James v Abrahams [1997] FCA 720 | Case summary

The Act of bankruptcy created by s40(1)(g) is a debtor's failure to comply with a bankruptcy notice or satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the judgment debt "being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained". The function performed by s41(7) was explained by Deane and Lockhart JJ in James v Abrahams (1981) 34 ALR 657 at 661-662: "The filing, within the time specified in s41(7), of an affidavit to the effect that a debtor has a counter-claim, set-off or cross demand of the type mentioned in s40(1)(g), does not constitute an application to set the bankruptcy notice aside. It operates as an automatic extension of time for compliance with the bankruptcy notice until the court can determine whether it is satisfied by the debtor that the debtor has a counter-claim, set-off or cross demand of the type referred to in s40(1)(g). If the court is so satisfied, it is neither required nor empowered to make an order setting aside the bankruptcy notice. The result of the court's being so satisfied, within either the time originally fixed by the bankruptcy notice for compliance or the extended time resulting from the operation of s41(7), is that failure to comply with the requirements of the bankruptcy notice does not constitute an act of bankruptcy. After the court has been so satisfied, the bankruptcy notice is spent. After the expiry of the time which the bankruptcy notice itself fixed for compliance with its terms and up until the day on which the court determined whether it was satisfied that the debtor had a counter-claim, set-off or cross demand of the type referred to in s40(1)(g), any order purportedly extending time for compliance would be either otiose or futile. If the affidavit filed by the debtor was to the required effect, the time for compliance with the requirements of the bankruptcy notice was automatically extended by the provisions of s41(7). If the affidavit was not to the required effect, the time for compliance had expired and the act of bankruptcy had been committed." Although counsel for the respondent formally submitted that the affidavit filed by the applicant before the time fixed for compliance with the notice did not satisfy the description in the opening lines of s41(7), the case was conducted on the basis that I was to determine, for the purposes of the concluding lines of the sub-section, whether I was satisfied that the applicant has a cross demand which satisfies the requirements of s41(1)(g). THE FACTS The land was purchased with the applicant's money, though for reasons which are not material for present purposes, it was registered in the name of one Newby. The applicant proposed to develop the land, together with two adjacent parcels, by a subdivision. In February 1995 he sold one of the lots to Mr and Mrs Butler for $245,000. On 3 November 1995 the respondent lodged a caveat over the title claiming an equitable interest under a charge given by Newby. The amount due under the charge was about $25,000. On 25 March 1996 the applicant obtained a declaration from the Supreme Court that Newby held the land on trust for him, and an order that Newby transfer the land to him. On 3 May another of the lots was sold to Mr and Mrs Burnett. Because of the caveat, the applicant was unable to make title to the lot sold to the Butlers, and on 24 May they issued proceedings for specific performance and damages. In June Newby was declared bankrupt. On 11 June, in the Butler proceedings, the applicant issued a third party notice against the respondent claiming that the respondent had no equitable interest in the land, and seeking the removal of the caveat and damages for its wrongful maintenance. The applicant then applied for an order that the respondent remove the caveat. This was the application dismissed by Walsh J in which the order for costs was made. His Honour held that the respondent had a caveatable interest in the land. On 13 September 1996 that decision was upheld by the Full Court. On 24 April 1997 the applicant filed his statement of claim in the third party proceedings. In it he alleges the sale to the Butlers, the lodging of the caveat, the declaration that Newby holds the land on trust for him, and the sale to the Burnetts. The pleading continues: "10.The whole of the monies from the Burnett sale would have been paid to the National Australia Bank in part satisfaction of the mortgage over the whole of the land. Even if Bristile had a caveatable interest (which is denied) no monies would have been available to be paid to Bristile from the Burnett sale. 11.Thorpe advised Bristile of [the judgment declaring the trust in his favour] and required that the caveat be withdrawn because Bristile had no caveatable interest in the land. 12.Bristile refused to withdraw its caveat. 13.Thorpe requested Bristile to withdraw its caveat sufficient to allow the land to be amalgamated with 16 and 18 Beagle Street and the sale to Burnett to proceed and thereafter to re-lodge its caveat over the balance of the land pending resolution of its claim against the land on the basis that it would in any event receive none of the proceeds from the Burnett sale and that, by allowing the amalgamation and subdivision to proceed, the value of the land would be enhanced. 14.Bristile declined to withdraw its caveat and then re-lodge it after the subdivision. Bristile demanded payment of the whole of the debt alleged to be owed to it by Newby as a condition of withdrawal of its caveat. 15.Bristile's conduct referred to in paragraph 14 amounted to unconscionable conduct contrary to the provisions of s51AA of the Trade Practices Act. ... 17.As a result of Bristile's failure to withdraw its caveat Thorpe was unable to deal on the land and as a result: the Butlers commenced proceedings seeking damages and specific performance of their contract; and the Burnetts issued Notices of Default and terminated their contract." The pleading then contends that Bristile's refusal to withdraw its caveat, and its breach of s51AA, have caused loss to the applicant, and he claims from the respondent an indemnity against the Butlers' claim and damages for breach of s51AA. The contention in pars 10 and 11 of the statement of claim that the respondent had no caveatable interest is contrary to the decision of Walsh J and the Full Court, who also held that the respondent was justified in refusing to withdraw the caveat: cf pars 12 and 14. PRIMA FACIE CASE In order to satisfy the Court that he has a cross demand as alleged, the applicant must show that he has a prima facie case, though he need not adduce the admissible evidence which would make out that case before a court trying the issues that are involved in the cross demand. See Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350. The applicant's counsel contended that the material establishes a prima facie case of a cross demand based on one or more of four causes of action. 1.Section 51AA The first cause of action advanced is based on s51AA of the Trade Practices Act, which provides that a corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the "unwritten law" of the States and Territories. In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474 Deane J said: "The jurisdiction of courts of equity to relieve against unconscionable dealing ... is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable ...." The notion running through all the cases dealing with the "unwritten law" of unconscionability is that one party to a transaction must suffer some special disadvantage of which the other takes advantage. See Blomley v Ryan (1956) 99 CLR 362 at 415, 405. The applicant is a solicitor. There is nothing in the evidence that suggests any special disadvantage on his part. In an endeavour to escape the confines of the "unwritten law", counsel sought to rely, by way of analogy, on s51AB(2)(b). Section 51AB(1) provides that a corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is unconscionable. Sub-section (2) provides that for the purpose of determining whether a corporation has contravened sub-s(1), the Court may have regard to various matters, one of which (par(b)) is "whether, as a result of conduct engaged in by the corporation, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the corporation." It was submitted that the respondent's use of its caveat to extract from the applicant payment of the money due under the charge was analogous to a corporation's insistence upon unnecessary conditions. Several matters make this supposed analogy inapposite. The first is that sub-s(2) of s51AA provides that the section does not apply to conduct that is prohibited by s51AB. Secondly, the matters the subject of the paragraphs of s51AB(2) are not instances of unconscionable conduct. All the sub-section provides is that in determining whether a corporation has engaged in unconscionable conduct, the Court "may have regard to" those matters. Thirdly, each paragraph is directed to the position of the "consumer" of the goods or services vis-a-vis the corporation; for example their respective bargaining strengths, conditions forced on the consumer, the consumer's ability to understand the transaction documents, and undue influence exercised over the consumer. In those circumstances, it is not appropriate to reason from any analogy between the respondent's use of its caveat in order to extract from the applicant payment of the money due under the charge and a corporation's imposition of unnecessary conditions on a consumer (s51AB(2)(b)), that the respondent's conduct is unconscionable under s51AA even in the absence of any special disadvantage on the part of the applicant. In my view the applicant does not have an arguable or a prima facie case falling within s51AA. 2.Compensation under s140 Reliance was also placed on s140 of the Transfer of Land Act 1893, which provides that a person who lodges a caveat without reasonable cause is liable to compensate anyone who sustains damage thereby. Provisions to the same effect are found in the Torrens title legislation in Victoria, Tasmania and the Australian Capital Territory. See Transfer of Land Act 1958 (Vict) s118, Land Titles Act 1980 (Tas) s138 and Real Property Act 1925 (ACT) s108. The Queensland counterpart of s140 enables compensation to be awarded not only where a caveat is lodged without reasonable cause but where it is "continued" without reasonable cause. See Land Title Act 1994 (Q) s130(1). In New South Wales, South Australia and the Northern Territory compensation is payable not only where the caveat is lodged, but where the caveator refuses or neglects to withdraw it, "wrongfully and without reasonable cause". See Real Property Act 1900 (NSW) s74P(1), Real Property Act 1886 (SA) s191(X) and Real Property Act (NT) s191(X). In Nelson v Kimberley Homes Pty Ltd (1989) ANZ Conv Rep 123 Young J held, on earlier New South Wales legislation in the same form as s140, that so long as there was reasonable cause to lodge the caveat it is irrelevant that because of later events it becomes unreasonable to maintain it. His Honour followed the decision of Ryan J to that effect in Kelly v Desnoe (1984) BPR Casenote [91806]. See also Kuper v Keywest Constructions Pty Ltd (1990) 3 WAR 419 at 436 and Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257 at 289 (a decision on the New Zealand counterpart of s140). In my view s140 deals only with the case where damage is suffered as a result of the lodging of a caveat without reasonable cause. As a matter of language it does not permit an award of compensation in a case where loss is suffered as a result of the refusal, without reasonable cause, to withdraw a caveat which had been properly lodged. I note in passing that some legislatures apparently considered that compensation provisions in the narrow "lodging" form afforded insufficient protection to those who suffered loss as a result of the existence of a caveat, and expanded the protection so as to cover loss resulting from the wrongful maintenance of a properly lodged caveat. Other legislatures, including that of Western Australia, have not effected such an expansion even though the lodgment/maintenance issue has been a live one for over thirty years. As to Western Australia, see Hooke v Holland [1984] WAR 16 at 20. Even if s140 were to extend to the maintenance of a caveat without reasonable cause, I would not regard the respondent's conduct in refusing to withdraw the caveat as lacking reasonable cause. I refer to what appears under the Negligence heading below. The applicant does not claim that the respondent lodged the caveat without reasonable cause, but that, in the light of events that occurred after lodging, it was unreasonable for it to have been maintained. The applicant's complaint is not within the ambit of the section. He has not shown an arguable or a prima facie case that it is. 3.Negligence Then it was contended that the respondent had been negligent in refusing to remove its caveat when requested to do so. No argument was addressed to me as to whether, in a case such as the present where the caveator has properly lodged a caveat to protect its equitable interest, it is appropriate to impose on it a duty to take reasonable care not to cause loss to another by maintaining the caveat. The limited protection provided by s140 (as opposed to the more extensive protection available in other jurisdictions) may bear upon this question. Nor, if such a duty were to exist, was any argument directed to the standard of care to be required of the respondent. Again, the fact that the respondent had properly lodged its caveat and had its own commercial interests to protect may be relevant here. It was however asserted that in refusing to remove the caveat the respondent had behaved unreasonably, and had thus breached the duty it was assumed to have owed the applicant. On the assumption that such a duty exists, the respondent would, I think, attain the required standard so long as its behaviour was reasonable in light of its own interests, to which it was entitled to give primary consideration, and in light of its knowledge of the applicant's interests. In my view the applicant has not made out an arguable or prima facie case that the respondent was in breach of any duty it may have owed. Given that the respondent had its own interests to protect, I am unable to characterise its insistence upon payment of the amount owing by Newby as a condition of removing the caveat as a breach of its duty of care. The respondent's conduct, evidenced by various offers of settlement, appears to me to have been reasonable, given its legitimate interest in being paid. In June 1996 it offered to lift the caveat on payment of $12,000 (a little under half the Newby money) out of the proceeds of settlement of the Burnett sale. After settlement it would relodge its caveat over the rear lot, without loss of priority. On a subsequent sale of that lot, it would be paid the balance of the money due. That offer was rejected by the applicant, though it would have enabled the sale to Burnett to proceed. On 14 August 1996 the respondent offered to withdraw the caveat on receipt of payment of half the Newby money ($12,500) and the respondent's legal costs of the Butler proceeding ($3000-$4000). The respondent would be entitled to lodge a caveat over the rear lot to secure the balance of the Newby money. Again the offer was rejected. Shortly thereafter, the applicant made a settlement offer. The caveat would be withdrawn to allow the amalgamation and subdivision of the lots and settlement of lots 1 and 3. The applicant would consent to a fresh caveat being lodged over the rear land. At settlement of the sale of the rear land, the respondent would be paid the Newby money less the applicant's costs of the injunction application. The respondent rejected the offer. It was not, in my view, unreasonable for it to do so. The costs referred to were those Walsh J had ordered the applicant to pay the respondent on the applicant's unsuccessful application for an injunction. Towards the end of the Full Court's judgment, it is recorded that the Court adjourned for a short time to enable the parties to endeavour to reach agreement. When the Court resumed, it was informed that terms had been tentatively agreed, but that details had to be settled. The parties undertook to bring in a minute of the order proposed. That was on 13 September 1996. On 24 December the respondent's solicitors sent the following facsimile message to the applicant's solicitor: "We are not able to put forward a draft Minute providing a mechanism for our client to, at least, temporarily lift the caveat until it is known what parcels of land in Beagle Street are proposed to be sold by Mr Thorpe, the timing of those sales and the nature of any security that is to be provided by Mr Thorpe to Bristile Limited. We note the proposed sale of proposed Lot 1 from the subdivision on 17 September 1996 did not eventuate. We refer to our facsimiles of 22 October and 28 October 1996, which you have not replied to. It is still not clear whether delays in this matter are due to complications arising from the attempted transfer of parts of the land in the name of Mr Newby rather than Mr Thorpe, or whether Mr Thorpe is prepared to give secure undertakings that there is adequate equity in the balance of Lot 14 Beagle Street (after the proposed sale of the front of that Lot) to satisfy the full amount claimed by our client under the trading agreement with Mr Newby. Our client has always been prepared to consider a reasonable resolution of this matter. Your client's failure to provide answers to our client's legitimate concerns does not foster such resolution. Mr Sanders indicated to Mr Brickhill on 9 December 1996 that he would take instructions on these matters and revert back to us. Please do so." The applicant's solicitor did not respond to the message. In all the above circumstances, I am unable to find a prima facie or an arguable case of breach of duty by the respondent, assuming that it was under a duty to take reasonable care not to cause loss to the applicant by maintaining the caveat. (d)inducing breach of contract It was rather faintly suggested that the respondent had induced or procured a breach of the contract between the Butlers and Thorpe. There is no evidence to support this claim. FINAL ORDER In his reply counsel for the applicant contended that the costs order made by Walsh J was not a "final order" within s40(1)(g) of the Act. The matter had not been mentioned in opening, and the respondent's counsel had not otherwise been alerted to the fact that the status of the order was an issue. However I allowed it to be raised, and the parties filed written submissions. In my view there is no substance in the contention. The costs awarded by Walsh J were taxed and allowed by the taxing officer in the sum of $5002. Under O 66 r57 of the Rules of the Supreme Court, costs when taxed are deemed to be a judgment of the Court and are recoverable accordingly. Section 40(3)(b) of the Act provides that "a judgment or order that is enforceable as, or in the same manner as a judgment obtained in an action shall be deemed to be a final judgment so obtained and the proceedings in which, or in consequence of which, the judgment or order was obtained shall be deemed to be the action in which it was obtained ...." The order for costs is an order that is enforceable as a judgment in an action, and accordingly the order is deemed to be a final judgment obtained in the action. In Re Skinner's and Smith's Application (1982) 45 ALR 553 Skinner and Smith were the defendants in proceedings in which the court dismissed an application by the plaintiff for an interlocutory injunction and awarded costs to the defendants. The costs were taxed and the defendants requested the issue of a bankruptcy notice based on the costs order. The Registrar referred the matter to a judge. Fitzgerald J held that the defendants were entitled to a notice since, by operation of s40(3)(b), the order for costs was a "final order". See also his Honour's judgment in later proceedings between the same parties: Re Gould; Ex parte Skinner (1983) 72 FLR 393 at 407-408. To the same effect are Kayo Contractors v Fernandez (1984) 71 FLR 34, Re Smith; Ex parte Chesson (1992) 106 ALR 359 at 365-366 and Re Gibbs; Ex parte Triscott (1992) 133 ALR 718 at 724. The sole argument advanced by the applicant for the contention that the costs order was not "final" was that it was ancillary to the refusal of the interlocutory injunction, and thus had the interlocutory character of the principal order. Skinner and Smith and Gould dispose of this argument. See also Gibbs at 729.

James v Abrahams

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