Farrow Mortgage Services Pty Ltd v Ballantine-Jones & Anor [1998] QSC 210

IN THE SUPREME COURT OF QUEENSLAND Writ No. 1366 of 1991 Brisbane BETWEEN: FARROW MORTGAGE SERVICES PTY LTD (In Liquidation) Plaintiff AND: BALLANTINE-JONES & ANOTHER Defendant REASONS FOR JUDGMENT - MOYNIHAN J. Judgment delivered 7 October, 1998 CATCHWORDS: CONTRACT - Construction and interpretation - Whether agreement to compromise judgment debt became unconditional - Whether parties agreed to be bound by findings of independent financial investigator. Counsel: P. Hack for the applicant. K. Barlow for the respondent. Solicitors: Raj Lawyers for the applicant. Macrossans for the respondent. Hearing Dates: 4 September, 1998 -- 1 of 15 -- IN THE SUPREME COURT OF QUEENSLAND Writ No. 1366 of 1991 Brisbane BETWEEN: FARROW MORTGAGE SERVICES PTY LTD (In Liquidation) Plaintiff AND: BALLANTINE-JONES & ANOTHER Defendant REASONS FOR JUDGMENT - MOYNIHAN J. 1 The defendants in this action seek a declaration that, in the events which have occurred, it is not open to the plaintiff to enforce a judgment which it obtained against the defendant Warwick John Ballantine-Jones in action 1729 of 1991. The application was heard in chambers on the basis of the affidavit evidence; there was no application to cross-examine any of the deponents. 2 The immediate circumstances giving rise to the application are that on 3 August, 1998 the defendant's application to set aside a bankruptcy notice founded on the judgment debtor issued by the plaintiff came before a Judge of the Federal Court. On 28 August, 1998 that application was adjourned to permit the point now raised by this application to be determined in this court. 3 The defendants submit that the plaintiff can't enforce the judgment because of a compromise by the parties to this action entered into on 7 May, 1993. The following account of the facts bearing on the resolution of the issues which arise is not exhaustive but is -- 2 of 15 -- 3 sufficient for present purposes. I should mention that the plaintiff went into liquidation during the course of events canvassed and any references to the plaintiff should be read as including the liquidator. 4 The defendant Warwick Ballantine-Jones and a man called Zammit borrowed money from the plaintiff to finance a development on land at Sumner Park. Eventually the securities to secure the advances included a mortgage over the defendants' residence at River Hills. The borrowers defaulted and the plaintiff sued the defendants in this action (1366 of 1991) to recover possession of their residence and sued Ballantine-Jones and Zammit, who has since gone bankrupt, for the debt by specially endorsed writ (action 1729 of 1991). The plaintiff obtained summary judgment against Warwick Ballantine-Jones for $710,435.48 in the debt action on 23 April, 1992, and on 21 September of that year served him with a creditor's petition for bankruptcy founded on the judgment. That petition ultimately lapsed on 21 September, 1993. 5 In the meantime a compromise was negotiated between the plaintiff and the defendants on 30 October, 1992, the terms of which relevantly included:- • The debt would be a re-finance and the plaintiff paid out by 20 December, 1992. • A consent order made on 2 November, 1992 striking out the defendants' defence and counter claim in this action (1366 of 1991) and giving the plaintiff liberty to proceed as though the defendants had not delivered a defence. The order was made on the plaintiff's solicitor's undertaking not to enter a judgment in default of defence before 21 December, 1992. • Warwick Ballantine-Jones was to make two payments totalling $8,000.00 within 21 days of 4 November, 1992. -- 3 of 15 -- 4 There was no re-financing, Ballantine-Jones did not make the payments, the plaintiff terminated the agreement and on 25 March, 1993 entered judgment in default of defence against the defendants in this action. The plaintiff rejected a number of compromise proposals by the defendants and set about enforcing its rights to possession by obtaining the issue of a warrant of possession. 6 The defendants applied to set aside the default judgment of 25 March, 1993 on the basis that the compromise of 30 October, 1992 was still on foot. The matter came before the court on 7 May 1993; a fresh compromise was entered into, the defendants' summons and the action were placed on the settlement list and execution of the warrant was stayed by consent until further order. 7 The compromise of 7 May, 1993 on which this application is founded was in the following terms: "1) Warwick Ballantine-Jones ("B-J") hereby acknowledges that the debt currently outstanding to FMS is that amount which is calculated by reference to the judgment debt ($710,435.48) less receipts received after the 03.04.92 $295,009.67 plus expenses incurred since the 23.04.92. 2) B-J agrees forthwith to sell the River Hills property by:- a) appointing an agent for sale of whom FMS approves within 7 days of today b) by causing the property to be auctioned by such agent, the auction to take place not more than 60 days from today's date c) agreeing that FMS is entitled to set the reserve price for such action. 3) One hundred percent of the nett proceeds of sale be paid to FMS. 4) FMS will allow B-J the period of 7 days subsequent to the auction if the same -- 4 of 15 -- 5 is unsuccessful to sell the property by private treaty at a price to be approved by FMS. 5) At the expiry of 7 days as referred to in clause (4) hereof B-J hereby agrees to unconditionally & voluntarily surrender possession of the property to FMS if the property has not been sold on terms & conditions satisfactory to FMS. 6) B-J agrees to fund the costs up to a maximum of $5,000 of a financial investigation to enable FMS to determine the true financial position of B-J, Mrs B-J and any associated corporate or other entity in which he has an interest. 7) Subject to the findings of the investigation confirming that FMS would not be substantially better off financially than by bankrupting B-J, B-J agrees to participate in a formal compromise to be sanctioned by the Supreme Court of Victoria, such compromise to include terms that: a) B-J assigns to FMS all his divisible property as that term is defined in the Bankruptcy Act as amended. b) B-J contributes to FMS 30% of his annual gross income (before tax) such contribution to be made each year for a period of 3 years from the date of the sanction, & further being a sum not less than $10,000 per annum. 8) B-J agrees to pay FMS's taxed cost of the application for sanction estimated to be $3,000. 9) As to the pending Bankruptcy proceedings, the same are to be adjourned to a date to be fixed to be brought on: a) in the event of default of B-J under these terms on the giving of 5 clear -- 5 of 15 -- 6 days notice in writing: or b) upon the completion of the terms of the sanctioned compromise for the purpose of having same dismissed with no order as to costs. 10) As to the within action: a) B-J's summons & the action are to be adjourned to the settlement list; b) the parties agree to bear their own costs of & incidental to B-J's summons; & c) the stay ordered by Moynihan SJA on 29.04.93 & subsequently extended by the Court be further extended by consent until the earliest of the following dates: i) completion of the sale of the property, or ii) the date referred to in clause (5) hereof. 11) Mrs B-J acknowledges & accepts these terms insofar as they are applicable to her. 12) These terms are subject to & conditional upon approval & acceptance by the liquidator of FMS within 7 days and the Supreme Court of Victoria within 60 days." There was no provision that time was of the essence of performance of the compromise and in my view no occasions to imply it. 8 The defendants surrendered possession of their River Hills property to the plaintiff within two or three weeks of the compromise agreement, the property was sold in early 1994 and the proceeds credited against Warwick Ballantine-Jones' indebtedness to the plaintiff on -- 6 of 15 -- 7 23 March, 1994. There is no occasion to doubt these events were in performance of the agreement of 7 May, 1993. 9 The plaintiff instructed a chartered accountant, Maynes, by letter of 20 May, 1993 in the following terms to carry out a financial investigation: "I advise that prior to my appointment Farrow Mortgage Services Pty. Ltd., (In Liquidation) ("FMS") made a loan available to Warwick Ballantine-Jones which:- i) is in default. ii) is secured by Mortgages over Real Estate which were granted by Ballantine-Jones and S.J. Zammit. (Zammit was declared Bankrupt on his own Petition on 20th June, 1992 - AIQLD 1334/92/1). Furthermore, FMS is considering whether or not it should agree to compromise the debt or pursue Ballantine-Jones through to Bankruptcy. I therefore wish to appoint your firm to act as investigating accountant into the affairs of Ballantine-Jones, Carol Ballantine-Jones and any Associated Corporate or other entities in which he has an interest, and to prepare a report for me detailing, a) all assets and liabilities. b) all dispositions of assets that would be void as against a Liquidator or Trustee in Bankruptcy. c) gross income in 1991, 1992, and 1993 to date and the sources of that income. d) any entitlements or expectations under wills, trusts, superannuation funds or life assurance policies. Remuneration for your appointment shall be on a fee for time basis within the scale of rates as issued from time to time by the Insolvency Practitioners Association of Australia. In addition you shall be entitled to reimbursement of such actual disbursements as you may make in due course of your appointment. I have obtained the consent of Warwick Ballantine-Jones to this appointment and have also confirmed that: a) the costs of the investigation will be met by him; -- 7 of 15 -- 8 b) he will make all information available to you to enable you to conduct your investigation and prepare your report in a timely manner. You should of course satisfy yourself that your fees and expenses will be satisfied by Warwick Ballantine-Jones. The scope of your appointment is to cover, as a minimum, the financial years 1991, 1992 and 1993 to date an is to include, but not be limited to, full investigation of:- a) all records, books of account etc., maintained by Warwick Ballantine- Jones and/or his accountants. b) all corporate, trust and personal tax returns and bank accounts. c) all assets owned by Warwick Ballantine-Jones. d) any life insurance policies or superannuation held by the Guarantors. e) all sources of income of Warwick Ballantine-Jones. g) such other matters as you may deem relevant during your investigation, such as title searches, motor vehicle searches etc. For your information, I enclose copy Terms/Settlement as agreed and drafted by Counsel. I would appreciate it if you would confirm to me in writing by 24th May, 1993, that:- a) you accept this appointment of the above terms. b) a report into the affairs of Warwick Ballantine-Jones can be made available to me by not later than 9th June, 1993." 10 Maynes accepted the appointment and embarked on the investigation. Warwick Ballantine-Jones supplied some but not all the information Maynes required when asked for it and participated in the investigation. Not all of the information which Maynes required was readily available and Ballantine-Jones' accountant went on leave which did not help the completion of the report. Maynes also went on leave which necessarily involved delay. By a letter of 24 June, 1993 Maynes told the plaintiff that his investigation "was 90% complete" and assured it that all outstanding information would be in his hands on his return to work "on Monday week" and that his report would be in the plaintiff's hands "by the end of that week". -- 8 of 15 -- 9 11 On 25 June, 1993 Maynes wrote to Ballantine-Jones acknowledging "receipt of portion of the information required". He stated that due to the delays which had occurred he would not be able to complete his report until his return from leave on 5 July, 1993 and that the plaintiff had "reluctantly agreed" to extend the time for the report to Wednesday 7 July, 1993. Maynes stated that it was "imperative that my report be in their hands by that date". Maynes' letter sought further specified information and referred to a tentative appointment made for Monday 5 July, 1993 to finalise the matter. Ballantine-Jones did not keep this particular appointment because he was incapacitated by a back injury and this presumably caused further delay. 12 On 1 September, 1993 Maynes faxed the plaintiff what he described as a "copy of discussion draft of my report as a consequence of my investigation into the affairs of Ballantine-Jones." The draft report contained a summary of conclusions including:- "On the basis of the information provided to me and from the results of my investigations undertaken with your instructions, I am of the opinion that the liquidator of FMS would receive more funds by agreeing to compromise its debt rather than the alternative of pursuing WB-J through to bankruptcy." 13 Maynes took the position that his report was to the plaintiff and so did not provide a copy to Ballantine-Jones or his solicitor. At this stage I should make four points. I am not prepared to conclude, on the basis of the material before me, that Ballantine-Jones was in breach of any implied obligation to co-operate with Maynes or to supply him with information. So far as the material reveals, he did the best he could in the circumstances. Secondly, the defendant did not invoke clause 9(a) and, continued to treat the agreement as on foot by continuing to deal with Maynes and by selling the defendants' house in early 1994. Thirdly, Maynes does not suggest the draft report was deficient because of the absence of any information sought from Ballantine-Jones nor was it otherwise relevantly qualified. Fourthly, -- 9 of 15 -- 10 Maynes rendered a memorandum of fees "in the agreed sum of $5,000.00" which is in accordance with clause 6 of the agreement of 7 May or 2 September, 1997. The fees have not been paid. I don't regard non-performance of that term as justifying the plaintiffs determining the compromise of 7 May, 1993 and it did not purport to do so at the time. 14 The plaintiff did not accept Maynes' draft report. The reasons given include:- "(a) the value of shares held and transferred by the Debtor in a company called Traders Collection Services Pty Ltd (cl.6.3 of the draft report); (b) the value of shares subscribed in Fallbrook Pty Ltd, another associated company of the Debtor (cl.6.6 of the draft report); (c) the reliance on information from the Debtor's accountant as to the Debtor's salary (cl.7.3 of the draft report); (d) the fact that drawings being taken by the Debtor were to be offset against future salary (cl.7.7 of the draft report); (e) there were certain transactions in the affairs of Fallbrook Pty Ltd which were not properly reflected in the financial accounts of Fallbrook Pty Ltd (cl.8.5 of the draft report); (f) balance sheets of Fallbrook Pty Ltd did not show the correct issued capital (cl.8.9 of the draft report); (g) non-disclosure of shareholders' loans in the balance sheet of Fallbrook Pty Ltd (cl.8.10 of the draft report); (h) reliance on information received by the Debtor concerning statement of assets and liabilities for Fallbrook Pty Ltd (cl.8.15 of the draft report)." 15 It is impossible for me to determine in these proceedings whether there is any substance to those reasons. I will return to consideration of whether the plaintiff could reject -- 10 of 15 -- 11 the report in due course. The plaintiff instructed its then solicitors, by a letter of 15 October 1993, to advise Ballantine-Jones that:- "...following consideration of the report by Onus Maynes an investigating accountant into the affairs of Mr Ballantine-Jones, the offer made by Mr Ballantine-Jones is unacceptable. Please advise Mr Ballantine-Jones accordingly and advise him that he has seven days to put forward an amended proposal. If such an offer, which must be acceptable to the Liquidator, is not received within the time period, then enforcement proceedings by way of Bankruptcy are to be recommenced." 16 The defendants' then solicitors wrote to the plaintiff's solicitors by letter of 28 October, 1993. It should be noted that neither the letter of 18 October, 1993 referred to nor a copy of it has been found and that Warwick Ballantine-Jones denies having received it. Warwick Ballantine-Jones says however that his solicitor contacted him and said the plaintiff was unhappy with his financial affairs. That there was such a letter and that the solicitor took instructions in respect of it is evidenced by the solicitor's letter. Ballantine-Jones instructed his solicitor that the agreement of 7 May 1993 was the best he could do. The defendants' solicitors reply, of 28 October 1993, was in these terms: "We refer to your letter of 18 October, 1993 addressed to our clients. We have consulted with Mr Ballantine-Jones in regard to the contents of your letter. We have also perused the terms of settlement in this matter signed by all parties and taken our client's instructions in regard to the fulfilment of those terms of settlement. It appears to us from perusal of the terms of settlement and our instructions that our clients have complied with the following: 1. They have acknowledged the Judgment Debt in accordance with Clause 1; 2. They have co-operated in listing the Riverhill property for sale and by -- 11 of 15 -- 12 consenting to it being auctioned and by delivering up vacant possession; 3. They have acknowledged that 100% of sale proceeds be paid to your client; 4. Our client is prepared to execute all documents required to effectuate the compromise referred to in paragraph 7 of the Terms of Settlement, and has agreed to contribute 30% of his annual gross income for a period of three years with payments of not less than $10,000.00 per annum to be made to your client; 5. Our client has agreed to pay your client's taxed costs of the Supreme Court Application. We note that to date it cannot be said that our clients have breached the terms of settlement in any way and thus allow a trigger to renew the Bankruptcy proceedings pursuant to Clause 9 of the Terms of Settlement. Naturally, we have not had the privilege of seeing Mr Mayne's report but the writer has personally investigated the financial position of Mr W J Ballantine- Jones and Mrs C A Ballantine-Jones. We cannot see how Mr Maynes could in any way assert that your client liquidator would be in a better position should a Sequestration Order be made against the estate of Mr Ballantine- Jones. The writer notes that Mr Ballantine-Jones has very little in personal assets as the matrimonial home which he owned in joint tenancy with his wife is under your client's control. Our client's businesses are small and suffer from a lack of working capital. From our enquiries, Mr and Mrs Ballantine-Jones have very little by way of personal savings and the income from their business does little more than meet their living expenses. We note they are living in rented accommodation and their motor vehicles are subject to Lease Agreements with financiers. Upon our instructions and our review of Mr Ballantine-Jones' assets, we cannot see where he has any substantial divisible property for distribution amongst his creditors. Further, we note that your client would be well aware of the effect of the provisions of Section 139W to 139Z of the Bankruptcy Act 1966. From our investigation of Mr Ballantine-Jones' sources of income, it would not appear that he would be liable to make contributions to a Trustee in Bankruptcy in the event that a Sequestration Order was made. Another observation we would make would be that upon a Bankruptcy, if there were any divisible property and even if Mr Ballantine-Jones were assessed by a Trustee to make contributions, your client would have to prove in the Bankruptcy and share in any possible dividend. Pursuant to the Terms of Settlement, at least your client will receive $10,000.00 per annum for three -- 12 of 15 -- 13 years. We believe that it is now incumbent upon your client to exhibit to us how he would be better off in the event of a bankruptcy as compared to the Terms of Settlement already agreed. We also require evidence as to our client's alleged breach of the Settlement Agreement and we believe it only equitable that you provide to us a copy of Mr Mayne's report. We await hearing from you." There does not seem to have been any reply to this letter. As I have said the plaintiff sold the defendants' house in early 1994 and brought the proceeds to account against its debt. Essentially as a result of the proceeds of sales of mortgaged properties being brought to account the debt is now $300,784.83. There the matter seems to have rested until the bankruptcy notice, the subject of the application of 3 August, 1998 to set aside the plaintiff's bankruptcy notice. 17 The plaintiff's instructions reflected in its letters of 20 May and 15 October, 1993 in my view misapprehend the position. The compromise of 7 May, 1993 was a concluded agreement subject to conditions including those contained in clauses 6 and 7; not an offer. 18 The construction of the terms of the agreement is not without difficulty, perhaps due to the circumstances in which it was drawn up. The intent if not the expression of clause 7 was to determine whether or not the plaintiff was substantially better off financially by a compromise in terms of the agreement than it would be by bankrupting Warwick Ballantine- Jones. It seems to me that the effect of clauses 6 and 7 of the compromise of 7 May, 1993 was that the parties entrusted a determination of that to the "honest and impartial decision" of Maynes in "the exercise of his professional judgment" c.f. per McHugh JA in Legal and General Life of Australia Limited v. Hudson Pty Ltd (1985) 1 NSWLR 314 at 335. The plaintiff treated Maynes' draft report as final - there was in any event no provision for a draft report - and purported to reject it. It was in my view entitled to do that only if Maynes' -- 13 of 15 -- 14 exercise was not in accordance with the contractual terms or reflected some vitiating consideration such as fraud or collusion. It is not enough that the plaintiff disagreed with the report or even that it was demonstrably erroneous although in the latter case of course there might be an action for damages for negligence against its author. 19 In other words, in my view, the contractual implications of clauses 6 and 7 of the agreement are analogous to that which arises in lease agreements which provide for a rent to be fixed by a valuer; see Legal and General Life of Australia Ltd v. Hudson Pty Ltd; James McEwan & Co. Pty Ltd v. Dilettante Pty Ltd (1992) 163 LSJS 162; Patrick Stevedoring Pty Ltd v. James Patrick & Co. Pty Ltd (1993) 32 NSWLR 583; Woolworths Limited v. Merost Pty Ltd (1988) 14 NSWLR 300. It was not open to the plaintiff in the circumstances to reject the report. 20 Warwick Ballantine-Jones deposes that he had no contact with the plaintiff or anyone on its behalf (other than Maynes) between 7 May, 1993 and late June/early July 1997 when, presumably, he was served with the bankruptcy notice, the application to set aside which was dealt with by the Federal Court on 3 August, 1998. This cannot strictly speaking be correct because as I have said there is no occasion to doubt he gave his then solicitor instructions in terms of the solicitor's letter of 28 October, 1993 which reflects some knowledge of the plaintiff's position. So far as the material reveals however, there was no response to that letter or any further dealings prior to the service of the bankruptcy notice. Warwick Ballantine- Jones deposes that when he heard nothing further from the plaintiff he believed that it had been satisfied with the amount realised in the sale of the house property. That is a not unreasonable conclusion in the circumstances. 21 It follows that in my view the condition imposed by clauses 6 and 7 of the compromise of 7 May, 1993, that the plaintiff was better-off compromising than bankrupting Warwick -- 14 of 15 -- 15 Ballantine-Jones, was satisfied. It is true that clause 7 has the qualification "substantially" but Maynes' report is capable of sustaining that conclusion particularly in the light of the considerations canvassed by the defendants' solicitor's letter of 28 October, 1993. Clause 7 then contemplated a "formal compromise to be sanctioned by the Supreme Court of Victoria". So far as formality was concerned the assignment contemplated by 7(a) had to be effected, as did the arrangements contemplated by 7(b). Other formalities e.g. those in para 2 were overtaken by the course of events by the time of Maynes' report. The Court sanction was necessary because the amount of the debt was such that approval was necessary in terms of section 477 (2A) of the Corporations Law. The agreement however contemplated sanction of a compromise which the agreed independent investigations determined gave a better outcome than the alternative of bankrupting Warwick Ballantine-Jones. The agreement of course could not bind the Court but it bound the plaintiff. 22 As I have endeavoured to demonstrate the plaintiff erred in its view of the consequences of the compromise of 7 May, 1993 and of Maynes' report. The compromise was not an offer which the plaintiff would accept or refuse as it chose and it had agreed to be bound by the outcome of Maynes' exercise, as had the defendants if it had gone the other way. The plaintiff has had the benefit of the agreement in the proceeds of the sale of the defendants' house (as I understand it Carol Ballantine-Jones was not a debtor although she was a part owner of the house and bound by the agreement). Warwick Ballantine-Jones was in any event justified in regarding the plaintiff as satisfied with the amount realised in the sale of the defendants' house property as he swears was the case. Those being the considerations I declare that, in light of the events which have occurred, it is not open to the plaintiff to enforce the judgment which it obtained against the defendant, Warwick Ballantine-Jones in action 1729 of 1991. -- 15 of 15 --