MITZEV v FOXMAN [2007] NSWCA 273 | Case summary

5 October 2007 Assen Atanasov MITZEV v Marsha FOXMAN Judgment 1 TOBIAS JA: I agree with Basten JA. 2 McCOLL JA: I agree with Basten JA. 3 BASTEN JA: On 28 May 2002 the Appellant (Mr Mitzev) purchased land at 47 Ridge Avenue, Jindabyne ("the property") from the trustee of the Wajnsztajn Family Trust. The trustee at the time of sale was Elimajo Pty Ltd ("Elimajo"), a company which has since gone into liquidation. In March 2006 that company was replaced by the Respondent (Ms Marsha Foxman) as trustee of the family trust. On 7 April 2006, Ms Foxman commenced proceedings in the Equity Division seeking a declaration that she was entitled, as trustee, to assert a "vendor's lien" over the property. The basis of the entitlement to a "lien" was a supposed failure on the part of the purchaser to pay the sum of $510,000, being a substantial portion of the purchase price of $900,000. 4 In her statement of claim, as amended at the date of the hearing before the primary judge, the plaintiff had sought an order that the defendant pay the amount of the indebtedness, being the sum of $510,000 together with interest. Failing payment within 28 days, the plaintiff sought an additional order for the sale of the property by public auction. 5 On 8 December 2006, in an ex tempore judgment, Hamilton J found in favour of Ms Foxman, concluding that she was entitled to a "vendor's lien": Foxman v Mitzev [2006] NSWSC 1404 at [22]. 6 There was a further hearing on 11 December 2006, in relation to the form of the orders. Mr Mitzev asked for the sale to be delayed for four months to allow him an opportunity to arrange a private sale. The matter was stood over until 14 December 2006. There being no attendance for Mr Mitzev on that day, his Honour gave judgment in favour of Ms Foxman for the full amount of her claim and made orders for payment of an amount of $718,750.50, within 14 days, failing which he directed that the property be sold. Further, his Honour ordered that a sum of $15,000 paid into Court by Ms Foxman on 24 November 2006 as security for Mr Mitzev's costs be paid out to her forthwith. Mr Mitzev was ordered to pay her costs of the proceedings. 7 Mr Mitzev now seeks to have the orders made by the primary judge set aside. However, the property was sold at some time prior to June 2007 and the net proceeds paid to the Respondent. The further amended notice of appeal identifies an amount of $50,405.18 as having been paid to the Respondent and seeks immediate repayment of that amount. Background circumstances 8 The evidence in this case, which was far from comprehensive, reveals that on 1 May 2002 Elimajo was the registered owner of an estate in fee simple under the Real Property Act 1900 (NSW) of a lot in a strata plan known as 47 Ridge Street, Jindabyne and referred to in affidavits as "the Jindabyne property". At a date which was not identified in the evidence, Elimajo arranged for the property to be offered for sale, presumably through the party identified on the contract for sale of land as the vendor's agent, namely Credex Project Marketing Pty Ltd. The advertisement, a copy of which is contained in the appeal papers, appears to bear the logo of the Credex group of companies, to which further reference will be made below. (There must have been some identification of the vendor's agent and a means of contacting it, but those details do not appear on the copy available in the Court.) After a picture of the property and a description, the following appeared at the foot of the advertisement: "Total price $900,000 Accepting $450,000 Credex deposit." 9 The price, deposit and balance noted on the front of the contract for sale of land stated that the price was $900,000, the deposit was $90,000 and the balance $810,000. The contract further provided that completion date was to be 24 May 2002. 10 The standard terms and conditions of the contract contain nothing of present relevance but there were special conditions annexed to the document, of which clause 8 read as follows: "8. The purchase price of $900,000.00 shall be payable as follows: Deposit : Credex dollars to the value of $90,000.00 Balance payable on completion: (i) Cash or bank cheque in the sum of $380,000.00 (ii) Credex dollars to the value of $430,000.00 9. The deposit herein of Credex dollars to the value of $90,000.00 shall be held in trust and not used or applied by the vendor until completion." 11 With the exception of the reference to payment in "Credex dollars" the contract would have been unsurprising and in accordance with standard practice. It will be necessary to say something more about the payment of the deposit, which involved "Credex dollars". 12 Although there is no dispute that the consideration for the transfer by way of "Credex dollars" was specified by the vendor, Elimajo, in relation to the deposit and on settlement, Ms Foxman complains that the "Credex dollars" tendered were in fact valueless and that, consequently, Mr Mitzev, as purchaser, had failed to provide the purchase price, to the extent of $510,000. 13 This claim was upheld by the primary judge on a basis which requires some understanding of the reference to "Credex dollars". The evidence suggested that "Credex" was a form of co-operative association which allowed participants to carry on business through a system of exchange, and the use of a form of credit known as "trade dollars". However, the legal arrangements underlying this system were somewhat obscure. Records provided by the Australian Securities and Investments Commission indicated that there was, from August 1997, a company limited by guarantee known as Credex National Australian Trade Exchange Limited ("Exchange Ltd"). In some of the documents this was abbreviated to "CNATE". The company was deregistered on 18 February 2002. Precisely what the company did is unclear. However, there was in evidence a document headed "Application form and acknowledgement statement" over the heading "Credex National Australian Trade Exchange (CNATE) [followed by an ACN which appears to be that of Exchange Ltd] Trading Program". At the bottom of the form are details of a company, identified in the "Credex Rules of Trading" as the manager of the scheme, namely Credex Australia National Management Company Pty Ltd, which later changed its name to CAN Management Pty Ltd and will be referred to as "Management" below, as it was in the Trading Rules. Although there was some suggestion that membership was membership of Exchange Ltd, there was nothing on the application form to suggest unequivocally what the applicants became members of, unless it was the Exchange Ltd "trading program". 14 There were also in evidence the Credex Rules of Trading, which stated their purpose and nature, in rule 1, in the following terms: "1.1 The purpose of these Rules is to regulate, facilitate and administer the trading by Members between themselves and with the Manager of the Exchange and to govern the procedures to be adopted by the Manager to manage the Exchange and the accounts of Members. 1.2 These Rules are binding on all Members of the Exchange Company, Credex National Australian Trade Exchange Ltd ACN 079 710 713, and Credex Australia National Management Company Pty Ltd ABN 49 089 244 182 (hereinafter called the 'Manager') and constitute all of the Rules governing the Exchange and transactions between the Members and the Manager and the Trustee as well as the administration and operation of accounts associated therewith." 15 The term "Exchange" was defined in the rules to mean: "A system operated and controlled by the Manager whereby: (a) Members may Trade with each other utilising Trade dollars at least in part; and (b) the Manager may Trade with Members of the company utilising Trade dollars at least in part." Although the term "Trade" was capitalised, it was not defined. The term "Trade dollars" was, however, defined to mean: "An accounting unit to facilitate the recording of the debits and credits incurred in respect of transactions between buying Members and selling Members or Members and the Manager. The Trade dollar is also used to record part of the Membership fees, transaction fees and interest payable by a Member and shall be of the same value as one dollar in Australian legal tender". 16 In the rules, the term "Member" was defined to mean "a holder of a 'B' class membership of the Exchange company". The expression "The Exchange Company" was defined to mean "Credex National Australian Trade Exchange Limited (Credex NATE) ACN 079 710 713". "Membership" meant the entitlement of a member to participate in the trading scheme. "Trading scheme" was defined to mean "the scheme to facilitate reciprocal trade amongst Members in goods and/or services in accordance with these Rules". 17 The plaintiff, Ms Foxman, stated in an affidavit dated 6 April 2006 that, on or about 17 December 2001, she completed an application form on behalf of Foxel Developments Pty Ltd ("Foxel") which appears to have been an application form in relation to the Credex trading program, although no copy was in evidence. That inference may be drawn because she referred in the next paragraph of her affidavit to receiving a copy of the Credex Rules of Trading and a Credex charge plate (in the form of a plastic card). 18 Ms Foxman was not a director of Elimajo in May 2002, but her husband, Mr Joseph Wajnsztajn, was the sole director and stated in his affidavit of 6 April 2006 (par 10): "During the time when Elimajo as trustee of the Trust was the owner of the Jindabyne Property, as Elimajo's sole director I was accustomed to act, and did act, in accordance with the recommendations of my wife, the plaintiff, concerning the Jindabyne Property." 19 He referred to the contract of sale between Elimajo and Mr Mitzev and noted (par 15): "Settlement of the sale took place on 28 May 2002. My recollection is that at Elimajo's direction, that portion of the purchase price which was to be paid in Credex dollars was to be paid to Foxel, of which I was the sole director." 20 Although there is no direct statement to this effect, and although there is no title search of the property in evidence, it would appear that following settlement Mr Mitzev became the registered proprietor of the property. That appears from the fact that caveats appear to have been lodged over the property from time to time, although it appears to be accepted by the parties that at some stage, Gzell J, in the Equity Division, declared that the vendor had no caveatable interest in the property. 21 There is a pleading in the further amended statement of claim to the effect that at all material times "prior to 19 June 2003 Elimajo was the registered proprietor" of the property: clause 2. That fact was admitted, although the date seems to be inconsistent with the evidence and the way in which the case was conducted. Absent any explanation in the chronology supplied to this Court, or in the written submissions, that pleading should be ignored. However, if, as appears to have been the case, Mr Mitzev was after 28 May 2002 the registered proprietor of the land, the manner by which the vendor (or its successor as trustee) could obtain a registrable interest in the land, or compel a sale of the land and payment of the proceeds to it, given the indefeasible title conferred by ss 42 and 43 of the Real Property Act 1900 (NSW) required explanation. Findings of trial judge 22 The starting point of the reasoning of the trial judge appeared in the judgment of 8 December 2006 commencing at [10] in the following terms: "The problem to be dealt with in this case arises from the fact that at the time of the exchange and the settlement of the contract, CNATE no longer existed. It had been deregistered as a company on 18 February 2002 and remained deregistered at all times material to the determination of these proceedings." 23 His Honour then addressed a submission by counsel for Mr Mitzev that, despite the deregistration of Exchange Ltd, there was no evidence that the trading scheme was not operating in May 2002 and therefore no evidence that the provision of "Credex dollars" constituted valueless consideration. In relation to the submission that "there was no evidence that the scheme was not operating in May 2002", his Honour held at [18]: "[18] However, more importantly, there is no evidence that it was operating in May 2002 or has indeed operated at any time after deregistration of CNATE in February 2002. In my view, it could not have had any valid operation once the exchange company, which was contractually provided to be the operator, was non-existent and among people of whom the vital description was that they were members of that company, which was no longer in existence. … [21] … [I]t flows from what I have said in [18] above as to submission (1) that there was no longer any scheme or any use to which Credex dollars might be put. I am of the view that they were in effect valueless at all material times." 24 In this Court, the Appellant sought to resist this conclusion by tendering evidence to demonstrate that Exchange Ltd had been reinstated to the register on 18 September 2006. However, that fact had never been in doubt, having been conceded by counsel for Ms Foxman below and acknowledged in the course of argument before the primary judge: Tcpt, 08/12/06, p 3U-4L. When his Honour said that the company had been deregistered "at all material times", he clearly intended to refer to the period from the date on which the contract of sale was executed through to the date on which it was completed, in May 2002. It was not the fact but the legal consequence which was in issue. Relying on the language of s 601AH(5) of the Corporations Act 2001 (Cth), counsel for the Appellant contended that where a company is reinstated on the register, it is "taken to have continued in existence as if it had not been deregistered". 25 This argument is based on a fallacy. As s 601AH(5) itself recognises, the past can only partly be undone. Thus, a person who is a director immediately before deregistration becomes a director again "from the time when ASIC or the Court reinstates the company". Similarly, property of the company that is "still vested in ASIC revests in the company". If the company was insolvent immediately prior to its deregistration, its reinstatement will not result in it having traded during a period after deregistration, when insolvent. Similarly, if the company operated a trading exchange up to the time of its deregistration, its reinstatement does not mean that it continued, by some fictional means, to carry on a business which in fact was not being carried on. The effects of s 601AH(5), as counsel for Ms Foxman submitted, were sufficiently identified in White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441; (2006) 200 FLR 125 at [115]-[129] (Campbell J); CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd [2006] NSWSC 690, (2006) 201 FLR 296 at [12]-[17] (Barrett J) and GIO General Ltd v Sabko Pty Ltd [2007] NSWSC 251; (2007) 25 ACLC 935 at [11]-[13] (Austin J). 26 In truth, Mr Mitzev had, as the alternative submissions recognise, a much more straightforward challenge to the findings of the primary judge. The passage in his Honour's judgment at [23] above appears to reverse the onus of proof. The onus must lie upon the party which received precisely what it bargained for to demonstrate that what it received was valueless. There was in fact no clear evidence that the Credex "trade dollars" were valueless. Such a conclusion would require a finding that they had no use once Exchange Ltd was deregistered. However, Exchange Ltd appears to have played a shadowy role in the trading program. The primary role was undertaken by Management, which continued to operate, at least until the appointment of a liquidator on 3 February 2005. There were in evidence two tax invoices issued by "Credex", bearing the ABN for Management. Each was dated 28 May 2002 and each appeared to evidence a transfer from an account in the name Credex Property ESC to the account of Foxel. It might be inferred, although the writing is not clear, that each invoice was signed by a Mr Valentino Kovacic, who was a director of Management in 2002. That inference appears to be accepted by Ms Foxman who tendered a deed of agreement dated 31 March 2005 between Elimajo, by then in liquidation, Foxel, Ms Foxman and Mr Wajnsztajn, Recital D of which referred to a possible claim "Elimajo may have … against Mitzev and Valentino Kovacic". 27 There is no evidence of any such claim being pursued, but it provides support for the proposition that Management continued to operate in May 2002 by carrying out functions with respect to the Credex trading program. 28 Further, Elimajo, as vendor, invoked the Credex trading program by appointing Credex Project Marketing Pty Ltd as its agent and by advertising the property on the basis that half of the price could be paid by way of a "Credex deposit". It may also be inferred that, consistently with the advertisement, it was Elimajo which arranged for the inclusion of special condition 8, which, subject to a minor post-contractual variation as to amount, required the payment of more than half the price, namely $510,000, in "Credex dollars". This evidence was inconsistent with the conclusion that the Credex trading program wholly ceased to operate upon the deregistration of Exchange Ltd. 29 Nor did the affidavits of Ms Foxman and Mr Wajnsztajn support such a conclusion. Mr Wajnsztajn stated in his affidavit that on 13 October 2003 he wrote to Mr Mitzev, on behalf of Elimajo, although a copy of that letter does not appear to have been tendered in evidence. His affidavit continued (par 20) that Elimajo "subsequently fell into debt and on 6 February 2004" a liquidator was appointed. At paragraph 21, Mr Wajnsztajn stated: "On or about 22 February 2005 I formed a belief for the first time that the Credex dollars received on completion of the Jindabyne Contract were worthless. On or about that day I read the cover page of a facsimile sent to my wife by Ferrier Hodgson, the Official Liquidator of a company known as CAN Management Pty Ltd." 30 Even if this evidence supported a conclusion that the consideration provided, at the vendor's request in May 2002 had become valueless by 2005, it does not establish that it was valueless in May 2002. Nor did Ms Foxman state an opinion that the consideration was valueless in May 2002. Having arranged for Foxel to become a "member" of the Exchange trading program in December 2001, she might have been able to give evidence as to whether she had been able to undertake trading pursuant to the scheme prior to May 2002 or whether she had tried to use the scheme but found that it was not operating, at or about that time. No such evidence was forthcoming. 31 As an evidential fact, going to the value of trading entitlements under the trading program, the deregistration of Exchange Ltd was capable of being relied upon to demonstrate a possible drop in the value of the units traded. However, taken in the context of the evidence referred to above, it did not demonstrate on the balance of probabilities that the units known as "trade dollars" or "Credex dollars" were thereafter valueless, as Ms Foxman sought to prove. 32 Mr Mitzev relied upon the contractual obligation, imposed by the vendor and accepted and complied with by him as the purchaser, of providing $510,000 of the consideration by way of "Credex dollars". Even supposing "Credex dollars" lacked value at the time, there was no evidence that either the vendor or the purchaser knew that fact. In the course of argument counsel for Ms Foxman accepted that, if the owners of Blackacre and Whiteacre, believing the properties to be of equal value, exchanged ownership, but later discovered that one property was of little or no value, the party which got the poor deal would not be able to rescind the completed contract, or claim damages for breach of contract, at least, presumably, in the absence of a breach of condition. Had the vendor refused on settlement to accept a tender of "Credex dollars", interesting but different questions would have arisen. In this case the intervention of equity was sought after performance of the contract has been completed. 33 It appears to have been accepted by the primary judge that payment in "Credex trade dollars" was equivalent to payment by cheque or letter of credit, so as to invoke the principle that such payment was a conditional payment only and did not constitute satisfaction of a debt, absent agreement to the contrary, unless the instrument was honoured on presentation: see, eg, Tilley v Official Receiver in Bankruptcy (1960) 103 CLR 529 at 532 (Dixon CJ) relied upon and applied by Debelle J in Aronis v Hallett Brick Industries Ltd [1999] SASC 92. 34 However, the principles applicable to commercial transactions in relation to goods and services and the tender of negotiable instruments, such as cheques, do not operate in the present circumstances for two reasons. First, as a matter of custom and practice, the vendor of real estate does not provide an executed transfer in exchange for a negotiable instrument with respect to which there is any real risk of non-payment. That is because the system of title by registration will allow the purchaser to obtain a good title to the property immediately the transfer is obtained and lodged for registration. Secondly, the use of the Credex trade dollars did not constitute payment by a negotiable instrument or cheque, or anything equivalent thereto. There was no question of a third party failing to honour the instrument: had there been, it would have been known at a fixed time. By contrast, in the present case, complaint was only raised some years later when Ms Foxman decided that the consideration the vendor had received did not live up to expectation. That is an entirely different circumstance. 35 As noted above at [21] the case appears to have been presented below with scant attention to the system of title by registration which operates pursuant to ss 42 and 43 of the Real Property Act and the effect of a failure in part (if proved) to provide good consideration for a transfer of land. The cases relied upon in this Court for the assertion of a "vendor's lien" mainly involved personalty or unregistered dealings: in relation to the latter, see Reliance Finance Corporation Pty Ltd v Heid [1982] 1 NSWLR 466 and IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550. It remains to be explained how an interest of the kind asserted by Ms Foxman could stand with the effect of registration vesting title in a purchaser: see Breskvar v Wall (1971) 126 CLR 376 at 385-386 (Barwick CJ). Had these issues been raised, it might have been necessary to consider the contested area of the law relating to the extent to which a personal equitable claim can give rise to relief against a registered proprietor: see Bahr v Nicolay (1988) 164 CLR 604; Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 and Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32. Conclusions and orders 36 The judgment of the Court below involved acceptance of Ms Foxman's claim that Mr Mitzev failed to provide part of the consideration for the purchase of the land, not because he did not provide that for which the vendor had asked, but because that part of the consideration was in fact valueless. All other questions of legal principle aside, Ms Foxman bore the burden of establishing that the "Credex dollars" were valueless. 37 The argument that the "Credex dollars" were valueless, as accepted by the primary judge, was based on the proposition that once Exchange Ltd was deregistered, it had no members and there was, therefore, no trading program within which credits identified in terms of "trade dollars" could be utilized. That proposition, however, is based on a legal analysis. Whether or not "Credex dollars" had value was a question of fact, proof of which lay upon Ms Foxman. The evidence adduced by her failed to establish that fact. Accordingly, the appeal should be allowed, the judgment below set aside and the Respondent should pay the Appellant's costs. She should have a certificate under the Suitors' Fund Act 1951 (NSW). 38 A question arises as to the steps which should be taken in relation to the orders made in the Equity Division. No doubt the declaration that the Respondent, as trustee for the Wajnsztajn Family Trust, was entitled to a lien or charge over the whole of the property may be set aside, but, the property having been sold, the effect of the declaration is already spent. Similarly, orders 2 and 3 relating to the sale of the property have already been given effect: it would be inappropriate to set them aside. Order 4 gave judgment for Ms Foxman for damages for breach of contract in the amount of $718,750.59. That order should be set aside, as should order 5 providing for Mr Mitzev to pay Ms Foxman's costs below. 39 Order 6 provided for release of security to the Respondent, which has no doubt already happened. Again, no purpose is served by setting aside that order. 40 The notice of appeal also seeks repayment of the sum of $50,405.18, or such other amount as was received by the Respondent from the trustee for sale, upon sale of the property. In his written submissions in reply, the Appellant foreshadowed an application, if the appeal were allowed, to seek interest at the judgment rate upon the amount to be repaid. Such an order would usually be made and, in the absence of any submission to the contrary, that order should be made: see Heydon v NRMA Ltd (No. 2) (2001) 53 NSWLR 600 at 609 and Ambulance Service of New South Wales v Worley (No. 2) [2006] NSWCA 236 at [28]-[34]. 41 Orders appropriate to give effect to these conclusions would be as follows:

MITZEV v FOXMAN

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