O'Farrell v Palicave Pty Limited

Factual Background 13 There were, for present purposes, three essential terms of the loan agreement. The first was that Palicave would advance to Mr O'Farrell $2,675,000, in addition to the amount of $1,250,000 outstanding under the earlier agreement, bringing the total amount advanced to Mr O'Farrell to $3,925,000. 14 The second was that Mr O'Farrell would repay the loan with interest by 31 December 2006 by monthly instalments. Third, the minimum monthly instalment was set at $75,000, although the agreement stated that it was anticipated that higher instalments would be paid so as to extinguish the debt in full by the due date. 15 Importantly, the loan agreement did not contain an acceleration clause providing that the whole of the remaining principal and interest would fall due in the event that Mr O'Farrell failed to pay any one instalment. 16 During 2006, Mr O'Farrell failed to pay the minimum monthly instalment of $75,000 due under the loan agreement for the months of February, March, April and May of that year. 17 On 8 June 2006, Palicave filed a Statement of Claim in the District Court claiming the sum of $300,000 for the four unpaid monthly instalments. 18 In his defence to the Statement of Claim in the District Court, Mr O'Farrell admitted that he did not pay the monthly instalments for February, March, April or May 2006, but he denied that he was in breach of the loan agreement. 19 In particular, Mr O'Farrell asserted in his defence that the loan agreement had been varied by an oral agreement made with Mr Wilson to defer payments due under the loan agreement. 20 The District Court matter was resolved by agreement between the parties. The agreement was dated 19 November 2007 and provided for judgment in the sum of $396,593.69, on or before 27 November 2007. Judgment was entered shortly after that date. 21 As we said earlier, the creditor's petition was filed in the Federal Magistrates Court on 6 March 2008 upon the basis of the consent judgment. The judgment debt was paid in July 2008. On 26 September 2008, Palicave filed its amended petition based upon its claim to be a creditor of Mr O'Farrell for an amount of in excess of $2.3 million, being the balance due under the loan agreement. 22 Palicave continued to rely on the same act of bankruptcy as in the original petition, namely failure to comply with a bankruptcy notice served on 24 December 2007 which expired on 29 January 2008.

Preliminary observations 23 Although the debt upon which Palicave's petition was founded was not the subject of a judgment, that was no bar to its being relied upon to support a creditor's petition: Emerson v Wreckair Pty Limited (1992) 33 FCR 581 at 588. 24 Nor is the presentation of a creditor's petition the enforcement of a debt. As a Full Court observed in O'Mara Constructions Pty Ltd v Avery (2006) 151 FCR 196 at [53], the authorities recognise that a creditor may proceed in insolvency for the purposes of recovering his or her debt.

Estoppel 25 The short answer to the ground of appeal based upon estoppel is to be found in the discussion of the Anshun principle in two decisions of the New South Wales Court of Appeal. 26 In Boles v Esanda Finance Corporation Ltd (1989) 18 NSWLR 666 at 673, Samuels JA observed that the Anshun principle depends upon a discretion, and one of the factors which informs it is that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment. 27 In Boles, the defendant contended that the plaintiff was estopped by an earlier judgment, which dealt with the right to recover an instalment of rent, from recovering the entire rent due under a chattel lease. 28 That contention was rejected by Samuels JA (with whom Priestley and Meagher JJA agreed). His Honour said at 673: The position therefore amounts to this. In a case such as the present, where a second claim is in question, the plaintiff will be estopped from maintaining it if it would, if successful, result in a judgment conflicting with the earlier judgment. That cannot happen here. A judgment recording either success or failure in a claim for the entire rent cannot conflict with (or, is not inconsistent with Brewer v Brewer (at 6 and 15) per Dixon CJ and Fullagar J) a judgment rejecting a claim for an instalment of rent. 29 Boles was applied in precisely the same circumstances in Bazos v Doman [2001] NSWCA 347. The relevant paragraphs of the judgment of Stein JA (with whom Priestley and Beazley JJA agreed) are [29], [34], [35], [40] - [43]. 30 For the reasons stated in those authorities, there can be no inconsistency in the present case between a judgment for instalments of principal and a judgment, if entered, for the balance outstanding under the loan agreement. 31 Moreover, the Anshun principle cannot be enlivened unless the matter relied upon as giving rise to the estoppel is so closely connected with the subject matter of the first action that it would have been unreasonable not to rely upon it in that action: Anshun at 602, 604. 32 Here, the District Court action was commenced well before the loan fell due. It was not then possible for Palicave to claim for the outstanding balance. The learned Federal Magistrate observed at [19] that in those circumstances, there could be nothing unreasonable in Palicave's failure to sue for the whole of the outstanding amount. 33 Mr O'Farrell sought to overcome this difficulty by contending before the Federal Magistrate that he had repudiated the contract and that the repudiating conduct was accepted by Palicave. His Honour rejected that submission at [20]. 34 Counsel for Mr O'Farrell was unable to point to anything which would suggest error in that finding. Indeed, as counsel for Palicave submitted, the suggestion that Palicave accepted any repudiating conduct was inconsistent with the terms of Mr O'Farrell's defence filed in the District Court. 35 The gravamen of the defence in the District Court was that the loan agreement remained on foot, having been varied by the conversation said to have taken place between Mr Wilson and Mr O'Farrell. That contention cannot stand with the proposition that Mr O'Farrell repudiated the loan agreement. 36 In any event, a finding of unreasonableness ought not to be lightly made. As Wilcox J said in Ling v Commonwealth (1996) 68 FCR 180 at 182, if the Anshun principle is too readily applied, there is a possibility of serious injustice: see also R & J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2008] NSWSC 232 at [23] per Bryson AJ; and see Bazos at [45]. 37 Here, the effect of the estoppel for which Mr O'Farrell contends would be to extinguish his liability for the balance of the loan. That would be precisely the sort of injustice about which Wilcox J gave his warning. It points directly against the application of an estoppel, particularly in circumstances in which the Federal Magistrate found that there was no agreement between the parties for a release of the debt. 38 Furthermore, even if there were an Anshun estoppel, that may not be an answer to the contention that Palicave was a creditor. An Anshun estoppel does not extinguish the debt. The appropriate order would be a stay of further proceedings: Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543 at 558.

Misrepresentation 39 The claimed misrepresentation was based on factual allegations raised for the first time in the Federal Magistrates Court in an affidavit sworn by Mr O'Farrell, and served on the respondent the Friday before the petition was due to be heard. 40 The evidence in support of the claim was that Mr O'Farrell had a conversation with Mr Wilson before the loan agreement was signed, during which Mr Wilson assured him that Mr Wilson's syndicate would provide substantial betting amounts to Capital Play to allow him to repay the loan. 41 That evidence was responded to and denied by Mr Wilson in oral testimony. Both Mr Wilson and Mr O'Farrell were cross-examined. 42 The evidence before the Federal Magistrate revealed that, somewhat surprisingly, Mr Wilson's syndicate made a large amount of its money by placing losing bets, but the losses were offset by "loyalty payments" which were to be made by bookmakers and others through Mr O'Farrell. 43 Mr Wilson's evidence, which his Honour accepted, was that he made no commitment to turn over a certain amount of betting and that, in any event, turnover was dependent on the "loyalty payments" which Mr O'Farrell failed to make. 44 The critical passage of his Honour's judgment on this issue is [28] which we will set out in full. Mr O'Farrell asserts that he is not liable for the debt claimed under the second loan agreement because he relied upon a misrepresentation by Mr Wilson, at the time he entered into the agreement, about the level of betting that the syndicate would put through Capital Play. Because Mr Wilson's syndicate was the main customer of Capital Play it could determine the profitability of Capital Play, and the capacity of Mr O'Farrell to repay the debt he was entering into. There is no reliable evidence that Mr Wilson made any representation about betting being maintained at any particular level but I accept that it was probably a representation that substantial bets would continue to be made. At the same time, there was an understanding that the willingness of the syndicate to continue betting at a high level would be supported by the loyalty payments. I accept the evidence of Mr Wilson that the level of betting was not only maintained but increased after the second loan agreement was entered into and only tapered off in the second half of 2005 after Capital Play began withholding loyalty payments. The representation, if it was made, was conditional upon the maintenance of the loyalty payments and when those loyalty payments began to be withheld, the level of betting necessarily fell. The representation, if it was made, was not misleading or deceptive because both parties understood the elements of it and both parties understood that if the loyalty payments were not maintained, neither would the level of betting be maintained. 45 His Honour pointed to a number of objective facts to support his finding that Mr Wilson did not make a misrepresentation to Mr O'Farrell. These were the absence of any documentary evidence, the fact that the loan agreement was silent and the failure of Mr O'Farrell to make any assertion of misrepresentation in his defence in the District Court. 46 No error has been demonstrated in his Honour's finding, let alone appellable error: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424.

Reasons 47 The obligation to give reasons is an incident of the judicial process: Public Service Board of New South Wales v Osmond (1986) 159 CLR 656 at 666 - 667. But the extent of the obligation depends upon the circumstances of each individual case: Mifsud v Campbell (1991) 21 NSWLR 725 at 728; see also Mt Lawley Pty Ltd v Western Australia Planning Commission (2004) 29 WAR 273 at [26] - [28]. 48 It is plain from what the Federal Magistrate said at [28] and his reference to objective facts to support his finding that he sufficiently exposed his reasons in accordance with these principles. 49 This was not a case in which the credit finding was based upon demeanour. Accordingly, the principle stated by the High Court in Fox v Percy (2003) 214 CLR 118 has no application. Nor does it inform the obligation to give reasons in the present case: cf Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186 at [30], citing Waterways Authority v Fitzgibbon (2005) 221 ALR 402 at [130]. 50 No other complaint about the absence of reasons was pressed before us. Indeed, in our view, no such complaint was open.

"Sleight of hand" 51 The Federal Magistrate said at [27]: It appears to me that a certain amount of slight [sic] of hand was involved between the parties here. 52 Mr O'Farrell complains that neither party gave evidence to this effect and that neither of them contended for this finding. 53 This "finding" was nothing more than a step in the Federal Magistrate's reasoning process in dealing with the misrepresentation claim. So much is clear from reading the whole of [27] of his Honour's reasons. 54 In any event, it was not critical to his Honour's conclusion and was merely a response to the evidence which had been given. We do not consider that his Honour's observation is open to criticism. The evidence of both parties pointed to a most unusual commercial arrangement and we see no reason to doubt that the observation was open. 55 Even if the finding could be criticised, no argument was put to us as to why it would follow that the judgment ought to be overturned.

Orders 56 The order of the Court is that the appeal will be dismissed with costs. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson, Edmonds and Barker.

Associate: Dated: 3 June 2009 Counsel for the Appellant: Mr D.J. Durston