Re Ballantine-Jones, Warwick; Ex Parte Farrow Mortgage Services Pty Ltd (in liq) [1998] FCA 1007

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY – application for adjournment of hearing of application to set aside bankruptcy notice – bankruptcy notice issued on basis of judgment in Supreme Court of Queensland – alleged judgment compromised and issue of bankruptcy notice an abuse of process – whether application should be adjourned to allow Supreme Court to determine enforceability of judgment – whether prejudice to creditor if proceedings delayed Re Warwick John Ballantine-Jones ex parte Farrow Mortgage Services Pty Ltd (In Liquidation) QG 7415 of 1997 Kiefel J Brisbane 21 August 1998

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QG 7415 of 1997

BETWEEN: warWick john Ballantine-Jones

Applicant

AND: Farrow Mortgage services pty ltd (IN LIQUIDATION)

Respondent

JUDGE: KIEFEL j

DATE OF ORDER: 21 AUGUST 1998

WHERE MADE: BRISBANE

THE COURT ORDERS THAT: 1. The application be adjourned to a date to be fixed after the determination of the motion in the Supreme Court of Queensland. 2. The parties be at liberty to apply in the interim if necessary. 3. Costs be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY qg 7415 of 1997

BETWEEN: WARWICK JOHN Ballantine-Jones

Applicant

AND: Farrow Mortgage SERVICES PTY LTD (IN LIQUIDATION)

Respondent

JUDGE: KIEFEL J

DATE: 21 august 1998

PLACE: BRISBANE

REASONS FOR JUDGMENT In 1989 Mr Ballantine-Jones and others borrowed monies from Farrow Mortgage Services Pty Ltd ("Farrow") to develop some lands. Following default in payment, writs were issued by Farrow out of the Supreme Court of Queensland. On 23 April 1992, Farrow obtained a judgment for $710,435.48 in Action No 1729 of 1991. A bankruptcy notice was not complied with and a petition issued on that judgment debt on 30 June 1992 and was served on Mr Ballantine-Jones on 21 September 1992. Discussions took place and some agreement was reached in November 1992, but Farrow says this agreement was not carried into effect. It is, in any event, the applicant's case that an agreement of 7 May 1993 overtook these events. Whilst judgment was entered on the money claim, Farrow's separate action for recovery of possession of certain lands in Action No 1366 of 1991 in the Supreme Court was still on foot. It came on for summary hearing on 7 May 1993 when further discussions took place. The agreement now in question resulted (the "Compromise Agreement"): "The within action & pending bankruptcy proceedings between the parties are hereby compromised on 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 per cent of the net 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 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 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. Dated this 7th day of May 1993 (Signature) Mrs Ballantine-Jones (Signature) Mr Ballantine-Jones (Signature) Robert John Edge for & on behalf of Farrow Mortgage Services Pty Ltd (in liq.)" The only order made by the Supreme Court that day, by consent, was that the matter be adjourned to the settlement list. Shortly after entering into the Compromise Agreement, Farrow engaged accountants to undertake the investigations referred to in paragraph 7 of the Compromise Agreement. Although a draft report was provided to Farrow in September 1993, the investigation was not concluded. The draft did not state to the contrary of what had been referred to in paragraph 7, that is to say that Farrow would be substantially better off if it bankrupted Mr Ballantine-Jones, but the liquidator says that the draft report was not satisfactory and that "because Farrow was dissatisfied with the contents of the draft report of Maynes, it was not prepared to further entertain any proposal by the debtor along the lines of the conditional agreement." By the time the draft was received the time for the bringing of the application to the Supreme Court of Victoria for sanction of the Compromise Agreement (6 July 1993) had passed. The liquidator points to a letter written by Farrow to its solicitors on 15 October 1993, instructing them to advise that, after consideration of the report by the investigating accountant, the "offer" made by Mr Ballantine-Jones was "unacceptable"; to advise Mr Ballantine-Jones accordingly and further that he has seven days to put forward and amended proposal. If no acceptable offer was received, bankruptcy proceedings were to issue. It has not however been shown, nor is it asserted, that Mr Ballantine-Jones received any such letter. I interpolate here that the petition previously issued had, by this time, lapsed. Other aspects of the Comprise Agreement were not carried out. Mr Ballantine-Jones did not pay the proportion of his salary, but says he was not called upon to do so. The bankruptcy notice in question issued on 16 June 1997. It required Mr Ballantine-Jones to pay or make arrangements with respect to a balance debt of $300,784.83. The payments received since the judgment was entered, some $409,650.65, included the property just mentioned. It is not suggested that the sales of other property followed upon the making of the Compromise Agreement and they appear to have pre-dated it. On 26 August 1997 Mr Ballantine-Jones applied to the Supreme Court to set aside the judgment of 23 April 1992, but that application was subsequently dismissed by consent. The application brought by Mr Ballantine-Jones to this Court was to have the bankruptcy notice issued on 16 June 1997 set aside. As submissions developed it became apparent that the application was based upon the issue of the bankruptcy notice by Farrow which, it was submitted, was an abuse of process given the Compromise Agreement which had been reached and acted upon. That the Court has the power to prevent the continuation of proceedings, were that established, is not doubted. The question which then arose was as to how a conclusion as to whether the Compromise Agreement was valid and binding, or as to whether Farrow ought to be held estopped by reason of its conduct and silence, could best be determined. At this point I raised questions as to the judgment which remains on the record of the Supreme Court and what, if any, steps were proposed to be taken to determine whether it remains enforceable. It seemed to me that it was preferable that any such question be determined in that Court. Mr Ballantine-Jones now seeks an adjournment of this application to enable a motion to be heard in the Supreme Court. It is proposed to file it forthwith. The relief which will be sought, although not finally formulated, is likely to include declarations as to the compromise and injunctions restraining Farrow from proceeding to enforce the judgment. Farrow submits that this Court ought to proceed to determine the question as to the validity of the Compromise Agreement itself and that the motion foreshadowed is doomed to failure. I do not accept that that is necessarily so. The application referred to above, which was dismissed by consent, sought different relief and proceeded upon the basis that the judgment could itself be set aside as irregularly entered. The only issue which might not be determined in the Supreme Court is that which requires a conclusion as to whether Farrow is to be taken as having represented that it would not pursue bankruptcy proceedings. It may be, however, that the position is not reached. There does not appear to me to be any prejudice to Farrow if the proceedings are adjourned and delays encountered in their finalisation. In these circumstances I propose to adjourn the application to a date to be fixed after the determination of the motion in the Supreme Court. The parties shall be at liberty to apply in the interim, if necessary. Costs will be reserved.