Goggin v Majet[2015] QCA 244

SUPREME COURT OF QUEENSLAND

[1] GOTTERSON JA:  On 15 January 2014, Christine Majet and Joel Majet entered into a contract in the Real Estate Institute of Queensland and Queensland Law Society approved form[1] to sell their residential property at 105 St Crispins Avenue, Port Douglas to Herbert Ratcliffe Brett-Hall for the sum of $1,390,000.  A deposit of $139,000 was paid by Mr Brett-Hall to the trust account of the Majets’ solicitor, Mr Robert Palethorpe, as Deposit Holder, in accordance with the terms of the contract.

[2] The contractual completion date was “on or before 150 days of contract date”.  The contract was subject to a special condition for the benefit of the buyer that it be completed contemporaneously with a contract entered into by Walsarb Pty Ltd, the trustee of the Brett-Hall Family Trust, to sell property at 18-20 Macrossan Street, Port Douglas.

[3] Notwithstanding the special condition, the contracts were not completed contemporaneously.  The Macrossan Street contract was completed on 23 May 2014.  However, some 10 weeks earlier, Mr Brett-Hall had been declared bankrupt and a sequestration order made against his estate.  The joint and several trustees of his estate in bankruptcy are Mr John Goggin and Mr Glenn Miller of BRI Ferrier.

[4] On 29 April 2014, the trustees signed a written notice to the Majets pursuant to s 133(1A) of the Bankruptcy Act 1966 (Cth) that they disclaimed the St Crispins Avenue contract.[2]  The notice was headed “Notice of Disclaimer of Onerous Property” and included a confirmation by Mr Goggin that he had deemed the contract to be an unprofitable contract.  It was mailed to Mr Palethorpe on 1 May 2014.

[5] On 22 May 2014, Mr Palethorpe, on behalf of the Majets, wrote to Mr Goggin contending that the disclaimer “clearly demonstrated” an intention not to be bound by the contract and not to perform the buyer’s obligations.[3]  The letter further contended that the trustees “anticipatory breach and/or repudiation of the contract” entitled the Majets to terminate it and forfeit the deposit.  Mr Palethorpe asked the trustees to confirm that they laid no claim to the deposit which he was holding.  By email sent on 26 May 2014 Mr Palethorpe advised that unless he had a reply to his letter by close of business that day, he would be paying the deposit to his clients.[4]  Mr Goggin intimated that he would respond by 5 pm on 28 May 2014.[5]

[6] On 28 May 2014, Mr Goggin did respond by email contending that Mr Brett-Hall’s bankruptcy was deemed to have commenced on 6 December 2013, that the deposit was therefore property of a bankrupt when paid and that, consequently, it vested in Mr Brett-Hall’s estate in bankruptcy by operation of s 115(1) of the Bankruptcy Act.[6]  Mr Goggin also questioned whether the contract was void as against the trustees in bankruptcy.  Return of the deposit “pursuant to s 116(1)(a) and s 58 of the Bankruptcy Act” was requested.

[7] Mr Palethorpe maintained that his clients had a right to terminate the contract and forfeit the deposit in a letter to Mr Goggin received by him a little later on 28 May 2014.[7]  Mr Palethorpe intimated that unless the trustees confirmed that they relinquished any claim to the deposit promptly, he would pay it into court.  Confirmation in those terms was refused.[8]

[8] On 16 October 2014, the Majets commenced a proceeding by way of Originating Application in the Supreme Court at Cairns against the trustees as first respondent and Mr Palethorpe as second respondent, seeking alternatively forfeiture of, or a declaration of their entitlement to, the deposit and an order for payment of the deposit to them.[9] The application was listed for hearing on 10 December 2014.  On the day preceding the hearing, the trustees filed an Application in the proceeding seeking a declaration of their entitlement to the deposit and an order for payment of it to them.[10]

[9] Orders were made on 27 February 2015 declaring that the Majets were entitled to the deposit and directing it to be paid to their solicitors.  The trustees’ application was dismissed.[11]  On 27 March 2015, the trustees filed a Notice of Appeal in this Court against those orders.[12]

The issue and findings at first instance

[10] The central issue which the learned primary judge was required to resolve concerned whether the trustees’ disclaimer triggered a provision of the contract, clause 2.4(1)(c), which entitled the Majets, as Seller, to the deposit if the contract had been terminated owing to default of the Buyer.  The Majets contended that the disclaimer was a default of the Buyer and that they terminated owing to it.  The trustees contended that there was no default of the Buyer in the disclaimer.  Thus, the issue for decision refined to whether the disclaimer was a default on the part of the Buyer within the meaning of clause 2.4(1)(c).

[11] Section 133(1A) of the Bankruptcy Act permits a trustee to disclaim any contract that forms part of the property of the bankrupt by a notice in writing signed by him or her.  The legal effect of such a disclaimer is regulated by s 133(2) thereof which provides:

“A disclaimer under subsection (1) or (1A) operates to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed, and discharges the trustee from all personal liability in respect of the property disclaimed as from the date when the property vested in him or her, but does not, except so far as is necessary for the purpose of releasing the bankrupt and his or her property and the trustee from liability, affect the rights or liabilities of any other person.”

[12] Clause 2.2(1) of the contract required the Deposit Holder to hold the deposit until a party became entitled to it.  Clause 2.4(1) which related to entitlement to the deposit, provided as follows:

“The party entitled to receive the Deposit is:

(a)if this contract settles, the Seller;

(b)if this contract is terminated without default by the Buyer, the Buyer; and

(c)if this contract is terminated owing to the Buyer’s default, the Seller.”

(The meaning of the word “default” was not defined in the contract.  Both at first instance and on appeal it was accepted that repudiation of a contract by an anticipatory breach of it, is capable of being a default in this context.)

[13] The learned primary judge observed that s 133(2) did not have effect that the disclaimer, once given, terminated the Seller’s rights under the contract.[13]  Such rights, including a right to a forfeited deposit, were preserved by the reservation in favour of any other person at the end of the provision.[14]

[14] On the central issue, his Honour concluded that clause 2.4(1)(c) had been triggered, the contract having been terminated owing to the Buyer’s default.  He reasoned to that conclusion in this way:

“[32]The disclaimer of a contract is of its nature a manifestation of an unwillingness or inability to perform the contract and is prima facie a repudiation of the contract by anticipatory breach.[15] The disclaimer here clearly manifested an unwillingness or inability to perform the contract.  Once armed with that knowledge the sellers were hardly obliged to wait until the settlement date and the inevitable failure to settle.  There is nothing in s 133(2) that removed their right to promptly terminate because of the anticipatory breach heralded as a matter of fact by the notice of disclaimer.

[33]The fact the disclaimer ended the buyer's liabilities in respect of the contract did not make the act of disclaimer any less the buyer’s default under the contract.  The contract was terminated owing to that default.  On the face of it the applicants are entitled to the deposit pursuant to clause 2.4(1)(c) of the contract.

[34]That entitlement or right is preserved by the proviso to s 133(2) so that it is unaffected by the disclaimer.  The proviso is however subject to an exception within s 133(2).”[16]

His Honour was also satisfied that the necessity exception in the reservation in the section was of no relevance for present circumstances.[17] 

[15] In reaching his conclusion, the learned primary judge rejected a submission for the trustees that, logically, the disclaimer could not have put them in default of the Buyer’s liability to perform the contract given that its statutory effect was to remove that liability.  As to that, his Honour said:

“[28]That submission assumes that the obligations of the buyer under the contract, such as the obligation to complete, are ‘liabilities’ within the meaning of s 133(2).  However even if the obligation to complete is so characterised, it does not follow that the disclaimer transcends all consequences of the disclaimed contract.

[29]Pursuant to s 133(2) the disclaimer only determined the rights, interests and liabilities of the bankrupt buyer and his property in respect of the contract.  The disclaimer did not determine the sellers’ rights or liabilities under the contract.  They are preserved by the proviso. In the present context their continued existence is inconsistent with 133(2) having the meaning that what was contractually required to occur must be entirely ignored because of the disclaimer.  That the buyer was discharged from personal liability for the consequences of not proceeding did not render the factual consequences of the act of disclaimer irrelevant so far as the sellers’ rights were concerned.”[18]

Grounds of appeal

[16] The notice of appeal contains the following grounds:

“1.The learned primary judge erred in fact and in law in finding the disclaimer pursuant to s 133 of the Bankruptcy Act 1966 (Cth) by the first respondents (appellants) of a contract for the sale of land between Herbert Ratcliffe Brett - Hall (“the buyer”) and the applicants (“the respondents”) (“the sellers”) was conduct that was an anticipatory breach of the contract or was a repudiation of the contract that entitled the sellers to terminate the contract because the effect of the disclaimer was to release the buyer from any obligation to further perform the contract.

2.The learned primary judge consequently erred in fact and in law in finding

a.that the sellers had a right to terminate the contract for breach, and

bhad terminated the contract for anticipatory breach, and

c.that therefore in accordance with the express terms of the contract the sellers were entitled to the deposit paid by the buyer in accordance with his obligations under the contract prior to the disclaimer.

3.The learned primary judge erred in fact and in law in failing to find that upon the disclaimer 

a.the seller had no entitlement to the deposit paid pursuant to the contract;

b.that the sellers could not obtain such entitlement by reason of the effect of the disclaimer; and

c.therefore the first respondents as trustees for the buyer were entitled to the deposit forthwith upon the disclaimer.

4.The learned trial judge erred in law in finding that the first respondents as trustees for the buyer were by claiming the deposit attempting to exercise a right granted to the buyer by the contract that had been determined by the disclaimer because the claim to the deposit was a claim against the deposit holder that arose because the buyer and sellers had been released from their respective obligations to further perform or require performance of their respective obligations under the contract.

5.The effect of s 27 of the Bankruptcy Act 1966 (Cth) was that the application by the sellers and the cross application by the first respondent/appellants for declarations as to the entitlement to the deposit were matters within the exclusive jurisdiction of the Federal Court of Australia and the Federal Circuit Court of Australia and therefore outside the jurisdiction of the Supreme Court of Queensland.”

[17] Ground 5 raises an issue that was not canvassed for the learned primary judge.  If it has merit, the orders that were made by him will have been made without jurisdiction.  It is appropriate to consider this ground first.

Ground 5

[18] Section 27 of the Bankruptcy Act, to which this ground of appeal is referenced, confers an exclusive jurisdiction in bankruptcy concurrently in the Federal Court and the Federal Circuit Court, subject to certain exceptions concerning the High Court and the Family Court.  The word “bankruptcy” in relation to jurisdiction is defined in s 5 thereof to mean “any jurisdiction under or by virtue of this Act”.

[19] On appeal, counsel for the trustees referred to s 31 of the Bankruptcy Act which regulates whether matters within the bankruptcy jurisdiction are to be heard and determined in open court or in chambers.  Reliance was placed upon (f) in the list in s 31(1) of matters to be heard and determined in open court, namely, “applications to declare for or against the title of the trustee to any property”.  It was submitted that the applications before the learned primary judge were applications of that type and therefore were within the exclusive concurrent jurisdictions of the Federal Court and the Federal Circuit Court.

[20] I am unable to accept this submission.  The applications did not put in contest the title of the trustees to any property.  Put at its highest for the trustees, the interest in the deposit which vested in them upon Mr Brett-Hall’s bankruptcy was a Buyer’s contingent beneficial interest.  No absolute entitlement to the deposit could have vested in them then.  There is, and has been, no claimant to a Buyer’s contingent beneficial interest other than the trustees.  Likewise, for the Majets’ claim to a Seller’s contingent beneficial interest in the deposit at that time.

[21] In the event of the contract being terminated, the trustees’ interest in the deposit was contingent upon there being no default on the part of the Buyer.  For the Majets, it was contingent upon there being a default of the Buyer which occasioned the termination.  Which of these contingencies occurred is a matter that arises under the general law.  Judicial determination of it requires a construction of the provisions of clause 2.4(1) and an application of the clause so construed to the facts, including the disclaimer.  Entitlement to the deposit is dependent upon that determination.  The determination is properly within the jurisdiction of the Supreme Court of Queensland.[19]

[22] The issue in this case contrasts with that in Cordes v Dr Peter Ironside Pty Ltd.[20] In that case, this Court affirmed a permanent stay of proceedings in the Supreme Court in which a bankrupt sought to have property reconveyed to her.  Her trustee in bankruptcy claimed that legal and beneficial ownership in the property had vested in him on bankruptcy.  The orders sought by the bankrupt, to the extent that they recognised title to the property in her, would necessarily have an adverse effect on the title of the trustee in bankruptcy to the property.  Following Scott v Bagshaw,[21] the Court held that the relief sought was within the scope of s 31(1)(f).

[23] I note also a contrast with the circumstances in Turner v Gorkowski[22] to which counsel for the trustees also referred.  There, the Court of Appeal of Victoria concluded that a proceeding in the Supreme Court by the mother of a bankrupt claiming an equitable interest in property vested in the trustee in bankruptcy was a “special federal matter” which was required to be transferred to the Federal Court pursuant to s 6(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth).  It was such a matter because the trustee had to rely on the sequestration order in order to resist the equitable claim.  Here, no comparable claim is made against the Buyer’s contingent beneficial interest in the deposit which vested in the trustees.

[24] I would add that if the right with respect to the deposit which vested in the trustees was purely contractual, falling short of a contingent beneficial interest in it, then that right would have been a contingent right.  Similar considerations commend a conclusion that determination of which of the contingencies on which the respective contingent rights of the Buyer and the Seller under clause 2.4(1) depend, occurred is a matter within the jurisdiction of the Supreme Court.

[25] For these reasons, in my view, this ground of appeal cannot succeed.

Grounds 1 and 2

[26] Counsel for the appellant dealt with these grounds together in written and oral submissions.  They focus upon the finding by the learned primary judge at paragraph 26 and repeated at paragraph 32 in his reasons that the disclaimer clearly manifested an unwillingness or inability to perform the contract such as to characterise the disclaimer as a repudiation of it by anticipatory breach.

[27] The appellants challenge this finding as erroneous.  They submit that, by operation of s 133(2), the effect of the disclaimer was to relieve both Buyer and Seller from further obligations to perform the contract.  On the footing that the Buyer was thereupon relieved on any obligation to perform the contract further, there could be no anticipatory breach of it.  There was no repudiation and there was no default by the Buyer.[23]

[28] As to the authority relied upon by his Honour, the decision of James and Mellish LJJ on appeal from the Chief Judge in Bankruptcy in Ex parte Barrell, the appellants submit that it provides little guidance because there, under the contract, the deposit had been paid unconditionally before the purchaser’s bankruptcy; there was no contractual provision analogous to clause 2.4(1); and the brief statement by Mellish LJ[24] to the effect that the disclaimer by the trustee in bankruptcy repudiated the contract causing it “to go off” through the trustrees’ “default” is not supplemented by any analysis or reasoning.

[29] In written and oral submissions, the respondents’ contend that there were two Buyer defaults, either of which triggered clause 2.4(1)(c).  Primary reliance is placed upon the act of disclaimer.  That, in itself, was a default by the Buyer, the respondents submit.[25] Secondary reliance is placed upon an argument that the disclaimer prevented fulfilment of the contingency in clause 4.2(1)(a), namely, that the Seller is entitled to the deposit if the contract settles, and that, in accordance with principle, as against the Buyer, that contingency is deemed to have occurred.

[30] I accept submissions made in support of the respondents’ contention that the disclaimer did not terminate the contract or rights under it in all respects.  A disclaimer does not undo a completed transaction or divest rights which have accrued under it.[26] What this disclaimer determined forthwith was the rights, interests and liabilities of Mr Brett-Hall in the contract.  It also discharged the trustees from all personal liability in respect of the property disclaimed from the date of vesting.  The rights or liabilities of the Majets were unaffected by the disclaimer except so far as was necessary for release of Mr Brett-Hall and the trustees from liability.  Thus, in so far as the Majets had a Seller’s contingent beneficial interest in the deposit or a contingent contractual right to it when the disclaimer was made, the interest or right was unaffected by the disclaimer.

[31] I also accept a further submission made for the respondents that s 133(2) does not set out in an exhaustive way the legal consequences of a disclaimer.  The section states what is determined, what is discharged and how rights and liabilities of other persons are affected.  But it does not purport to specify the legal character that the determination of a particular right or liability or the discharge of a particular liability is to have within the context of a legal relationship.  In the present context, the section does not purport to specify whether the disclaimer is, or is not, an anticipatory breach of contract as would be a default on the part of the Buyer within the meaning of clause 2.4(1)(c).

[32] In my view, whether the disclaimer is a breach of contract constituting a default is a question to be answered by first ascertaining what it is that the disclaimer effectuates.  That is to be found in s 133(2) and the judicial interpretation of it.

[33] The effect of a disclaimer under the comparable provision in the Corporations Act 2001 (Cth), s 568D(1), was recently considered by the High Court of Australia in Willmott Growers Group Inc v Willmott Forests Ltd (Receivers and Managers Appointed) (In liq).[27]  There, the court held, by majority, that a lease entered into by a company as lessor was a contract within the meaning of s 568(1)(f) of the Act and could be disclaimed by the company.  Speaking of the effect of a disclaimer, French CJ, Hayne and Kiefel JJ accepted as correct a submission for the liquidators that, under s 568D(1), the liabilities of the company that would be terminated by the disclaimer of the lease included its obligations to provide quiet enjoyment and not to derogate from the grant of exclusive possession of the land.[28]  To similar effect, Gageler J observed that the disclaimer operated to terminate all of the company’s rights and obligations as lessor.[29]

[34] I draw from Willmott Estates that when used in s 133(2), the word “liabilities” comprehends unperformed legal obligations under a contract and that a disclaimer of a contract operates to terminate forthwith such obligations on the part of the bankrupt.  Accepting that, the effect of the disclaimer here was to terminate forthwith the Buyer’s obligation to complete the contract, particularly, those obligations in clause 5 governing settlement.

[35] The learned primary judge held the disclaimer to be an anticipatory breach of contract.  The essence of anticipatory breach of contract is an announcement by a promisor who has promised to perform an essential term of a contract, made prior to the due date for performance, that he or she will not perform the promise.  The announcement repudiates the contract and confers on the promisee a right to rescind.[30]

[36] From that conception of anticipatory breach of contract the trustees contend that it is not possible to regard the disclaimer as manifesting such a breach.  The legal obligation to complete the contract was terminated by the disclaimer.  There was, at that point, no obligation to complete, to be performed at the contractual settlement date, of which an intention not to perform could have been signalled.  It follows that there was no default by way of anticipatory breach of contract.

[37] The trustees’ contention has the force of logic but, to my mind, does not comprehensively answer the question whether there has been a breach of contract.  The analysis that I prefer is that the disclaimer is repudiatory of the contract.  In determining the Buyer’s obligations under the contract forthwith, it operates immediately to fracture the agreed bargain embodied in the contract.  It is an actual, rather than an anticipatory, breach of contract by virtue of its preremptory rejection of all of the obligations of the Buyer under contract.

[38] This analysis is assumed in the observations of Mellish LJ in Ex parte Barrell that a trustee’s disclaimer of an executory contract for the sale of land constitutes a default under the contract.  The principle encapsulated in the observation is one that finds expression in a number of cases decided in the latter part of the nineteenth century.  In an earlier decision of James LJ and Mellish LJ, Ex parte Llynvi Coal and Iron Co; In re Hide,[31] the latter said:

“Take the case of an ordinary contract.  The section says that if there is a contract which is a burdensome contract, not performed at the time of the bankruptcy, such as a contract to make a railway, to build a house or a ship, the contract is absolutely to be put an end to by the disclaimer of the trustee.  What is the person who has entered into the contract to prove for?  Surely he is to prove for the damage which could be recovered for the breach of the contract.”[32]

[39] Later, in In re Sneezum, Ex parte Davis,[33] the Court of Appeal of the United Kingdom (James LJ, Mellish LJ and Baggallay JA) upheld a decision of Bacon CJ in Bankruptcy that a disclaimer of an executory contract was repudiatory of it, entitling the other contracting party to prove for damages for breach of contract.  In In re Hooley, Ex parte United Ordnance and Engineering Company (No 2),[34] Lindley MR (Rigby and Collins LJJ agreeing) regarded a disclaimer as giving rise to a right to damages for breach of contract.

[40] These decisions have not been overruled.  Nor have they been overtaken by re-enactment of statutory provisions which would displace them.  Moreover, the principle for which they stand articulates with s 133(12) of the Bankruptcy Act which permits a person aggrieved by a disclaimer to prove as a creditor in the bankruptcy for any loss suffered by reason of the disclaimer.

[41] In the result, whilst I would accept that the reliance by the learned primary judge on anticipatory breach of contract is open to question, I am of the view that the conclusion that he reached with respect to the fate of the deposit is, for the reasons I have expressed, correct.  The disclaimer constituted a default of the Buyer within the meaning of clause 2.4(1) of the contract and, by virtue of the operation of clause 2.4(1)(c), the Majets are entitled to the deposit.  In so far as these grounds of appeal challenge that ultimate conclusion, they cannot succeed.

[42] Turning to the other basis ventured by the respondents, I note that the principle upon which it is posited concerns contractual conditions.  Explaining the principle, Dixon CJ said in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd:[35]

“Now long before the doctrine of anticipatory breach of contract was developed it was always the law that, if a contracting party prevented the fulfilment by the opposite party to the contract of a condition precedent therein expressed or implied, it was equal to performance thereof: Hotham v. East India Co.[36]  But a plaintiff may be dispensed from performing a condition by the defendant expressly or impliedly intimating that it is useless for him to perform it and requesting him not to do so.  If the plaintiff acts upon the intimation it is just as effectual as actual prevention. …”[37]

[43] Dixon CJ explained the principle in terms of conditions precedent.  He did not extend his discussion of it to include mutually dependent obligations such as those that are to be performed at settlement.  It is beyond this principle and perverse in result for it to be deemed here that the contract had settled when the transfer documents had not been exchanged for the balance purchase price.  To my mind, this basis is not a viable one.

Grounds 3 and 4

[44] Counsel for the trustees did not address these grounds separately at the hearing of the appeal.  That is understandable.  Ground 3 agitates the same issues as Grounds 1 and 2.  Ground 4 includes a rearticulation of the argument against anticipatory breach.  These grounds must suffer the same fate as Grounds 1 and 2 for the same reasons.

[45] I would mention that within Ground 4 there is a challenge to a finding made by the learned primary judge that the disclaimer itself terminated any right of the trustees in respect of the deposit.[38]  In addition to disputing that the disclaimer had had that effect, the trustees advanced a Trust law-based argument to sustain the claim to the deposit.  It is unnecessary to consider the challenge or the argument.  The discussion of Grounds 1 and 2 has proceeded on a footing that the fate of such a right was dependent upon the operation of clause 2.4(1) and not merely upon the disclaimer having been made.

Disposition

[46] As none of the grounds of appeal has succeeded, the appeal must be dismissed.  The trustees should pay the Majets’ costs of the appeal on the standard basis.

Order

[47] I would propose the following orders:

1.Appeal dismissed.

2.Appellants to pay the respondents’ costs of the appeal on the standard basis.

[48] MORRISON JA:  I have had the considerable advantage of reading, in draft, the reasons prepared by Gotterson JA. I agree with those reasons and the orders proposed.

[49] PHILIPPIDES JA:  I agree for the reasons stated by Gotterson JA that the appeal should be dismissed and the costs order proposed should be made.