argument, the refusal to grant an adjournment merely deprived the appellant of the opportunity to delay the hearing of the creditor's petition, pending the determination of what was ultimately held to be an unfounded appeal. Mr Garde did not suggest that the refusal of the adjournment created any procedural unfairness for the appellant in the proceedings determined by the primary Judge, for example by denying him a genuine opportunity to oppose the making of the sequestration order. 18 Mr Garde submitted, towards the heel of the hunt, that the primary Judge's refusal to grant an adjournment had deprived the appellant of an advantage, in that the creditor's petition would have automatically lapsed on 1 June 1999, twenty four months after the presentation of the petition: Bankruptcy Act, s 52(5). (This sub-section provides that the Court may extend the life of a petition beyond the twelve month period specified in s 52(4), but not beyond a period of twenty four months from the date of presentation of the petition). 19 This submission assumed that, if the primary Judge had adjourned the petition pending the determination of the special leave application, it was inevitable that the petition would have lapsed by virtue of s 52(5) of the Bankruptcy Act. This assumption is, at best, dubious. The High Court may well have adopted a different attitude to the special leave application if the effect of a grant of leave had been to frustrate the hearing of the creditor's petition regardless of the outcome of any appeal filed pursuant to the grant of leave. Alternatively, the grant of special leave might have been subject to terms, for example, requiring an expedited hearing to take place or directing the primary Judge to determine the petition within the twenty-four month period (the appellant's act of bankruptcy not being affected by the grant of special leave to appeal). In my opinion, it cannot be assumed that, had the primary Judge granted the adjournment sought by the appellant, the creditor's petition would have lapsed. 20 In any event, the loss of any advantage to the appellant that otherwise would have resulted from the operation of s 52(5) of the Bankruptcy Act would not amount to an injustice in a relevant sense. The purpose of s 52(5) is to prevent stale petitions remaining on foot and to limit the opportunities for the parties to obtain indefinite adjournments: Re Young; Ex parte Smith (1985) 5 FCR 204 (FC), at 206-207. The purpose is not to confer a benefit on a debtor by reason of unusual delays in the appellate process flowing from a grant of special leave to appeal to the High Court. The operation of s 52(5) of the Bankruptcy Act was irrelevant to the question of whether or not the primary judge should have granted an adjournment of the hearing of the creditor's petition and it cannot be relied on by the appellant to support a contention that the refusal to grant an adjournment occasioned him injustice.

THE TEST OF SUFFICENT CAUSE 21 The appellant submitted that the primary Judge had stated incorrectly the test for determining whether, by reason of the appellant's claim against the Building Society, there was sufficient cause not to make a sequestration order (see s 52(2)(b) of the Bankruptcy Act.) It is clear that her Honour did not make any such error. The primary Judge said this (at 18): "In a proceeding such as this, the Court must, I think, be satisfied that there is sufficient validity in the debtor's claim to justify dismissing or adjourning the petition upon which the sequestration order is sought: cf Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 at 116. For the reasons set out below, I am not satisfied that the debtor's claim justifies dismissing the amended petition." In the passage in Re Schmidt to which her Honour referred, Gibbs J said: "Where, however, the debtor claims to be entitled to unliquidated damages in tort against the petitioning creditor the position seems to me to be different. As a general rule this Court is not an appropriate forum to decide such a claim and is limited to forming a view as to whether it appears that there is a sufficient validity in the debtor's claims to justify a dismissal or adjournment of the petition … Considerable evidence directed to this issue has been given before me and it seems to me that I ought to consider this evidence for the purpose of deciding only whether it is probable that the debtor has against the petitioning creditor a claim which is likely to succeed." 22 Reference was made on the appeal to Ling v Enrobook Pty Ltd (1997) 74 FCR 19, in which the passage from Re Schmidt was cited with approval. Despite a suggestion made by appellant's counsel, there is nothing in Ling that qualifies what was said in Re Schmidt as the test to be applied in the circumstances facing her Honour. It follows that her Honour stated the principle correctly.

APPLICATION OF THE TEST 23 Mr Garde submitted, in the alternative, that the primary Judge had misapplied the test for determining whether the appellant's claim against the Building Society was sufficient to constitute "other sufficient cause" for not making a sequestration order. As I understood the submission, it was that her Honour had purported to make a final, rather than a provisional decision on the merits of the appellant's claim that the Building Society had breached its duty as mortgagee exercising a power of sale of the Property. In particular, so it was argued, in rejecting the appellant's claim that the Property should have been sold in two allotments, her Honour had preferred the Building Society's evidence over the evidence adduced on behalf of the appellant. According to Mr Garde, in the absence of cross-examination, there was no basis for her Honour to make that choice, given that she was considering only whether the appellant had a reasonably arguable claim. 24 The principal claim advanced by the appellant was that particularised in the Supreme Court proceedings, namely that the Building Society had breached its duty by failing to market, or properly consider marketing, the Property as two allotments under separate title, rather than as a single allotment. Mr Gilder, a valuer whose affidavit was read on behalf of the appellant, deposed that, in his opinion, if the Property had been marketed as two allotments "up to $2,500,000 could have been expected to be achieved". 25 The uncontradicted evidence before the primary Judge was that the Building Society's agents had given careful consideration to the option of selling in two allotments, but had considered that it was impracticable to do so. According to the agents, the major obstacles were that the house encroached onto the eastern allotment and that demolition of the house would create other difficulties, such as affecting Council restrictions on the siting of any replacement buildings. 26 Mr Gilder pointed out in his affidavit that the agents' evidence about the encroachment of the house was not independently supported. But the appellant did not adduce any probative evidence disputing that of the Building Society's agents on the issue. There was therefore no occasion for her Honour to choose between conflicting opinions. It was well open to her to find that it did not "seem likely that the judgment debtor will succeed in his claim that the mortgagee was in breach of duty by not offering the property as two separate allotments, the conjunctional agents having considered for good reason that that option was not a viable one". This finding removed the basis for Mr Gilder's opinion as to the value of the Property which, in any event, was expressed in terms that rendered it virtually meaningless. 27 Mr Gilder asserted in his affidavit that, even if the house did encroach onto the eastern allotment, it "would have been relatively easy to amend the side boundaries and … this could have been affected within a relatively short period of time". Mr Gilder did not explain what he meant by these vague observations. There was no evidence as to how the boundaries might have been realigned; what objections might have been encountered to such a proposal; how much it might have cost; and how long the Building Society might have been required to wait in order to achieve a sub-division and realise the Property. In these circumstances, her Honour was entitled to regard Mr Gilder's evidence about realigning the boundaries as not advancing the appellant's case. 28 The submission that the primary judge misapplied the appropriate test must be rejected.

FURTHER EVIDENCE ON APPEAL 29 The appellant filed a motion which sought orders, inter alia, that this Court receive further evidence, in the form of an affidavit by him, sworn 17 August 2000. The application to admit the additional evidence was based on s 27 of the Federal Court Act, which provides as follows: "27. In an appeal, the Court shall have regard to the evidence given in the proceedings out of which the appeal arose, and has power to draw inferences of fact and, in its discretion, to receive further evidence, which evidence may be taken: (a) on affidavit; or (b) by video link, telephone or other appropriate means in accordance with another provision of this Act or another law of the Commonwealth; or (c) by oral examination before the Court or a Judge; or (d) … ." 30 The scope of the power conferred by s 27 of the Federal Court Act in bankruptcy proceedings was not fully explored in argument. It is neither necessary nor appropriate to examine that question in detail. Mr Garde did not dispute that, on the construction of s 27 most favourable to the appellant, it is ordinarily necessary for the party seeking to adduce further evidence to demonstrate that the evidence relied on is cogent; that is, the Court exercising appellate jurisdiction needs to be satisfied that the proffered evidence would be likely to have produced a different result had it been available at the trial. 31 That this is so follows from the majority judgment in CDJ v VAJ (1998) 197 CLR 172 (McHugh, Gummow and Callinan JJ; Gaudron and Kirby JJ dissenting). In that case, the High Court was concerned with s 93A(2) of the Family Law Act 1975 (Cth) ("Family Law Act"), the terms of which the majority described (at 198) as "similar" although not identical with those of s 27 of the Federal Court Act. 32 The majority held that the common law principles that had been laid down in cases such as Orr v Holmes (1948) 76 CLR 632 and Wollongong Corporation v Cowan (1955) 93 CLR 435 do not govern the construction of provisions such as s 93A(2) of the Family Law Act and s 27 of the Federal Court Act. In their Honours' view the narrow common law approach must give way to the language of the legislation. They pointed out (at 200) that the purpose of the statutory power is to ensure that the proceedings do not miscarry. They said this (at 201): "[o]ne consideration in construing s 93A(2) is its remedial nature, its principal purpose is to give to the Full Court a discretionary power to admit further evidence where that evidence, if accepted, would demonstrate that the order under appeal is erroneous. The power exists to facilitate the avoidance of errors which cannot be otherwise remedied by the application of the conventional appellate procedures. A further, but in practice subsidiary, purpose it to give the Full Court a discretion to admit further evidence to buttress the findings already made". 33 The majority said that another consideration in construing s 93A(2) of the Family Law Act (and, by implication, s 27 of the Federal Court Act) is that the provision is to be construed liberally, without implied limitations not found in the statutory language (at 201). Even so, the majority considered (at 202-203) that it was "highly unlikely that Parliament in conferring jurisdiction on the Full Court to hear appeals intended that s 93A(2) should be construed in a way that would have the practical effect of obliterating the distinction between original and appellate jurisdiction. Nor can the availability of further evidence relevant to the issues in the appeal be treated as equivalent to a ground of appeal, proof of which prima facie entitles the appellant to a new trial. The power to admit the further evidence exists to serve the demands of justice. Ordinarily, where it is alleged that the admission of new evidence requires a new trial, justice will not be served unless the Full Court is satisfied that the further evidence would have produced a different result if it had been available at the trial. Without that condition being satisfied, it could seldom, if ever, be in the interests of justice to deprive the respondent of the benefit of the orders made by the trial judge and put that person to the expense, inconvenience and worry of a new trial. … [W]e cannot accept that the discretion to receive further evidence is so wide that the Full Court can admit further evidence merely because it is useful. Such a criterion is inconsistent both with the nature of the appellate jurisdiction exercised by that Court and with the perceived purpose of s 93A(2). (emphasis added)." 34 These observations are consistent with earlier decisions of the Full Court of this Court, which expressed the view that the narrow principles laid down in cases such as Orr v Holmes and Wollongong Corporation v Holmes might not necessarily apply to appeals which concern not merely the immediate parties, but the wider public interest: Totterdell v Nelson (1990) 26 FCR 523, at 529, per curiam; Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303, at 304-305, per curiam. 35 The further evidence upon which the appellant sought to rely was a valuation of the Property prepared for the Building Society in 1986 by Michael Glynn and Associates. It was common ground that the existence of the valuation was not known to the appellant at the time of the hearing of the creditor's petition took place and that the document only came to light later in the course of discovery in the Supreme Court. 36 According to Mr Garde, the 1986 valuation was especially important because it demonstrated, or at least suggested, that the existing house constructed on the Property was wholly within the boundaries of one allotment. This, so it was argued, undercut the primary Judge's finding that there was good reason for the Building Society's agents to have rejected the option of selling the Property as two separate allotments. The assumption underlying the appellant's contentions was that, if the conjunctional agents were wrong in the advice they gave the Building Society, the latter would have been in breach of its duty as mortgagee exercising a power of sale under s 77(1) of the Transfer of Land Act 1958 (Vic): cf Goldcel Nominees Pty Ltd (Provisional Liquidator Appointed) v Network Finance Ltd [1983] 2 VR 257, at 261-262, per Murphy J. 37 The passages in the 1986 valuation on which the appellant relied were these: "SITE DIMENSIONS: The subject property is generally flat and rectangular in shape with the following approximate dimensions: Frontage to Nepean Highway 40.23 metres Depth 100.58 metres The site has a total area of approximately 4046.5 square metres (1 acre) and adjoins natural foreshore area at the rear. These measurements when checked by tape were found to be substantially correct. The improvements are within the title boundaries. … BASIS OF VALUATION: Our valuation is based on comparable sales supported by the summation method of valuation … . From our investigations it would appear that the main dwelling is constructed within the boundaries of the title. The only improvements on the other title are the tennis court and the garage. It would therefore be reasonable to assume that the land could be sold in two separate [sic] titles each 0.5 acres in area." 38 There is nothing in these passages to identify the "investigations" that made it "appear that the main dwelling is constructed within the boundaries of the title". The measurements referred to under the heading of "Site Measurements", clearly enough, were carried out in relation to the perimeter of the whole site, having a total area of 4046.5 square metres. There is nothing to indicate that the comment in the valuation as to the location of the main dwelling was based on a survey or careful on-site measurements. 39 By contrast, the evidence before the primary Judge showed that one valuer, Mr Ellis, had carried out on-site measurements for the purposes of preparing a valuation for the Building Society in January 1995. These had indicated that the residence, carport and external games room marginally encroached over the centre boundary. Mr Sutherland, another qualified valuer, deposed that it was not feasible for the Property to be sold in two parts because the house straddled the boundary of the two lots. He said that the question of sale of the Property in two parts had been thoroughly explored by his agency when preparing a marketing submission. The marketing submission prepared by him in December 1994 was in evidence and it stated that a disadvantage of the Property was that the residence encroached over the common title boundary. Mr Anderson, of RT Edgar Pty Ltd, also deposed that his inquiries had indicated that the house "encroached over onto the east title". For this reason, according to Mr Anderson, it was not feasible to sell the Property in two allotments. 40 The evidentiary significance of the 1986 valuation must be assessed by reference to the terms of the valuation itself and the other evidence before the primary Judge, especially that of Mr Ellis. Taking those matters into account, I cannot be satisfied that if the 1986 valuation had been admitted into evidence before the primary Judge, it is likely that a different result would have been reached. On the contrary, on the basis of the evidence to which I have referred, I think the likelihood is that the author of the 1986 valuation was mistaken as to the location of the house in relation to the central boundary. 41 This conclusion becomes inevitable when account is taken of other evidence adduced on the appellant's motion. The evidence included answers to interrogatories administered to the Building Society in the Supreme Court proceedings. These answers provided details of site measurements conducted in January 1995 not only by Mr Ellis but by Mr Sutherland. Their inquiries disclosed that the house encroached over the centre boundary by varying distances up to approximately one metre. This evidence, which was uncontradicted, strongly reinforces the finding made by the primary Judge. 42 It follows that the appellant has not shown that the proffered evidence is sufficiently cogent to be admitted pursuant to s 27 of the Federal Court Act. 43 I should add that, even if the appellant had satisfied the test of cogency, he would have had to overcome strong discretionary considerations militating against the admission of the further evidence. The majority judgment in CDJ v VAJ suggests at (203-204) that the exercise of the discretion conferred by provisions such as s 27 of the Federal Court Act, although not to be limited by rigid rules, may be informed by factors such as the availability of the evidence at the trial and the need for finality in litigation. 44 In the present case, the appellant did not know of the 1986 valuation at the time of the hearing before the primary Judge. It was, however, abundantly clear before the hearing took place that the question of whether the residence straddled the centre boundary was an issue of some importance. Indeed, Mr Gilder's affidavit drew attention, in an argumentative fashion, to the absence of evidence supporting the claim by Messrs Sutherland and Anderson. But neither Mr Gilder's affidavit nor any other evidence adduced on behalf of the appellant addressed the substance of the evidence given by the Building Society's agents. 45 Mr Gilder's affidavit was sworn on 25 October 1998, some two and a half weeks before the hearing of the creditor's petition. The appellant himself had discussed the question of encroachment of the residence prior to the sale of the Property by the Building Society. Yet no attempt was made on behalf of the appellant at the hearing to adduce survey or other probative evidence to establish the location of the house by reference to the centre boundary. If there had been a genuine dispute on that issue, it would have been a very simple matter for the appellant to have presented evidence resolving the question. While there is nothing to suggest that the omission was deliberate, the failure of the appellant to address the issue now said to be critical would have weighed heavily against the exercise in his favour of the discretionary power conferred by s 27 of the Federal Court Act. 46 For these reasons, the appellant's motion to adduce further evidence on the appeal should be dismissed.

CONCLUSION 47 The appeal should be dismissed, with costs. It is not necessary to discharge the order made by the Full Court on 21 May 1999, staying the orders of Kenny J, since the stay order has expired by its own terms. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville .

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT DOWSETT J: 48 I agree with the orders proposed by my brother Sackville and with his Honour's reasons. I certify that the preceding one (1) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.

Counsel for the Appellant: G Garde QC and L Watts

Counsel for the Respondent: R Brett QC and S P Gardiner