McIntosh v Linke Nominees Pty Ltd
[2008] QSC 79
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- Unreported Judgment
- Appeal Determined - Special Leave Refused (HCA)
- McIntosh v Linke Nominees Pty Ltd[2008] QSC 79
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McIntosh v Linke Nominees Pty Ltd[2008] QSC 79
McIntosh v Linke Nominees Pty Ltd[2008] QSC 79
SUPREME COURT OF QUEENSLAND
CITATION: | McIntosh & Anor as T’ees of the Estate of Camm (A Bankrupt) v Linke Nominees P/L [2008] QSC 79 |
PARTIES: | LACHLAN MCINTOSH AND JOHN PARK as trustees of the Estate of GARY STIRLING CAMM |
FILE NO/S: | BS4537 of 2007 |
DIVISION: | Trial Division |
PROCEEDING: | Trial |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 7 April 2008 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 4, 5, 6, 7 & 11 February 2008 |
JUDGE: | Dutney J |
ORDER: |
|
CATCHWORDS: | AGENCY – AUTHORITY – APPARENT AUTHORITY – where second defendant a director of first defendant – where second defendant signed deed on behalf of company – whether second defendant had authority to act – whether representational conduct by first defendant DEED – FORM AND EXECUTION – where second defendant signed deed in presence of solicitor for the plaintiff – where no seal affixed – whether deed validly executed GUARANTEE AND INDEMNITY – CONSTRUCTION AND EFFECT – where first defendant not bound by deed – whether obligations of second defendant survives first defendant’s discharge from liability – whether arrangement an indemnity or guarantee CONTRACT – FORMATION – CONSIDERATION – ADEQUACY OF CONSIDERATION – FORBEARANCE AND COMPROMISE – where forbearance to sue by plaintiff – whether plaintiff held genuine and honest belief of arguable claim against defendant – whether forbearance constitutes consideration BANKRUPTCY – EFFECTS OF BANKRUPTCY – LEGAL EFFECTS ON BANKRUPT’S PROPERTY – VESTING OF PROPERTY IN TRUSTEE – where bankrupt’s estate sequestrated on two occasions – where bankrupt sold property to second defendant – where second defendant alleges sale of property is void against trustees in first bankruptcy – whether property vests in first or second trustee – whether property constitutes after acquired property CONTRACT – DEED – MISREPRESENTATION – whether execution of deed by second defendant was induced by misrepresentation EQUITY – UNCONSCIONABILITY – whether second defendant was at a special disadvantage as against the plaintiff – whether the plaintiff had an unfair advantage as against second defendant DEED – FORM AND EXECUTION – whether deed constituted an offer Bankruptcy Act 1966 (Cth), s 59, s 120, s 121 Property Law Act 1974 (Qld), s 45 Blomley v Ryan (1956) 99 CLR 362, applied Burns and Geroff v Lorac Mining Pty Ltd (1984) 4 FCR 301, cited Cannane & Wisbeck Pty Ltd v Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Cannane (1996) 136 ALR 406, cited Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557, applied Direct Acceptance Finance Ltd v Cumberland Furnishing Pty Ltd (1965) NSWLR 1504, cited Edwards v Skilled Engineering Pty Ltd (NSWCA, 14 March 1989, unreported), applied Re Farm Pride Foods Limited [1999] QSC 174 (29 June 1999), discussed Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, discussed Mahoney v East Holyford Mining Co Ltd (1875) Law Reports 7 House of Lords 869, discussed Miles v New Zealand Alford State Co (1886) 32 Ch D 266, cited Mostyn v Mostyn (1989) 16 NSWLR 635, discussed National Australia Bank Ltd v Land Mount Investments Pty Ltd & Ors [2003] QDC 42 (24 April 2003), discussed Re National Coffee Palace Co; Ex parte Panmure (1883) 24 Ch D 367, cited Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, applied PT Garuda Indonesia Ltd v Grellman (1992) 107 ALR 199, cited Wade v Simeon (1846) 2 CB 548; 135 ER 1061, cited Wigan v Edwards (1973) 47 ALJR 586, applied World Expo Park Pty Ltd v EFG Australia Ltd (1995) 129 ALR 685, cited |
COUNSEL: | Mr G Bigmore QC with Mr J Ribbands for the plaintiff Mr M Amerena with Mr J Fenton for the first and second defendants |
SOLICITORS: | Rogers Matheson Clark Lawyers for the plaintiff Broadley Rees Lawyers for the first and second defendants |
Background
- Mr Camm’s estate was sequestrated on 30 November 1995 (“the first bankruptcy”) and Mr Schmierer appointed as his trustee. In due course, Mr Camm was discharged under the provisions of the Bankruptcy Act 1966 (Cth). The plaintiffs (“the trustees”), are the trustees in the second bankruptcy.
- Subsequently, Mr Camm’s estate was again sequestrated on 19 November 2003 (“the second bankruptcy”).
- The first defendant, Linke Nominees Pty Ltd (“the company”) is the trustee of a discretionary trust for members of the Linke family. The company has 10 issued shares, of which the second defendant, Mr Robert Linke (“Mr Linke”) holds eight and his sons, Alistair and James, hold one each. Each of Messrs Robert, James and Alistair Linke are directors of the company. Although the constitution of the company provides for the appointment of a managing director, none has been appointed.
- Prior to the first bankruptcy, Mr Camm was the registered proprietor of an acreage block of land at 123 Lake Weyba Drive in Noosaville (“the land”). The land had been mortgaged in favour of the ANZ Bank. The debt secured by the mortgage was more than $500,000. On 26 October 1995, Mr Camm sold the land to the company for $400,000. Settlement of that transaction was effected on 30 November 1995, the same day as the sequestration order giving rise to the first bankruptcy.
- The ANZ bank was persuaded to release its security to enable the land to be transferred to the company.
- Notwithstanding the sale of the land to the company, Mr Camm continued to reside on the land. Although proceedings were commenced by the company to remove Mr Camm from the land, those proceedings were never finally determined and Mr Camm remained on the land until 2007.
- In the course of an application to evict Mr Camm from the land, Mr Camm swore an affidavit to the effect that the sale of the land to the company was subject to a side agreement. Under the side agreement, in addition to receiving the nominated purchase price, he was to receive a further sum of $150,000 from the company and retained an option to repurchase the land at a later date.
- The trustees in the second bankruptcy obtained orders under s 81 of the Bankruptcy Act to examine Mr Camm and Mr Linke in relation to the transaction. The purpose of the examination was to obtain evidence for an application to set aside the sale of the land under s 120 or s 121 of the Bankruptcy Act or, perhaps, recover any money owing to Mr Camm under the side agreement or, even, to exercise the option. The present value of the land was not the subject of evidence before me but it appeared all parties were of the opinion that it was worth somewhere between $2 million and $3 million by May 2007.
- Having obtained orders for a s 81 examination, both the defendants were issued with summonses to attend the Federal Magistrates Court on 14 and 15 May 2007. Mr Linke responded to the summonses and attended the examination. On 16 May 2007 Mr Linke, purporting to act both personally and on behalf of the company, executed a document described as a deed in purported settlement of the trustees’ possible claim in relation to the land. Under the deed, the company was to pay the trustees $500,000 on 23 May 2007 and 12 months later the difference between $500,000 and half the value of the land as determined by a valuation.
- The $500,000 due on 23 May 2007 was not paid and the trustees sued the company and Mr Linke for specific performance of the obligation to pay $500,000.
- The defendants responded by denying the enforceability of the deed or the underlying agreement which the deed records (“the underlying agreement”). The basis on which the action was defended may be summarised as follows:
- Mr Linke lacked authority to bind the company to its obligations under the deed;
- If the company’s liability under the deed is unenforceable Mr Linke’s liability on the guarantee is discharged;
- The deed was ineffective as such because the formalities of execution had not been complied with;
- Assuming the deed to be invalid, the underlying agreement failed for want of consideration;
- The execution of the deed and the underlying agreement were procured by misrepresentation;
- Enforcement of the deed or the underlying agreement against Mr Linke is unconscionable;
- Mr Linke withdrew his offer to settle the claim prior to acceptance by the trustees.
Credibility of principal witnesses
- I was not impressed with the evidence of Mr Linke. He was evasive in answering questions when he perceived the answers would not help him. He was argumentative. In all, he gave me little confidence that his evidence on contentious issues could be relied upon.
- Mr McLean, counsel for the plaintiffs at the s 81 examination, was an impressive witness. The impression I received was that he was genuinely attempting to be as helpful as he could be in answering questions and that his recollections were generally sound. If he was unsure of a matter, Mr McLean said so.
- Mr Maitland, the initial solicitor for the plaintiffs, was also generally a reliable witness. While he lacked Mr McLean’s ease in the courtroom, he appeared to be honest in his evidence whether or not he thought the answer would prove helpful to him.
Authority to bind the first defendant
- The deed was executed on behalf of the company by Mr Linke. The source of Mr Linke’s authority to act as agent for the company was not disclosed in the deed.
- Although Mr Linke held a majority of shares in the company, the defendants argued that he had no authority, whether actual or apparent, to bind the company to the deed.
- The best response the trustees could give was that Mr Linke had responded to a s 81 summons addressed to the proper officer of the company and in doing so, had asserted the requisite authority. Further, it was pleaded that the company was the alter ego of Mr Linke who unilaterally exercised power over it notwithstanding the existence of the other directors.
- In support of the later proposition, the trustees pleading asserted that no board meetings were held.
- The evidence did not support the pleaded assertion that the company did not hold board meetings and the allegation that the company was the alter ego of Mr Linke was not persisted with.
- Reliance was placed by the trustees on Mahoney v East Holyford Mining Co Ltd[1] and Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd.[2]
- Neither case was of much assistance here. In the former, the company was bound by the actions of persons purporting to act as directors but invalidly appointed due to a defect in that appointment. The articles of association contained a provision that the acts of directors were binding on the company notwithstanding a defect in their appointment.
- In Freeman & Lockyer, the company was bound by the acts of a director purporting to act as managing director with the knowledge of the board. The articles of association of that company permitted the appointment of such a managing director.
- Here, there is no evidence the other directors of the company had any knowledge that Mr Linke was intending to compromise the company’s rights in relation to the land.
- The position in Australia is well settled, as illustrated by the following passage from the judgment of the court in Pacific Carriers Ltd v BNP Paribas:[3]
“In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd, and in Northside Developments Pty Ltd v Registrar-General, this Court followed and applied Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd as to the general principles concerning the apparent or ostensible authority of an officer of a company dealing with a third party. Where an officer is held out by a company as having authority, and the third party relies on that apparent authority, and there is nothing in the company's constitution to the contrary, the company is bound by its representation of authority. ‘The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract.’ It is not enough that the representation should come from the officer alone. Whether the representation is general, or related specifically to the particular transaction, it must come from the principal, the company. That does not mean that the conduct of the officer is irrelevant to the representation, but the company's conduct must be the source of the representation.”
- There being no representational conduct by the company or by any director of the company other than Mr Linke who cannot clothe himself with the requisite authority, I am satisfied that the deed does not bind the company. The absence of Mr Linke’s authority to bind the company is also fatal to the establishment of any contract between the company and the trustees and the action against the company must fail.
Formalities of execution – the second defendant
- Mr Linke executed the deed in the presence of the solicitor for the trustees, Mr Maitland, but no seal was affixed.
- Since the affixation of a seal is essential to the validity of a deed at common law,[4] to take effect as a deed the document must be witnessed in accordance with s 45 of the Property Law Act 1974 (Qld). This proposition was conceded by Senior Counsel for the plaintiffs.
- Section 45 of the Property Law Act provides:
45 Formalities of deeds executed by individuals
(1)Where an individual executes a deed, the individual shall either sign or place the individual's mark upon the same and sealing alone shall not be sufficient.
(2)An instrument expressed--
(a)to be an indenture or a deed; or
(b)to be sealed;
shall, if it is signed and attested by at least 1 witness not being a party to the instrument, be deemed to be sealed and, subject to section 47, to have been duly executed.”
- Counsel for Mr Linke argued that for the purposes of s 45, a party should be equated with his solicitor. Since Mr Linke’s signature was witnessed by a party and therefore not in compliance with the statutory provision, the document was ineffective as a deed.
- Reliance was placed on a dictum of Chesterman J in Re Farm Pride Foods Limited[5] where at para [16] his Honour observed:
“I understand that ‘party’ where it is used in section 45(2) of the Property Law Act means someone who by reason of capacity or status is identified with a party to a deed. Given Mr Buffey’s connection with the respondent and the lack of clarity of the nature of the connection I would be reluctant to find on the present materials that he was not sufficiently identified with the respondent as not to be a party for the purposes of the section.”
- The validity of Chesterman J’s dictum was doubted by McGill DCJ in National Australia Bank Ltd v Land Mount Investments Pty Ltd & Ors [2003] QDC 42 (24 April 2003).
- As support for the observations of Chesterman J, counsel for Mr Linke referred to Mostyn v Mostyn (1989) 16 NSWLR 635 at pp 638 – 639 which merely confirms that the purpose of the statute is to ensure that the deed is independently verified by a non-party. To similar effect was a decision of Beaumont J in Burns and Geroff v Lorac Mining Pty Ltd (1984) 4 FCR 301 at p 303.
- Neither decision is particularly helpful here since both were cases in which one party’s signature had been witnessed by another person named as a party in the document.
- The only case referred to which involves a signature witnessed by a solicitor was Edwards v Skilled Engineering Pty Ltd (NSWCA, 14 March 1989, unreported) where a deed was held duly executed by a particular person where that person’s signature had been witnessed by that person’s solicitor.
- I accept that the statutory purpose behind having the creation of the deed witnessed by a non party is so that the execution can be reliably verified. If a party’s own solicitor was to give evidence that the client had properly executed the deed this would plainly satisfy the statutory purpose. If a party’s own solicitor is not to be treated as synonymous with ‘party’ for the purposes of witnessing the deed, I can see no valid reason why the other party’s solicitor should be treated any differently. Having regard to the decision of the Court of Appeal in Edwards v Skilled Engineering Pty Ltd, it seems to me that a deed, the execution of which is witnessed by a solicitor for a party should not be held invalid on that account.
- There being no other issue raised in relation to the execution of the deed, I am satisfied that the execution of the deed by Mr Linke in the presence of Mr Maitland was effective to bind Mr Linke to the deed.
Does the failure of the action against the company mean the action must also fail against Mr Linke?
- Mr Linke argues that as guarantor of the obligations of the company he is discharged from any liability to the trustees by reason of the company not being bound by the deed or any underlying agreement.
- For their part, the trustees submit that Mr Linke has indemnified them against the company’s failure to perform and that the obligations of an indemnifier survive the discharge of the company from any liability.
- The distinction between a guarantee and an indemnity is well-known. In one, the liability of the guarantor is co-extensive with that of the principal debtor. The guarantor will be discharged if the principal debtor is not liable.
- In the case of an indemnity, the obligation of the indemnifier and the debtor are separate and the obligation of the indemnifier survives the release of the debtor.
- Whether a particular arrangement is one or the other depends on the construction of the instrument.[6]
- To resolve this issue it is necessary to look in some detail at the terms of the deed:
“RECITALS:
…
J.In the course of conducting the section 81 examinations the Trustees have obtained a number of written Communications and an affidavit sworn by the Bankrupt on 10 May 2004 in a proceeding in the Magistrates Court of Queensland which are to the effect that the Bankrupt and Mr Linke entered into a side agreement, arrangement or understanding pursuant to which the Company was able to purchase the property of the undervalue price of $400,000, the Company or Mr Linke would pay $150,000 to the Bankrupt and the Bankrupt would have an option to re-purchase the property for either $550,000 or a fair and equitable price (‘the side agreement’).
K.In the course of a section 81 examination of the Company Mr Linke has denied the allegations made by the Bankrupt about the side agreement.
L.The Trustees are of the opinion that there is sufficient evidence, in oral and documentary form, about the alleged side agreement to justify them commencing an action against the Company to obtain orders pursuant to section 121 of the Bankruptcy Act that the transfer of the property to the Company be set aside.
M.The Trustees, by their solicitor, have informed Mr Link, for himself and as agent of the Company, that, as presently advised, they consider that they are duty bound to commence a proceeding against Mr Linke and the Company wherein appropriate relief will be sought pursuant to sections 120 and/or 121 of the Bankruptcy Act.
N.Mr Linke has informed the solicitor to the Trustees that he denies that he and the Company have engaged in any improper or unlawful conduct in relation to the property or the affairs of the Bankrupt and that any proceeding commenced by the Trustees will be vigorously defended by him and the Company.
…
R.Mr Linke and the Company wish to avoid the expense and inconvenience of the legal proceedings threatened by the trustees and solely for that reason they acknowledge that the Company holds an interest in the property on a constructive trust for the Bankrupt and, by reason of section 58 of the Bankruptcy Act, that interest vests in the Trustee.
S.The Trustees, Mr Linke and the Company are desirous of resolving all differences between them on the terms set out hereunder AND Mr Linke and the Company will execute this Deed solely for the purpose of avoiding the considerable cost, inconvenience and distress of the proposed legal proceedings and they do so with an express denial of any wrong doing by them and on the condition that the Trustees join with them in making an application to the Federal Magistrates Court of Australia for orders the effect of which will be to cause the Bankrupt and all other occupants of the property to vacate the property and deliver up exclusive possession of the property to the Company.
…
NOW THIS DEED WITNESSES AS FOLLOWS:
- The Company shall pay to the Trustees the sum of money provided for in clause 4 of this Deed.
…
- The Company shall pay to the trustees the sum equal to fifty per cent of the value of the property as determined the registered valuer (‘the settlement sum’).
- The settlement sum shall be paid by the Company:
(a)as to $500,000 by bank cheque by 4pm on 23 May 2007;
(b)as to the balance by bank cheque on 16 May 2008
(‘the due date’).
…
- Mr Linke hereby guarantees the due and purchase payment of each instalment of the settlement sum by the Company AND hereby holds the trustees harmless against any failure by the Company to pay the settlement sum or any part thereof.
- If the Company and/or Mr Linke fail to pay any instalment of the settlement sum by the due date for the payment of the relevant instalment the Trustees may commence a proceeding in a court of competent jurisdiction against the Company and/or Mr Linke and obtain judgment for the amount of the settlement sum then outstanding together with interest at the rate of 12% per annum and full indemnity costs of and incidental to the entry of such judgment AND the trustees may produce this Deed of Settlement as conclusive evidence of the irrevocable consent of the Company and Mr Linke to the entry of such judgement and the making of such order for full indemnity costs.
…
- Mr Linke, for and on behalf of himself and the Company, hereby warrants that:
(a)he has read and he understands all of the provisions of this Deed;
(b)he has freely and voluntarily executed this Deed; and
(c)he is authorised by the Company to execute this Deed;
(d)he has informed the solicitor to the Trustees that he does not require independent legal advice prior to the execution of this Deed.
- Subject to the terms of this Deed, the Trustees hereby forever release and discharge the Company and Mr Linke from all claims, demands, liabilities and causes of action of any kind whatsoever or howsoever arising out of or in connection with the affairs of the Bankrupt including, but not limited to, the property.
- The Company and Mr Linke hereby forever release and discharge the Trustees from all claims, demands, liabilities and causes of action of any kind whatsoever or howsoever arising out of or in connection with the affairs of the Bankrupt including, but not limited to, the property.”
- In my view, the deed properly construed is one of indemnity rather than one purely of guarantee.
- Recitals J and M make it plain that the trustees considered there was sufficient evidence to bring proceedings against both the company and Mr Linke.
- While the deed requires the company to pay the settlement amount, clause 8 of the deed not only makes Mr Linke guarantor of the company’s obligations but, in addition, by use of the conjunction “and”, holds the trustees harmless from any failure of the company to perform in accordance with the deed. There is no obvious reason to limit this to a case where the trustees have a separate right to pursue the company for its failure to perform.
- Clause 9 of the deed also suggests an obligation on the part of Mr Linke to pay the amounts due under clause 4 irrespective of the liability of the company for such payment. I note further that clause 17 of the deed provides an independent discharge to Mr Linke for any claim the trustees might have outside the terms of the deed.
- The clauses suggestive of co-liability on the part of Mr Linke for the payments under the deed are reinforced by the fact that he is a co-beneficiary of the discharge given by the trustees.
- In my view Mr Linke is not only a guarantor but also an indemnifier and his obligation survives the discharge of the company.
- As an alternative, the trustees allege that Mr Linke remains liable under the deed for breach of the warranty of authority contained in clause 16 (c) of the deed. Reliance was placed on O'Donovan, ‘Modern Contract of Guarantee’, 4th ed, Thomson, 2004, paragraph 5.1170.
- The passage relied on is not opposite to this case. It deals with the liability of a guarantor of an ultra vires transaction. In this case, any claim is for breach of Mr Linke’s warranty of authority.
- I am satisfied that the warranty is one by which Mr Linke warranted that he was authorised to execute the deed on behalf of the company. In other words, that he was the duly authorised agent of the company for the purpose of settling the trustees’ claim.
- The proper remedy for breach of warranty of authority is damages.
- The damages recoverable for breach of warranty of authority are contractual in nature and would equate to the amount that could be actually recovered against the company if the warranty was not breached.[7]
- Here, the evidence, while not expressly addressing the issue is such as to satisfy me that the company would have been capable of paying in full the amount now claimed.
- The company has the land, the value of which is as previously indicated. It also holds other valuable assets in the form of real estate. The damages would therefore be represented by the full amount claimed.
- The argument that somehow Mr Linke was not purporting to bind the company when he executed the deed on behalf of the company has no merit. He expressly warranted his agency for the purpose of binding the company and then expressly signed on its behalf. The conclusion that the company is not liable thus necessarily lends to a conclusion that the contractual warranty of authority has been breached.
Assuming the deed to be invalid, does the underlying agreement fail for want of consideration?
- The consideration relied on by the trustees to support the agreement which underlies the deed is their forbearance from pursuing the claims identified in the recitals to the deed.
- It was once considered that a forbearance to sue upon a groundless claim was insufficient consideration to support a contract: see Wade v Simeon (1846) 2 CB 548; 135 ER 1061 where at 566, 1068, Maule J said:
“Forbearance to prosecute a suit in which the plaintiff has no cause of action (and in which … he must eventually fail), according to the authorities, is no consideration. It is no benefit to the defendant; and no detriment to the plaintiff.”
- This position changed as evidenced by the following passage from the judgment of Bowen LJ in Miles v New Zealand Alford State Co (1886) 32 Ch D 266 at 291:
“It seems to me that if an intending litigant bona fide forebears a right to litigate a question of law or fact which it is not vexatious or frivolous to litigate, he does give up something of value. It is a mistake to suppose it is not an advantage, which a suitor is capable of appreciating, to be able to litigate his claim even if he turns out to be wrong. It seems to me it is equally a mistake to suppose that it is not sometimes a disadvantage to a man to have to defend an action even if in the end he succeeds in his defence; and I think therefore that the reality of the claim which is given up must be measured, not by the state of the law as it is ultimately discovered to be, but by the state of the knowledge of the person who at the time has to judge and make the concession. Otherwise you would have to try the whole cause to know if the man had a right to compromise it, and with regard to questions of law it is obvious you could never safely compromise a question of law at all.”
- Whether the reference in the passage cited from the judgment of Bowen LJ correctly reflects the law in Australia inasmuch as it has been interpreted as requiring, not only a genuine belief on the part of the forbearer in the validity of the claim, but also a reasonable basis for the claim was left open by Mason J in Wigan v Edwards (1973) 47 ALJR 586 at 595.
- In Wigan v Edwards, at p 588, Menzies J set out various statements by the Full Court of Queensland in the judgment being appealed and in particular the following from the judgment of Williams J where he said:
“In my opinion there was consideration for the defendant’s promises irrespective of what view he may have taken of the law or of his responsibilities to the plaintiffs at that time. The authorities make it clear that it was only necessary for the plaintiffs to have asserted a claim which though invalid at law, they genuinely thought was good. The parties, by what occurred between them, intended to compromise the differences.”
- Again, Menzies J was not required to express a view on the necessity for the additional element of reasonableness. It was sufficient to dispose of the appeal that he found that the decision of the Full Court in the case was correct.
- In the absence of any authority to the contrary, it seems to me that I should follow the approach of Williams J in the Full Court and hold that it is sufficient consideration to support the underlying agreement if the trustees had a genuine and honest belief that they had an arguable claim against the company.
- In relation to this, it is not without significance that the effect of entering into the deed was that the examination of Mr Linke was terminated, as were the trustees’ investigations into the transaction they were seeking to impugn.
- I accept the evidence of Mr McLean and in particular I accept that he genuinely formed the preliminary view that there were reasonable grounds for the bankrupt’s trustees to conclude that the property had been sold at a substantial undervalue.
- I also accept that Mr McIntosh on the basis set out in his affidavit (Ex 16) had reasonable grounds for believing, and did in fact believe, that the sale of the land by Mr Camm to the company was void under the Bankruptcy Act.
- The real issue raised by Mr Linke is that under the terms of the Bankruptcy Act, the trustees had no right to pursue the company in relation to a transaction which would have been void in the first bankruptcy.
- This submission is based upon the terms of s 59 of the Bankruptcy Act which relevantly provide as follows:
“(1) Where a person who is a bankrupt again becomes a bankrupt:
(a)the property of the bankrupt:
(i)that was acquired by, or devolved on, the bankrupt on or after the date of the earlier bankruptcy; and
(ii)that had not been distributed amongst the creditors in the earlier bankruptcy before the date on which the person became a bankrupt on the later occasion;
shall (subject to any disposition of that property made by the trustee in the earlier bankruptcy without knowledge of the presentation of the petition on, or by virtue of the presentation of which the person became bankrupt on the later occasion and subject also to section 126) vest forthwith in the trustee in the later bankruptcy;
…
(e)a transaction that, by virtue of section 120, 121, 122, 128B or 128C, is void as against the trustee in the earlier bankruptcy continues to be void as against that trustee.”
- The effect of s 59 (1) is to make the bankrupt’s property at the time of the first bankruptcy exclusively divisible among the creditors in that bankruptcy. In relation to subsequently acquired property, the creditors in the first bankruptcy, through the trustee, share that property with subsequent creditors.
- The submission on behalf of Mr Linke was that the effect of subsection 1(e) was to make the entitlement of the first trustee to pursue a transaction under one of the nominated sections exclusive of any entitlement on the part of any subsequent trustee.
- The essence of the argument was that the property represented by the void transaction vests in the first trustee and remains there, there being no provision in the Bankruptcy Act for property to re-vest in the bankrupt upon discharge. Unless the property is after acquired property and therefore vested in the subsequent trustee by operation of s 59 there is no occasion for the second trustee to become involved.
- The argument seems to me to depend on whether or not the property recovered is after acquired property of the bankrupt. If it is, s 59 vests the property in the subsequent trustees.
- Despite their wording, the relevant provisions of the Bankruptcy Act have been construed to render the transactions affected voidable rather than void.
- In Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557, Brennan CJ and McHugh J at p 566 stated that:
“A disposition made with fraudulent intent is nonetheless a disposition. It is not without legal effect. Dixon CJ and Fullagar J pointed out in Brady v Stapleton (1952) 88 CLR 322 at 333,‘[t]he truth seems to be that, although the statute uses, and most emphatically uses, the word ‘void’, the courts have always treated a fraudulent assignment as effective unless and until a creditor or creditors intervene by levying execution or taking legal proceedings’.”
- Taken to its logical conclusion, the first trustees not having intervened in the impugned transaction, it remained valid. If the property is later recovered, it would become after acquired property available to the second trustees by virtue of ss 59 and 116(1)(a) of the Bankruptcy Act. The purpose of s 59(1)(e) thus becomes one of preserving the right of the first trustee to intervene rather than disentitling the subsequent trustees from intervening.
- This reasoning corresponds with the tentative view expressed by the authors of A N Lewis, Australian Bankruptcy Law, 8th ed, 1984 where at p 223 the following appears:
“In a case where, for example, a settlement by the debtor is void as against each of the trustees under section 120 and the first trustee has not already recovered the property at the date of the second bankruptcy, it seems that it will belong to whichever trustee first takes successful action to avoid the settlement.”
- Under s 120 of the Bankruptcy Act which deals with undervalued transactions, the relation back period is five years from the commencement of the bankruptcy. Since the transfer of the property was in 1995 and the second bankruptcy commenced in 2003 the transaction, as far as the present trustees are concerned, would be outside that relation back period.
- No similar difficulty arises in relation to s 121 of the Bankruptcy Act. A point was taken that s 121 was substantially amended in 1996 and was therefore materially different at the date of the transaction the trustees were investigating.[8] Despite the substantial change in wording, it was always the case that an intention to defraud creditors could be inferred from the fact of a sale of undervalue.[9]
- Although the consideration paid for the land by the company was valuable,[10] I accept Mr McLean’s evidence that he believed there was a basis for a finding that the land was sold at an undervalue for a fraudulent purpose within s 121 and that Mr Linke knew that to be the case.
- Further as consideration for the settlement, the trustees rely upon clauses 11, 12 and 13 of the deed which provide:
“11.The trustees shall forthwith issue an application in the Federal Magistrates Court of Australia wherein the applicants shall be the company and the trustees (“the application”).
- In the application the following orders shall be sought:
(a)an order that Gary Stirling Camm forthwith deliver up vacant possession of the property situated at 123 Lake Wiber Drive Noosaville and is more particularly described in title reference: 12489178 to the company (“the property”);
(b)an order that Gary Stirling Camm:
(i)forthwith remove from the property all personal property that belongs to him and any other person who he has permitted to reside at or otherwise occupy the property;
(ii)not cause any damage to the property in the course of vacating the property and delivering up vacant possession of the property to the company.
- The trustees shall pay all costs of and incidental to the application.”
- In addition, cl 15 of the deed required the trustees to procure the discharge of caveat 710461400 lodged by them over the property.
- On the evidence the trustees have complied with their obligations in each of these clauses.
- In the result, I am satisfied that consideration sufficient to support a contract was given by the trustees in exchange for the obligations undertaken by the company and Mr Linke.
The execution of the deed and the underlying agreement were procured by misrepresentation
- In the event that Mr Linke would otherwise have been liable to pay the amount due under the deed, it was submitted that his execution of the document was procured by misrepresentations made to him on behalf of the plaintiffs.
- Nine representations are alleged. The first three representations are alleged to have been made by Mr Maitland.
- The first representation is said to have arisen in the course of a telephone conversation in or about the second week of April 2007.
- In the course of the conversation Mr Maitland is alleged to have informed Mr Linke that he would like to question him in relation to some documents seized in the course of the execution of a search warrant at the land. Mr Maitland would not tell Mr Linke about the documents and when asked by Mr Linke to provide copies for the purpose of looking at them and obtaining legal advice Mr Maitland refused. Mr Linke then alleges that he offered to attend Mr Maitland’s office to examine the documents in advance of the public examination. In response to that Mr Maitland is alleged to have said: “It was not necessary. There is no need to fret. Just attend court and send me all your documents. Getting Camm is the target not Linke Nominees.”
- Later in the conversation Mr Maitland is alleged to have added the following words:
“Don’t worry or fret about it. All you have to do is come up to Brisbane be asked a few questions and we’ll go and have a few beers together at the end of the day and we can talk about aviation.”
- In making the statements quoted, Mr Maitland, on behalf of the plaintiffs, is alleged to have represented that the rights and interests of the company or Mr Linke were not at risk in relation to the upcoming examination under s 81 of the Bankruptcy Act (“the first representation”) and further that the company and Mr Linke did not need to obtain independent legal representation or advice in respect of the matters to be ventilated in the examination (“the second representation”).
- On the morning of 15 May 2007, Mr Linke met Mr Maitland at the Federal Court in Brisbane at which point Mr Linke alleges that he said to Mr Maitland:
“Well please let me look at these documents so I have the courtesy of knowing what’s going on here.”
- Mr Maitland is alleged to have replied that the trustees would not release the documents. Mr Linke then alleges that he asked Mr Maitland whether he needed legal advice to which Mr Maitland replied “No you’ll be ok”.
- The above conversation is alleged to constitute an express representation that the company and Mr Linke did not need to obtain independent legal representation and advice in respect of the matters to be ventilated (“the third representation”).
- Each of these representations is alleged to have been relied upon and to have been false.
- The next four representations upon which Mr Linke relies are said to have been made during the course of the questioning of Mr Linke by Mr McLean. The first of these is a suggestion in the course of questioning by Mr McLean that a letter from Laguna Realty to Mr Camm of 4 February 1995 and a letter from Megatron Marketing to Mr Camm of 7 February 1995 were valuations which respectively valued the property at $505,000 and $515,000 (“the fourth representation”). This representation was said to be false because the letters were mere appraisals from real estate agents rather than valuations.
- Next it was alleged that Mr McLean misrepresented a letter from Bugler Francis Valuers to the Westpac Bank of 23 November 1995 as not being a valuation when in fact it was (“the fifth representation”).
- Later when talking about an alleged side agreement with Mr Camm, Mr McLean said to Mr Linke:
“… the fact that there’s no – that what I just put to you is not in a singular document in black and white does not mean we can’t establish, on the balance of probabilities, because that’s the relevant standard, that such an agreement was entered into. So don’t delude yourself if you think that because something’s not in writing, you can talk your way out of it.” (“the sixth representation”).
- This was said to have been false because the trustees did not have sufficient evidence to establish on the balance of probabilities the existence of the side agreement.
- The next representation was said to have been made following the examination on the evening of 15 May 2007. Mr McLean is alleged to have said to Mr Linke:
“There is enough evidence for us to recommend to the trustees that they commence proceedings against you to take the property from you. We will recommend to the trustees to apply to the court to take the property from you and put it up for sale.”
- Mr Linke alleges that he responded by asking how this could possibly occur and was told by Mr Maitland:
“As this is a second bankruptcy and this is extended several more years, the trustees can go back 20 odd years and have the sale overturned and the property given back to the trustees. If you are lucky you may get back your $400,000 but you may not.” (“the seventh representation”)
- This was said to have been false because in any event, the company would be entitled to recover the $400,000 paid and further, because of the argument in relation to s 59 to which I have earlier referred, there was no basis upon which the property could be taken.
- The “eighth representation” was said to have occurred later in the evening of 15 May 2007 in the course of two telephone conversations between Mr Maitland and Mr Linke. During the course of those conversations Mr Maitland is alleged to have told Mr Linke on more than one occasion that the property was lost to the company but that if Mr Linke wished to retain it for the benefit of his family he should act quickly to reach a settlement with the trustees.
- This representation was said to have been false because the property was not lost until the trustees were successful in proceedings brought by them in court to impugn the transfer of the property from Mr Camm to the company and a settlement could be reached in fact at any time prior to judgment in those proceedings.
- The final representation (“the ninth representation”) is said to be constituted by the proffering of the deed to Mr Linke for execution. By doing so, the trustees were said to be representing that they were competent to grant a discharge in relation to the foreshadowed proceedings when, in fact, such discharge could only be given by the trustee in Mr Camm’s first bankruptcy.
- Before looking at these representations, it is necessary to set out some further facts relevant to this issue.
- Mr Linke is a surveyor. He set up his own business as an unregistered surveyor at about the age of 28 years and ultimately received a diploma of surveying from RMIT when he was about 30 years of age. By about 34 years of age, he managed to complete his surveying articles and in his late 30’s finally obtained registration as a surveyor in Victoria.
- Over a number of years beginning in the 1970s, Mr Linke has purchased investment properties. In 1980, the company was established to act as trustee for Mr Linke’s family trust and apart from the land the subject of these proceedings, the company as trustee owns unit and house properties in Sydney and rural property in Jindabyne in New South Wales.
- Mr Linke also set up a company called Linke and Linke Surveys Pty Ltd to operate his surveying business.
- In 1995 Mr Linke ceased to be a principle of Linke and Linke Surveys Pty Ltd and became a consultant.
- In about 1997 with some other parties Mr Linke acquired an interest in land adjoining 123 Lake Weyba Drive on which the Noosa airport had previously operated.
- At the time of the public examination, the transcript reveals that Mr Linke was involved with the upgrading of Sydney airport for the A380 aircraft, the Sea World re-erection in Botany Bay, Hong Kong airport, Essendon airport and various other significant projects.
- The relevance of this is that it is apparent that Mr Linke was an experienced and successful businessman.
- The impression he gave in evidence before me was of a man well able to look after his own affairs and not intimated by the surroundings in which he found himself.
- What is also clear is that in May 2007 Mr Linke was under no illusion about his relationship with Mr Maitland. At p 3 of the transcript of the examination on 14 May 2007 Mr Linke told the registrar:
“As I advised Mr Maitland, I regard myself in an adversarial position to him and when I spoke to you I asked if I should be represented. I do not regard I have been treated fairly, nor honourably by Mr Maitland. He never ever once took the trouble to seek me out and find me prior to the summons. When I did find out about the summons then your Honour I did contact Maitland. I then asked him to call off his dogs of war. They didn’t they still came and served the process. Obviously that’s the way he likes to run a case. It’s not my choice it’s his and I believe I’ve heard lies in court here today.”
- At the time of the examination Mr Linke was well aware that one of the purposes of the examination was to assist the trustees to make a claim in relation to the land. At p 5 of the transcript he makes reference to a caveat lodged over the property by the trustees.
- Mr Linke sought to avoid any difficulties arising from his knowledge of the interest claimed in the caveat on the basis that he had approached the Titles Office and had been told that the caveat would be rejected. Nonetheless it seems plain to me that he was aware of the trustee’s interest in the property his company had acquired from Mr Camm.
- In the course of being cross-examined about that issue at p 66 of the transcript the following appears:
“Q.Did you raise with Mr Maitland at all the fact that the caveat was going to be rejected as you’d been apparently told, and did you ask him in those circumstances whether there remained a contentious issue?
A.I did not trust Mr Maitland and still do not trust Mr Maitland. I would not discuss anything with him. I advised him of my health issues, but previous to that I advised the tipstaff of the court, Mr Peter Berger.”
- I am satisfied that Mr Linke was aware that one of the purposes of the public examination was to obtain evidence for the purpose of attacking the company’s interest in the land. I am satisfied that Mr Linke was aware that his interests and those of Mr Maitland, Mr McLean and the trustees were at odds and that he did not trust Mr Maitland. I am thus not satisfied that Mr Linke relied on anything said by Mr Maitland and his decision to execute the deed was thus not induced by any comment made by Mr Maitland. Hence, I am not satisfied that Mr Linke relied on what are described in the pleadings as the first, second, third, seventh or eighth representations.
- Further in relation to the eighth representation, having regard to my observations of Mr Linke in the witness box and reading the transcript of the public examination, I am satisfied that he was well aware of the issues involved in both proceedings and of the strengths and weaknesses of his own position. I am satisfied therefore that on the evening of 15 May 2007 Mr Linke was well aware that the property would remain his unless and until a court ordered otherwise and that until that time he was at liberty to enter into any negotiations he wished with the trustees and enter into any agreement he was able to negotiate.
- In the result it is not necessary to consider whether any of those representations were of such a nature as would entitle Mr Linke to avoid the deed.
- Likewise I am not satisfied that Mr Linke relied on either of the fourth or fifth representations. The two appraisals said to have been wrongly represented as valuations were shown to Mr Linke in the course of the examination as appears from p 165 of the transcript. Looking at the first of them Mr Linke said at p 166:
“But this is not a valuation I add to you. This is just a real estate agent may be wishing a sale, I don’t know.”
- It is plain to me that Mr Linke was under no illusions as to the nature of the documents and in view of his background in relation to property I would be surprised if he adopted any other stance. If Mr Linke did not regard the documents as valuations he could not have relied on a representation that they were.
- In relation to the fifth representation the same applies. The document was shown to Mr Linke in the witness box on 15 May 2007.[11] I am satisfied that having regard to his background Mr Linke, on looking at the document, was able to and did in fact form his own view as to whether or not the document constituted a valuation.
- I am therefore not satisfied that even if the matters alleged to constitute the fourth and fifth representations were false, and would otherwise have been a basis for rescission they were relied upon by Mr Linke. In any event, I doubt that the document referred to in the fifth representation would be properly described as a valuation.
- I am not satisfied that the sixth representation can be relied upon. In my view, it represents a statement of the opinion which I accept was genuinely held by Mr McLean. Insofar as it constitutes a statement of fact, it seems to me to be true. Merely because something is not in a single document does not mean that it could not be established in a court of law to the satisfaction of the court. The statement is a statement of the obvious. That effectively disposes of the representation.
- Further, seen in its proper context in the transcript of the examination, the statement is no more than a comment made by Mr McLean in frustration at the continually evasive and unresponsive responses he was receiving to his questions from Mr Linke.
- It is not a statement of fact intended to be relied upon and I am not satisfied that it was in fact relied upon by Mr Linke as a basis for subsequent action. Only Mr Linke knew all the facts and whether Mr McLean’s opinion was correct or not. One of the consequences of the settlement was that the trustees stopped searching for the relevant evidence.
- The final representation alleged is by conduct and constituted by the proffering of the deed.
- The deed is a compromise between the trustees, the company and Mr Linke. It does not purport to compromise anything other than the claim by the plaintiffs in this action.
- I am not satisfied that it constitutes any representation as regards the trustee of the first bankruptcy. I am also satisfied for the reasons previously given that the trustees did have a possible claim against the company independently of the first trustee. The representation is therefore not false as alleged.
- For the reasons I have set out I am not satisfied that Mr Linke’s execution of the deed was induced by any misrepresentation made by or on behalf of the trustees.
The enforcement of the deed or the underlying agreement against Mr Linke is unconscionable
- Counsel for Mr Linke argued that an enforcement of the deed against their client would be unconscionable.
- In essence the defendants submit that the trustees took unconscionable advantage of the unequal bargaining terms of the parties to obtain a beneficial bargain.
- I am not satisfied that Mr Linke representing either himself or the company was under any particular disadvantage. He was an experienced businessman. As is plain from the transcript of the examination he was well able to protect his own interests and engage robustly in the exchanges between himself and counsel for the trustees. In my view, he was certainly not in any sense browbeaten or intimidated by the examination.
- Mr Linke was under no compulsion to settle with the trustees. I accept Mr McLean’s evidence that the deed was explained and read to Mr Linke as it was prepared.
- I accept Mr McLean’s evidence that on three occasions he suggested that Mr Linke seek independent advice and that on each occasion Mr Linke declined.
- The deed records Mr Linke’s maintenance of his denial of the trustee’s claim.
- Mr Linke’s claim to have been at a disadvantage because he suffered from high blood pressure has no foundation. The transcript of the proceedings before the registrar and his evidence before me give me no doubt that whether or not he was suffering from high blood pressure, it had no effect on his ability to look after his own and the company’s interests.
- To succeed in setting aside the deed on the grounds of unconscionability, Mr Linke must establish that Mr Linke was:
“… at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.”[12]
- In essence parties must meet on unequal terms and the stronger party must unfairly take advantage of the disparity in position to obtain a beneficial position.[13]
- I am not satisfied either that Mr Linke was at any special disadvantage or that the trustees took unfair advantage of the situation.
- The settlement arrived at was that the company would pay one half of the present value of the land in settlement of the trustee’s claim. He was, in effect, paying a further amount to ensure the land was not lost, but that amount was substantially less than the amount the company stood to lose if the trustees claim was successful. Overall, it seems to me to be a prima facie reasonable compromise.
Offer terminated before acceptance
- The final point argued on behalf of the defendants was that the deed was merely an offer which could be terminated by the defendants at any time prior to Mr Linke receiving a copy of the document signed by the trustees.
- On the evidence I accept there is no support for this submission.
- I am satisfied that the deed was executed by the trustees on 16 May 2007.
- I do not accept Mr Linke’s evidence that he was told by Mr Maitland on 17 May 2007 that the trustees were still considering his offer.[14]
- Mr Maitland was not challenged in cross examination on his recollection of the conversation with Mr Linke on 17 May 2007. Rather, he was challenged on whether he had in fact attempted to forward a signed copy of the deed to Mr Linke by facsimile on that day or only on 18 May 2007. In the end, it does not matter. It was never suggested to Mr Maitland that Mr Linke had withdrawn from the deed on 17 May 2007. Mr Linke, when cross examined, did not assert that he had withdrawn.[15]
- I am not persuaded that Mr Linke withdrew his offer to settle before he received a copy of the deed signed by the trustees.
- While Mr Linke attempted to negotiate some changes to the deed on 17 May 2007, he did so in the context of an existing agreement he wished to vary in some respects. Since by that time, the deed had in fact been executed by the relevant parties, an attempt to renegotiate, unless successful, would not alter any party’s rights or obligations.
Conclusion
- For the reasons I have given, I am satisfied that Mr Linke remains bound by the deed. I order Mr Linke to pay to the trustees the instalment of $500,000 due on 23 May 2007 together with interest under the deed in the sum of $52,438.35 up to and including 7 April 2008.
- The action against the first defendant is dismissed.
- I order the second defendant to pay the plaintiff’s costs of the action to be assessed on an indemnity basis in accordance with clause 9 of the deed.
- I order the trustees to pay the first defendant’s costs on the standard basis up to and including the first day of the trial. This represents the portion of the trial attributable to issues on which the first defendant succeeded.
- I will hear argument on any ancillary orders.
Footnotes
[1] (1875) Law Reports 7 House of Lords 869.
[2] [1964] 2 QB 480.
[3] (2004) 218 CLR 451 at 466.
[4] Norton on Deeds 2nd ed, 1928 at pp 6 – 7.
[5] [1999] QSC 174 (29 June 1999).
[6] Direct Acceptance Finance Ltd v Cumberland Furnishing Pty Ltd (1965) NSWLR 1504.
[7] Re National Coffee Palace Co; Ex parte Panmure (1883) 24 Ch D 367 at 371 per Brett MR at 373 per Cotton LJ, at 375 per Bowen LJ.
[8] Prior to the 1996 amendment, s 121 read as follows; ‘Fraudulent dispositions s 121. (1) Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy.
(2)Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired the property the subject of the disposition or any interest in that property.
(3)In this section, "disposition of property" includes a mortgage of property or a charge on or in respect of Property’.
[9]World Expo Park Pty Ltd v EFG Australia Ltd (1995) 129 ALR 685; Cannane & Wisbeck Pty Ltd v Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Cannane (1996) 136 ALR 406 at 416.
[10] PT Garuda Indonesia Ltd v Grellman (1992) 107 ALR 199.
[11] See Transcript p 133.
[12] Blomley v Ryan (1956) 99 CLR 362 per Kitto J at 415.
[13] See Meagher, Gummow & Lehane, Equity: Doctrine & Remedies, 4th ed 2002 (Lexis Butterworths).
[14] Ex 18 para 93.
[15] See Transcript p 125 ff.