Watts v Bendigo and Adelaide Bank Limited

REASONS FOR JUDGMENT 1 The appellants, Ghambir and Bhoji Watts, are in debt to the respondent ("the bank"). Mr and Mrs Watts have been unwilling to discharge the debt and there is a long and unhappy history of litigation between them, their company, BMG Poseidon Corp Pty Ltd ("BMG"), and the bank. Ultimately, on 20 January 2010 the bank presented a creditor's petition in the Federal Magistrate's Court and, on 11 August 2010, in an ex tempore judgment, a federal magistrate made a sequestration order against their estates. This is an appeal from that order.

Background facts 2 The facts are summarised in the judgment of the federal magistrate. The summary is largely derived, as his Honour acknowledged, from the judgment of Foster J in BMG Poseidon Corp Pty Ltd v Adelaide Bank Ltd (No. 2) [2009] FCA 404, which was upheld by the Full Court in Watts v Adelaide Bank Limited [2009] FCAFC 169. It is convenient to reproduce the summary as none of the facts included in it is disputed. [5] In short, the Bank lent money to BMG Poseidon Corp Pty Ltd ("BMG") under two loan agreements entered into in 2004. Mr and Mrs Watts were the principals and controllers of BMG at all relevant times, and gave guarantees for the obligations of BMG under the loan agreements. They also provided security over a residential house property at Lyons Road, Drummoyne, whose value never exceeded the amount of BMG's indebtedness. [6] Default by BMG occurred in 2005, and a statutory demand was served in relation to the mortgaged property. The Bank obtained orders for possession of the property on 3 April 2006, and took possession of it on 1 November 2006. There were then exchanges between Mr and Mrs Watts and the Bank concerning realisation of the security, and a summary of their exchanges appears in the judgment of Foster J. Eventually, the Bank ended the efforts of Mr and Mrs Watts themselves to find a purchaser, and itself entered into a contract to sell the property on 2 April 2007 for $1,000,000, with a purchaser, Mr Campbell, with whom Mr and Mrs Watts had previously been negotiating. [7] The Bank also obtained a default monetary judgment against BMG and Mr and Mrs Watts on 3 April 2006, in the sum of $1,028,725.29. As a result of the Bank's sale of the Drummoyne property, it realised a substantial part of that indebtedness, but a significant debt remained owing, and the Bank proceeded to take further recovery measures against BMG and Mr and Mrs Watts. The indebtedness relied upon under the petition is $64,561.19, and additional liabilities may be owed to the Bank, including under costs orders. [8] A statutory demand was served on BMG on 27 August 2007, and bankruptcy notices were issued against Mr and Mrs Watts. A series of bankruptcy notices were set aside in circumstances which it is unnecessary to explore. The bankruptcy notice which is now relied upon was issued on 21 November 2008, and was served personally on Mr Watts on 5 December 2008 and on Mrs Watts on 26 November 2008. [9] BMG disputed the statutory demand by commencing proceedings in the Federal Court in its corporation's jurisdiction on 11 September 2007. These proceedings were adjourned pending the outcome of litigation which was also commenced by Mr and Mrs Watts and BMG in the Supreme Court, seeking to set aside the default judgment. [10] The application to set aside the default judgment was dismissed by McCallum J on 12 February 2008 (see Adelaide Bank Limited v BMG Poseidon Corp Pty Limited [2008] NSWSC 68). An application for leave to appeal to the NSW Court of Appeal was refused on 6 August 2008. An application for special leave to appeal to the High Court, requiring an extension of time, was refused on 11 February 2009. 3 As his Honour went on to explain, the outstanding application to set aside the statutory demand on BMG was heard on 10 December 2008 by Foster J, who refused it. Six days later Mr and Mrs Watts applied to this Court to have the bankruptcy notice of 21 November 2008 set aside. On 29 April 2009 Buchanan J dismissed their application: Watts v Adelaide Bank Limited [2009] FCA 420. His Honour extended the time for compliance with the bankruptcy notice until 8 May 2009 and on that day Jagot J granted a further extension. As the terms of the latter order are relevant to the first ground of appeal, I will return to them in that context. It is sufficient at this point to observe that on any possible view of the order the time for compliance with the notice had lapsed well before the issue of the creditor's petition. 4 Appeals against the decisions of both Foster J and Buchanan J were dismissed by the Full Court: Watts v Adelaide Bank Limited [2009] FCAFC 169. An application for special leave was rejected on the ground that their written case had been filed outside the time prescribed by the High Court Rules. An application to reinstate it was refused on the ground that the prospects of success were so slight as to make it futile to do so: Watts & Anor v Adelaide Bank Limited [2010] HCATrans 70. An appeal from that decision failed: Watts & Anor v Adelaide Bank Limited [2010] HCASL 236.

The proceeding before the federal magistrate 5 The act of bankruptcy particularised in the petition presented to the federal magistrate was the failure of Mr and Mrs Watts to comply on or before 29 July 2009 with the requirements of the bankruptcy notice of 21 November 2008. The debt, the subject of the petition, was in the amount of $64,561.19. According to the schedule in the notice, the figure was derived by subtracting from the amount of the default judgment the payments made and/or credits allowed since the date of the judgment. In the proceeding before the federal magistrate Mr and Mrs Watts did not dispute the debt or the validity of the bankruptcy notice. This gave the federal magistrate the power to make a sequestration order. See Bankruptcy Act 1966 (Cth) ("the Act"), s 52(1). Rather, they opposed the petition on two grounds. 6 First, they argued that the petition was presented outside the time prescribed by s 44(1)(c) of the Act and was therefore incompetent. Alternatively, they alleged that "for other sufficient cause" the sequestration order should not be made. They relied on the fact that on 3 May 2010 they, with BMG, commenced proceedings in the NSW Supreme Court for damages ("the pending Supreme Court proceedings"). The cause of action pleaded was a breach by the bank of its obligation under s 420A of the Corporations Act 2001 (Cth) (failing to take reasonable steps to sell the property at market value or the best price reasonably obtainable in the circumstances) and its duty of good faith by failing to sell the property for its true market value. The federal magistrate rejected both their contentions. 7 In this appeal Mr and Mrs Watts seek to reagitate these matters and to raise an additional point.

Nature of the appeal 8 The first ground of appeal alleged, in substance, that the federal magistrate erred in his interpretation of the orders of Jagot J made on 8 May 2009 and the creditor's petition was in fact presented outside the prescribed time. 9 The second raised a point not argued below. It was in the following terms: The appellants, who were and are able to pay their debts, have persistently refused to pay the respondent as they consider that the respondent has been grossly unreasonable in its actions against the appellants. A sequestration order was not appropriate: ss52 (2) (a) and (b) of the Bankruptcy Act 1966. 10 The third ground pleaded, in effect, that the federal magistrate erred in the exercise of his discretion under s 52(2)(b) and challenged his Honour's findings about the prospects of success of the pending Supreme Court proceedings. 11 An appeal from a judgment of the Federal Magistrates Court is an appeal by way of rehearing. In order to succeed the appellants must demonstrate that the orders under appeal are the result of some legal, factual or discretionary error: Draper v Official Trustee in Bankruptcy (2006) 156 FCR 53 at [14]-[15]; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; Qun Xiong (Kenny) Yu v Todaytech Distribution Pty Ltd [2006] FCA 131 at [30]-[32]. 12 For the following reasons I am not persuaded that the federal magistrate fell into error.

Ground 1 - Was the creditor's petition out of time? 13 Section 44(1)(c) of the Bankruptcy Act provides: 44 Conditions on which creditor may petition (1) A creditor's petition shall not be presented against a debtor unless: … (c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition. 14 On 8 May 2009 Jagot J made the following orders in chambers on the ex parte application of Mr and Mrs Watts: 1. Pending further or other order: (a) Extend the time to comply with Bankruptcy Notice NN4517/08 until 19 May 2009 and, if a notice of appeal against the decision in Watts v Adelaide Bank Ltd [2009] FCA 420 is filed on or before that date, extend the time for compliance with the said bankruptcy notice until the first return date of the notice of appeal at which time a further application for an extension of time may be made; (b) Otherwise, if a notice of appeal is not filed on or before 19 May 2009, extend the time to comply with the said Bankruptcy Notice until 26 May 2009. 2. Direct the applicant to give notice of the making of these orders to the respondent by 5.00 pm on 11 May 2009. 3. Grant liberty to both parties to restore the application on 24 hours notice. 4. Leave to enter these orders forthwith. [Emphasis added.] 15 Mr and Mrs Watts filed a notice of appeal on 13 May 2009, never complied with the bankruptcy notice and never sought an extension of time in which to comply with it. Consequently, this ground of appeal turns on the meaning of the term "first return date" in paragraph 1(a) of Jagot J's orders. 16 On 10 June 2009 the notice of appeal to the Full Court from Buchanan J's judgment was listed for a conference with a registrar for the settlement of the appeal papers. Mr and Mrs Watts contend that this was the first return date to which Jagot J's orders referred. If their contention is correct, then it was common ground that the creditor's petition was presented more than six months later (on 20 January 2010) and is out of time. 17 On 17 June 2009 Moore J made an order, by consent (in chambers), referring the parties to a registrar for a conference pursuant to O 10 r 1(2)(h) and O 10 r 1(2)(i) of the Federal Court Rules. In this appeal Mr and Mrs Watts argue, in the alternative, that this was the first return date. As this was more than six months before the creditor's petition was served, if this argument is correct, the petition would also be out of time. 18 On 29 July 2009 there was a call-over before Moore J. The bank contended that this was the first return date and thus that the creditor's petition against Mr and Mrs Watts is competent. The federal magistrate upheld the bank's contention. 19 As the federal magistrate noted (at [26]), the term "first return date" does not appear in the Federal Court Rules, nor does it appear in any applicable practice note. His Honour said it has no technical meaning. He did not refer to any authority. It does not seem that he was taken to any and neither was I. My own research has been unrewarding. 20 Mr and Mrs Watts submitted that the federal magistrate made the following errors: (a) reasoned that an application for extension of time could only be made before a judge of the Court; (b) concluded that Federal Court registrars only had power in first instance applications to set aside bankruptcy notices to extend time for compliance and had no power to do so in the course of settling an index in an appeal; (c) concluded that the context given to the order by the usual practices followed in appeals in this Court shows that there could have been no expectation that a registrar would entertain an application to extend time under the bankruptcy notice in the course of the appeal index conference; (d) concluded that the time for compliance with the bankruptcy notice expired on the date of the call-over. 21 The first two submissions are based on a mistaken view of the federal magistrate's reasons. His Honour did not find - and the bank does not argue - that the power was not exercisable by a registrar once an appeal against the dismissal of an application to set aside the notice had been lodged. His Honour merely observed (at [31] of his reasons) that registrars have the power in first instance applications and raised a question, which, he said, was not explored in submissions, about whether a registrar would have the power while an appeal was pending or in the course of settling an index in an appeal. He found (at [32]) it unnecessary to answer the question because he felt he was able to decide the case by considering the context of her Honour's order. In the appeal the bank conceded that a registrar would have the power. 22 The power of the Court to extend the time for compliance with the bankruptcy notice is derived from s 41(6A) of the Act. The power under s 41(6A) is exercisable by a registrar. See Federal Court (Bankruptcy) Rules 2005 (Cth), r 2.02 and Sch 2 item 4. As the bank points out, there is nothing in the text of the rules to limit the operation of the power. In James v Hill [2005] FCA 853 at [18] Edmonds J held that the power under s 41(6A) is available when an appeal is on foot from a judgment of the federal magistrate dismissing an application to set aside a bankruptcy notice. So the mere fact that the first listing was before a registrar does not of itself indicate that this was not the first return date. The question was not whether the registrar had the power to make the order. As the federal magistrate recognised, the question was: What was the effect of her Honour's order? 23 Mr and Mrs Watts stress that the only date mentioned in the notice of appeal was the date the appeal papers were to be settled and so it followed that this must be the first return date. 24 The bank submits that the federal magistrate was correct to construe "the first return date of the notice of appeal" as a reference to the first call-over in the appeal. It contends that the objective circumstances point to this being the occasion when it was expected that a judge of this Court would hear any further application for extension of time to preserve the status quo pending the appeal. 25 The bank relied on Practice Note APP 1 which makes it clear that at the call-over the parties should be in a position to advise the Court whether there are any motions still to be dealt with. The status report form sent to the parties under cover of a letter of 22 June 2009 notifying the parties of the call-over date included this practice note. The bank's point was that this tends to support the view that the call-over date was the first return date of the notice of appeal. 26 The bank also relied on a letter from the Court to Mr and Mrs Watts, dated 21 May 2009, (seven days after the appeal had been filed but which was in standard form). In that letter the appellants were informed that the appeal had been scheduled for an Index Conference before a registrar of the Court in order to settle the appeal papers. The date given in the letter was 10 June 2009. The purpose of the Index Conference is described in the letter: The purpose of the Index Conference is for the Registrar presiding at the index appointment to settle the indexes to the appeal papers in accordance with O 52 r 28A of the Federal Court Rules. The Registrar will canvass with the parties the relevance of documents to specific grounds of appeal and explore whether there is any prospect of narrowing the issues of law or fact the subject of the appeal. Please note that the Registrar will expect the parties to be in a position to address him/her on these issues. Any party who is unprepared for this purpose may, without reasonable excuse, be refused an opportunity for more time to prepare or to seek further instructions. The Registrar will settle Part A of the appeal papers in accordance with O 52 r 26 of the Federal Court Rules. Parts B and C will include only those documents or parts of documents which are strictly necessary for the orderly resolution by the Full Court of the actual issues on appeal: see Purvis v Dairy Board (No. 2) [2006] FCAFC 388 (paras 614) & Cultivaust Pty Limited v Grain Pool Pty Limited [2005] FCAFC 223 (paras 7276). Parties are expected to carefully consider the documents to be included in the appeal papers and to cooperate with the Court in reducing the volume of material for inclusion in the appeal books. At the conclusion of the index appointment the Registrar will make any appropriate directions. … 27 Mr and Mrs Watts relied on the last sentence. The federal magistrate held that the reference to "any appropriate directions" was in context a reference to the preparation of the appeal papers. He supported that conclusion by referring to the terms of O 52 r 28 A of the Federal Court Rules: Order 52 28A Settlement of appeal papers (1) At the appointment to settle the appeal papers the Registrar must: (a) settle the appeal papers in accordance with subrule (2); or (b) refer the appeal papers to the Court or a Judge for settling. (2) If paragraph (1) (a) applies, the Registrar must: (a) determine the documents and matters to be included in the appeal papers; and (b) determine: (i) the order of inclusion of the appeal papers; and (ii) any other matters about the preparation of copies of the appeal papers that he or she considers to be appropriate; and (c) settle the indexes in accordance with rules 26 and 28B; and (d) determine the number of copies of the appeal papers required; and (e) obtain an estimate of the duration of the hearing from each party; and (f) if practicable: (i) fix a date for a hearing; or (ii) list the appeal for hearing in appellate sittings of the Court. 28 His Honour was entitled to have regard to evidence about the Court practice as part of the circumstances surrounding the making of the order; "part of the 'factual matrix', the 'objective setting' or, to use the contemporary interpretative formula, the 'context' (cf. Ho v Grigor [2006] FCA 417 at [29])" in which the order is to be construed: Nokia Corporation v Liu (2009) 179 FCR 422 at 430 [29]-[31]. Nokia Corporation was concerned with consent orders but the bank submitted that the same principles apply to the construction of an ex parte order and Mr and Mrs Watts did not argue otherwise. 29 The federal magistrate discerned the effect of Jagot J's order by reference to its context, namely, "an urgent application by a debtor after the delivery of an adverse judgment … refusing to set aside a bankruptcy notice, where the first instance judge had allowed only a very short extension to allow consideration of an appeal". His Honour found that, in the absence of a technical definition of the term, the qualifying words in the order - "at which time a further application for an extension of time may be made" - acquire significance. He said that the qualifying words suggest that the "first return date" was one that would afford an opportunity to apply for such an extension. He also observed that "in common legal parlance" the "first return date" is a reference to a listing before a judicial officer and not an administrative appointment before a registrar or other court official. His Honour emphasised that the purpose of the order was to give Mr and Mrs Watts the benefit of an extension of time, so it should be construed in a way that affords them the longest period of extension. 30 In my view, his Honour was right to regard the call-over as the first return date. It must be accepted that Jagot J was well aware of the Rules and the processes that take place once a notice of appeal is filed. The correspondence and the Rules of Court show that the proceeding before the registrar was administrative in character. It is most unlikely that her Honour anticipated that an application for an extension of time might be made before the registrar on the occasion for settling the appeal papers. In my opinion, the order contemplated that the application would be made when the matter was first mentioned in Court. 31 As I indicated earlier, Mr and Mrs Watt contend in the alternative that "the first return date" was the date that Moore J made an order by consent in chambers referring the matter to a case management conference. This submission was opportunistic. It was not made to the federal magistrate. Indeed, his Honour noted that it had not been made. He remarked (at [37]): It is not contended by Mr and Mrs Watts that these events could be regarded as providing an alternative "first return date of the notice of appeal" as specified by Jagot J's order. The events tend to confirm that practice of the Federal Court anticipated that only limited powers would be exercised by a Registrar at an appointment to settle appeal indexes. 32 As I observed earlier, this is an appeal by way of rehearing. It is not a new hearing where an unsuccessful party can seek to run the case afresh. Parties are bound by the way they conduct their cases at trial. As the plurality said in Coulton v Holcombe (1986) 162 CLR 1 at 7: To say that an appeal is by way of rehearing does not mean that the issues and the evidence to be considered are at large. It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish. The powers of an appellate court with respect to amendment are ordinarily to be exercised within the general framework of the issues so determined and not otherwise. 33 However the bank did not take this point. The bank submitted that the alternative submission should be rejected on its merits. The bank did not argue that it would have led to additional or different evidence if it had been taken below. The point is one of construction. In those circumstances it is accepted that the Court may entertain the point if it is expedient and in the interests of justice to do so: Water Board v Moustakas (1988) 180 CLR 491 at 497. I am far from convinced that it is in the interests of justice to do so, as Mr and Mrs Watts were represented by solicitors and counsel in the hearing before the federal magistrate. Still, as no objection was taken, I am prepared to consider it. 34 The appeal did not come before Moore J in the ordinary course but on referral from the registrar, who considered it was appropriate to hold a case management conference and who appears to have considered that he did not have the power to make such an order himself. Were it not for the registrar's action, by the ordinary course the appeal would not have found its way to a judge until the call-over. The registrar forwarded consent orders to the solicitors for the parties. Those orders were signed and returned to the registry. Moore J then made the order in chambers. 35 The federal magistrate (at [57]) considered that the expression "first return date" referred to: an event when the parties were first appearing before a judicial officer with power, time, and inclination to entertain an application for an order extending the time for compliance with the bankruptcy notice. 36 I do not accept this description and Mr Mehigan, counsel for the bank, did not embrace it, describing it as a rhetorical "flourish". It is, in my view, too restrictive. Nevertheless, as I said earlier, the plain intention of the order was to capture the first occasion when the appeal was listed in court. The evidence is that the appeal was first listed in court on 29 July 2009, the day of the call-over. For this reason I reject both the primary and the alternative submission and therefore the first ground of appeal.

Ground 2 - Were the Watts able to pay their debts? 37 Mr and Mrs Watts submitted that the federal magistrate failed to recognise that they are "recalcitrant but solvent" debtors and should have invoked the provisions of s 52(2)(a) of the Act to dismiss the petition. 38 This submission does not appear to have been made to the federal magistrate either. Once again, however, the bank did not take the point. 39 Section 52 relevantly provides: (1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. (1A) … (2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) that he or she is able to pay his or her debts; or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition. 40 The problem with the submission is that Mr and Mrs Watts did not prove they were solvent and they bear the onus of proof: Cf. Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 24. In their written submissions in reply they blamed their legal representatives for failing to adduce evidence of their solvency, although they did not seek to call any evidence on this question. They did invite the Court to admit further evidence on the appeal, noting the Court's power to do so under s 27 of the Federal Court of Australia Act. But the evidence did not go to show that their legal advisers lacked competence or diligence or ignored their instructions. Most importantly, it did not show that they had the capacity to pay their debts. They relied on a search conducted on the bank's behalf of the National Personal Insolvency Index (the Index") to show that, as at 10 August 2010, the only reference to them was the bank's petition. But that is beside the point. The information required to be entered on the Index is limited. See Bankruptcy Regulations 1996 (Cth), cl 13.03(1). This evidence added nothing to the information before his Honour. They also tendered a "without prejudice" communication in which they made an offer of settlement. I rejected the tender. Apart from the difficulties of adducing evidence of this kind (see Evidence Act 1995 (Cth), s 131), the evidence was not probative of anything. A mere offer to settle without proof of the means to honour it would not establish that the offeror had the money available. In any event, the amount offered amounted to less than two thirds of the debt. 41 Accordingly, this ground also fails.

Ground 3 - Was there "other sufficient cause" to dismiss the creditor's petition? 42 The argument about this question was based on the pending claim against the bank in the Supreme Court. It was supported by evidence from a valuer, Malcolm Garder, obtained after the statement of claim had been filed. Before the federal magistrate Mr and Mrs Watts submitted that the fact that this proceeding had been started, the fact that the pleading carried a certification that it had reasonable prospects of success, and the fact that there was uncontradicted expert evidence to support it meant that the Court could be satisfied that there was a cross-claim against the bank, which is sufficient cause to dismiss the petition and refrain from making a sequestration order. 43 The federal magistrate rejected the submissions. He pointed to the delay in instituting the pending Supreme Court proceedings against the background of the long history of unsuccessful litigation against the bank that preceded it. He referred to the requirement that Mr and Mrs Watts show that the claim was likely to succeed, not only that it had reasonable prospects of success, relying on the authorities discussed by, and the analysis of, Allsop J in Totev v Sfar [2006] FCA 470, (2006) 230 ALR 23 at [37][45]. The judgment in Totev v Sfar was overturned on appeal but not on this question: Totev v Sfar (2008) 167 FCR 193. His Honour also exposed a fundamental, indeed fatal, problem with the expert evidence upon which Mr and Mrs Watts relied. I am unable to discern any error in his Honour's reasons. 44 Mr and Mrs Watts did not suggest there was any error in the federal magistrate's analysis of the legal principles. They accepted that they had to show that their claim against the bank was "likely to succeed". They raised two matters. First, they submitted that the federal magistrate wrongly concluded that Mr Garder's valuation report did not materially advance the merits of the claim against the bank. Secondly, relying on s 91 of the Evidence Act, they argued that his Honour wrongly had regard to the conclusions of Foster J and the Full Court on the merits of their claim that the property, the subject of the security, had been sold at an undervalue (in the context of the applications to set aside the statutory demand and the bankruptcy notice). 45 The federal magistrate's decision is best encapsulated in two paragraphs of his reasons: [71] In the present case, Mr and Mrs Watts start with the difficulty that several Judges of the Federal Court have concluded, and I would respectfully agree on the same evidence as was before them, that Mr and Mrs Watts were unable to point to even a 'genuine' or reasonably triable claim, on tests less demanding than one of "likely to succeed". They attempted to overcome this problem by tendering the additional evidence which I have described above. [72] I have considered the additional evidence and all the arguments of counsel for Mr and Mrs Watts, but I am not satisfied that the new material satisfies the higher test in relation to s.52(2)(b) referred to by Allsop J. Indeed, I am not satisfied that it materially advances the merits of the prospective claims against the Bank higher than the characterisation given to them by Foster J and the Full Court. [Emphasis added.] 46 The federal magistrate did not err by referring to the findings in earlier proceedings. The evidence that was before this Court on the occasions to which he was referring was also before him. It is abundantly clear that his Honour did not merely adopt a finding of another court. Rather, he reached the same conclusion on the same evidence. 47 There is no error either in his Honour's conclusion that the additional evidence makes no material difference. It is true that Mr Garder expressed the opinion that the market value of the property with vacant possession at April 2007 was higher than the amount for which the bank sold it. It is apparent, however, that the opinion was based on a false assumption. In his report Mr Garder stated: REMARKS … In 2006 the property was marketed as a historic listed house having potential for redevelopment as a large prestige dual occupancy on Drummoyne park. The property was sold by Burridge Real Estate Agents on 2nd November 2006 for $1,075,000 however the bank did not allow the matter to proceed to contract. … SALES EVIDENCE The best evidence of value is the unconditional sale of the property by Burridge Real Estate Agents on 2nd November 2006 for $1,075,000. I have investigated the market at that time and have been able to support the figure with the sale shown under Comparable Sales. [Emphasis added.] 48 The federal magistrate pointed out (and Mr and Mrs Watts did not argue to the contrary in this appeal) that it was common ground that the reference to an "unconditional sale" in November 2006 was wrong. The real estate agents did not report an unconditional sale of the property at that price. Rather, they reported the existence of negotiations for a possible sale at that price. Moreover, the statement that it was the bank that did not allow the matter to proceed to contract is wrong. This was a matter considered in the proceeding before Foster J: BMG Poseidon Corp Pty Ltd v Adelaide Bank Ltd (No. 2) [2009] FCA 404 [23]-[33]. The federal magistrate observed: [48] …[T]he evidence before Foster J showed that the prospective purchaser, Mr Campbell, never became willing to execute an agreement to purchase the property at that price, in circumstances which are set out in the judgment of Foster J from [23]-[33]. Counsel for the Bank also pointed out that there was a caveat on the title at the time of Mr and Mrs Watts' negotiations with Mr Campbell, which it appears neither Mr Watts nor the Bank was able or willing to remove to allow the proposed contract to be attractive to Mr Campbell at that time. In the events recounted by Foster J, based on the same evidence as is before me now, Mr Campbell only became a willing purchaser when the Bank took over the negotiations, and reduced the price so as to effect a sale to him on 2 April 2007 for $1 million. [49] It is therefore difficult to see how the new valuation evidence materially advances the merits of Mr and Mrs Watts' claims against the Bank for an alleged mortgagee sale at an undervalue, so as to make their prospects any better than the assessments made by Foster and Buchanan [scil.] JJ and the Full Court. [Emphasis added.] 49 Mr and Mrs Watts did not argue that the conclusion the federal magistrate reached in [48] was wrong on the evidence before him or was not open to him. That evidence showed that: (e) there was a caveat on the property; (f) the solicitors for the prospective purchaser, Mr Campbell, required confirmation that, if contracts were exchanged, there would be no difficulty in discharging the mortgage with the bank and removing the caveat; and (g) BMG was not in a position to provide an unencumbered title. 50 Accordingly, the sale price in the proposed contract was not the price at which a sale to Mr Campbell could be realised. On any view Mr Garder's assumption that there had been an unconditional sale of the property for $1,075,000 was mistaken. 51 Where an expert's opinion is founded on an assumption which is not supported by the evidence, the opinion has no weight. In the circumstances, the federal magistrate's conclusion was inescapable. 52 Mr and Mrs Watts also complained that the federal magistrate "accorded overwhelming significance to the fact that BMG was placed into liquidation and that no application for leave to proceed by that company has been sought from the Supreme Court". The submission wrongly characterises the federal magistrate's reasons. His Honour did not accord "overwhelming significance" to those matters. He merely referred to them. The fact that BMG was in liquidation and could not bring the proceeding without leave was plainly not irrelevant (and Mr and Mrs Watts did not suggest it was). In this appeal Mr and Mrs Watts tendered evidence to show that on 27 September 2010 - after the sequestration order was made - they had filed an application for leave under s 471B of the Corporations Act. Section 471B provides: Stay of proceedings and suspension of enforcement process While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with: (a) a proceeding in a court against the company or in relation to property of the company; or (b) enforcement process in relation to such property; except with the leave of the Court and in accordance with such terms (if any) as the Court imposes. 53 The application referred to a supporting affidavit from Mr Watts but Mr and Mrs Watts did not read or produce the affidavit. Neither did they tender any evidence to show that leave had been granted. The Supreme Court action therefore remains incompetent. 54 The federal magistrate's comments were made in the context of the timing of the claim and the public interest in allowing Mr and Mrs Watts to pursue the bank in the Supreme Court. Their case is not advanced by proof that they have made a belated, unadjudicated application for leave. 55 Mr and Mrs Watts also tendered a deed of assignment showing that the liquidator (for the sum of $7,890) had agreed to assign to Mr Watts the company's "right, title and interest in the Chose in Action and the Proceedings such as it is". [Emphasis added] That evidence does not take the matter any further either. It certainly does not establish that his Honour's discretion miscarried. 56 Mr and Mrs Watts have not shown that the federal magistrate acted on a wrong principle, took into account irrelevant considerations, failed to take into account a relevant consideration, mistook the facts or reached an unreasonable or plainly unjust conclusion so as to give rise to the inference that he failed properly to exercise his discretion (see House v The King (1936) 55 CLR 499 at 505). Consequently, this ground must also fail.

Conclusion 57 None of the three grounds is made out. The appeal must therefore be dismissed. There is no reason why costs should not follow the event. I certify that the preceding fifty-seven [57] numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.