FEDERAL COURT OF AUSTRALIA

Fodare Pty Limited v Official Trustee in Bankruptcy [2000] FCA 1721

APPEAL – application to adduce further evidence after delivery of Full Court judgment – whether case now sought to be raised arose in consequence of the judgment on appeal – whether Order 52 r 36 complied with – whether case now sought to be raised should have been raised at first instance – whether there was adequate explanation for failure to raise the matter at first instance – whether, had the evidence been adduced at the trial, a different result would have ensued – public interest in the finality of litigation

BANKRUPTCY – void settlement under s 120(1) Bankruptcy Act 1966 (Cth) – entitlement to interest – entitlement in trustee to a charge upon property to secure the payment of the judgment debt

COSTS – where applicant only partially successful on appeal – whether individual respondents were necessary parties

Bankruptcy Act 1966 (Cth) ss 120(1), 139ZQ, 139 ZR

Federal Court Rules (Cth) O 35 r 8, O 52 r 36,

Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372

FODARE PTY LIMITED AND DORIS EMILY ELIZABETH MILLER AND KATHLEEN ANNE HIRTZELL AND KEVIN TUBB v OFFICIAL TRUSTEE IN BANKRUPTCY AND OFFICIAL RECEIVER

N 400 OF 2000

LEHANE, HELY & CONTI JJ

29 NOVEMBER 2000

SYDNEY

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.                  The appeal be upheld and the declarations made by the primary judge be set aside.

2.                  The payment of $87,500 on 13 April 1989 from Doris Emily Elizabeth Miller to Fodare Pty Limited be declared void as against the Official Trustee in Bankruptcy.

3.                  There be entry of judgment for the Official Trustee in Bankruptcy against Fodare Pty Limited in the sum of $87,500, plus interest in the sum of $32,557.18.

4.                  The property situated at 23 Racecourse Avenue, Menangle Park, being folio identifier 23/10718, be charged with the payment to the Official Trustee in Bankruptcy of the amount of the judgment, namely $120,057.18.

5.                  The order for costs made at first instance be discharged insofar as it required Doris Emily Elizabeth Miller, Kathleen Anne Hirtzell or Kevin Tubb to pay the costs of the Official Trustee in Bankruptcy.  The orders for costs are otherwise affirmed.

6.                  There be no order as to the costs of the appeal.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

THE COURT:

1                     Certain matters were reserved for further consideration in the decision which we gave on 5 October 2000.  We did not then envisage that the resolution of those matters would involve the taking of further evidence.  However, when the matter came on for further consideration, counsel for Fodare sought to adduce further evidence in the form of an affidavit of Doris Emily Elizabeth Miller sworn 21 November 2000.  That affidavit purports to be “in response” to an affidavit of Sally Susan Nash sworn 13 November 2000, which was not read by counsel for the Trustee.  Nonetheless, counsel for Fodare sought to rely upon the affidavit.

The application to adduce further evidence

2                     Counsel for Fodare, Mr Cameron, stated that the further evidence was intended to establish that, after 13 April 1989, Fodare raised on the security of the Menangle Park property, and gave to Mrs Miller, sums of money equal to or exceeding the $87,500 which we held to be a void disposition of Mrs Miller’s property.  In substance the case which Fodare now seeks to make is that, prior to Mrs Miller’s bankruptcy, it repaid to Mrs Miller (from money raised under a mortgage of the Menangle Park property) the sum now claimed by the Official Trustee.

3                     Mr Cameron accepted that the case now sought to be raised by Fodare was not raised at first instance, nor was it sought to be raised on the hearing of the appeal.  In his submission, the occasion for raising the case first arose when the Official Trustee prepared short minutes of order indicating that the relief which it sought as a result of the judgment given on 5 October 2000, was judgment against Fodare in the sum of $87,500 and interest and a charge on the Menangle Park property to secure payment of the amount of the judgment.  Mr Cameron accepted that, if leave to adduce further evidence were granted, the matter would need to be remitted to the primary judge for further consideration, as disputed questions of fact requiring cross-examination are involved.

4                     We do not accept that the occasion for raising the case now sought to be made arose only in consequence of the judgment which we gave on 5 October 2000.  The amended cross claim, filed in the proceedings on 3 September 1998, included a claim for a declaration that the provision of $195,000 to Fodare by Mrs Miller to acquire the Menangle Park property was a void disposition pursuant to s 120(1) of the Bankruptcy Act 1966 (Cth) (“the Act”), as well as an order for payment of that sum together with interest at the rate of 10.5% pa.

5                     If the claim now sought to be made has any substance, it would have been at least a partial answer to that element of the Trustee’s claim, if not to all elements of that claim.

6                     The provisions of Order 52 rule 36 have not been complied with, inasmuch as the grounds of the application to have further evidence received have not been stated in an affidavit.  No evidence has been put before the Court to explain why the evidence now sought to be adduced was not led at the trial, or why the case now sought to be made was not raised at the trial.  There is at least a superficial inconsistency between that case and Mrs Miller's basic position at first instance that none of the money used to acquire the Menangle Park property was money to which she was beneficially entitled.

7                     If there is any substance in the case now sought to be made, that case should have been raised in the proceedings at first instance.  No acceptable explanation for failure to raise the issue at first instance has been made out.  It is too late to raise the matter for the first time after judgment has been given on the appeal, particularly when reception of the evidence would require remission of the matter to the primary judge.  There is a public interest in the finality of litigation, and this application offends that principle.

8                     Nor are we satisfied that, if the further evidence now sought to be adduced had been led at the trial, a result different from that which we have found would have ensued.  Mrs Miller’s affidavit, if accepted, proves payment of sums of money by Fodare to or for the benefit of Mrs Miller during 1990, but it falls short of establishing the case articulated by Mr Cameron that the payments extinguished Fodare’s liability (assuming it had such a liability) to repay the void disposition.

9                     The application to adduce further evidence is refused.

Interest

10                  The Official Trustee seeks an order that there be included, in the sum for which judgment is given, interest at the varying rate under Order 35 rule 8 totalling $32,557.18.  The interest calculation commences on 26 May 1997, being the date on which the notice under s 139ZQ of the Act was served on Fodare.  That notice required payment of $195,000, a sum which included the $87,500 void disposition.  We are not concerned to enquire whether the notice was effective to create the charge for which s 139ZR provides.  It is effective as a demand, although the sum demanded is in excess of that which we have found to be payable.

11                  The decision of the Full Court in Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372, 426 confirms the entitlement to interest in a case such as the present.  There has been no challenge to the quantification of the sum claimed, and we propose to order that there be included, in the sum for which judgment is given, interest in the sum of $32,557.18.

Charge

12                  The money which we have found to be a void disposition was applied by Fodare in the purchase of the Menangle Park property, of which Fodare remains the registered proprietor.  Alvaro (supra) recognises the entitlement in the Trustee to a charge upon that property to secure payment of the judgment debt.  At p 427 Wilcox and Cooper JJ said:

“Where there has been a disposition of property and that property has not been retained but has been transformed into other identifiable property or mixed with the property of a third party, the court will allow a remedy against the identified specific property in order to give the trustee in bankruptcy an effective remedy upon the avoidance of the original disposition of property : Re Mouat; Kingston Cotton Mills Co v Mouat [1899] 1 Ch 831 at 834-835; Trautwein v Richardson at 130, 132, 133.  The decision in Re Mouat demonstrates that although the avoidance of the disposition brought about by s 121 of the Act and its predecessors is a legal remedy the courts will grant equitable relief to make good the remedy.”

13                  The Trustee accepts, as it must, that the charge cannot take priority over other interests bona fide obtained by third parties, and questions of priority cannot be determined in these proceedings.  In the circumstances we think the better course is simply to declare the existence of a charge over the Menangle property to secure payment of the judgment debt, it being obvious that the mere declaration of that charge will not determine priority issues should they arise.

Costs

14                  At first instance orders were made that:

-                     Fodare, Mrs Miller, Ms Hirtzell and Mr Tubb should pay the Official Trustee’s costs of the proceedings in which the Trustee was the applicant;

-                     Fodare should pay the Official Trustee’s costs of the proceedings in which Fodare was the applicant.

15                  Fodare’s appeal partially succeeds, as the declaration made by the primary judge is set aside.  The appeal partially fails as we have found that the disposition of $87,500 on 13 April 1989 is void as against the Official Trustee.  All of the time on the further consideration of the appeal was devoted to issues on which Fodare failed.

16                  The appellant’s written submissions lodged in support of the appeal covered a wide range of matters which are remote from the issue on which it succeeded.  The point on which Fodare succeeded either does not emerge, or does not emerge with any clarity from those submissions.

17                  The principal contest at first instance was as to the credibility of Mrs Miller and the other witnesses called by Fodare, a contest in which Fodare resoundingly failed.  The order for costs made at first instance should stand, subject to the qualification that there should be no order for costs as against the individual respondents at first instance, as they were not necessary parties in proceedings in which the Official Trustee was claiming the only relief to which we have found he was entitled.  Any more favourable order for costs in favour of the individual respondents at first instance would overlook the circumstance of their common legal representation with Fodare.

18                  In all the circumstances, a fair order in relation to the costs of the appeal is that there should be no order as to costs, either of the appeal itself, or of the issues reserved for further consideration.

Orders

1.                       That the appeal be upheld and the declarations made by the primary judge be set aside.

2.                       That the payment of $87,500 on 13 April 1989 from Doris Emily Elizabeth Miller to Fodare Pty Limited be declared void as against the Official Trustee in Bankruptcy.

3.                       That there be entry of judgment for the Official Trustee in Bankruptcy against Fodare Pty Limited in the sum of $87,500.00, plus interest in the sum of $32,557.18.

4.                       That the property situated at 23 Racecourse Avenue, Menangle Park, being folio identifier 23/10718, be charged with the payment to the Official Trustee in Bankruptcy of the amount of the judgment, namely $120,057.18.

5.                       That the order for costs made at first instance be discharged insofar as it required Doris Emily Elizabeth Miller, Kathleen Anne Hirtzell, or Kevin Tubb to pay the costs of the Official Trustee in Bankruptcy.  The orders for costs are otherwise affirmed.

6.                       That there be no order as to the costs of the appeal.

Associate:

Dated:              29 November 2000