FEDERAL COURT OF AUSTRALIA Brady v Official Trustee in Bankruptcy [2002] FCA 363 BANKRUPTCY – appeal from Federal Magistrates Court of Australia – appellant claimed to be secured creditor with security over a gold mining lease and certain plant and equipment ("the Property") – respondent trustee, on legal advice, denied appellant held such security – trustee sold some of the Property – appellant sued trustee for conversion and, in the alternative, for breach of certain duties under the Bankruptcy Act, should appellant be found to be an unsecured creditor – Federal Magistrate held appellant's security to be valid and awarded damages to appellant for conversion – whether Federal Magistrate erred in not awarding damages against respondent for failing to take possession of the Property and protect the interests of creditors – whether damages award was inadequate. PRACTICE AND PROCEDURE – costs – offer made by respondent to compromise – appellant did not accept offer, but made counter-offer to settle for over ten times amount of eventual judgment – whether Federal Magistrate erred in finding that respondent's offer of compromise exceeded the amount of the judgment and interest recovered – whether Federal Magistrate erred in finding that appellant's refusal to accept respondent's offer was sufficiently unreasonable to justify ordering appellant to pay respondent's costs on an indemnity basis for part of the relevant period – no discretionary error demonstrated – whether appellant should be permitted to adduce further evidence not tendered to Federal Magistrate – tender refused. Bankruptcy Act 1966 (Cth), ss 58, 90, 116, 129(1), 176 Wollongong Corporation v Cowan (1955) 93 CLR 435 applied Calderbank v Calderbank [1975] 3 WLR 586 referred to Bates v Omareef Pty Ltd (unreported, Emmett J, Federal Court of Australia, 28 October 1997) referred to Alpine Hardwood (Aust) Pty Ltd v Hardys Pty Ltd (No 2) [2002] FCA 224 referred to PETER JOHN BRADY v OFFICIAL TRUSTEE IN BANKRUPTCY W433 of 2001 W485 of 2001 CARR J 28 MARCH 2002 PERTH IN THE FEDERAL COURT OF AUSTRALIA W433 OF 2001 WESTERN AUSTRALIA DISTRICT REGISTRY ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: PETER JOHN BRADY Appellant AND: OFFICIAL TRUSTEE IN BANKRUPTCY Respondent JUDGE: CARR J DATE OF ORDER: 28 MARCH 2002 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the respondent's costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA W485 of 2001 WESTERN AUSTRALIA DISTRICT REGISTRY ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: PETER JOHN BRADY Appellant AND: OFFICIAL TRUSTEE IN BANKRUPTCY Respondent JUDGE: CARR J DATE OF ORDER: 28 MARCH 2002 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the respondent's costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA W433 OF 2001 WESTERN AUSTRALIA DISTRICT REGISTRY W485 OF 2001 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: PETER JOHN BRADY Appellant AND: OFFICIAL TRUSTEE IN BANKRUPTCY Respondent JUDGE: CARR J DATE: 28 MARCH 2002 PLACE: PERTH REASONS FOR JUDGMENT INTRODUCTION 1 These are two appeals from judgments of a Federal Magistrate in the same matter, said to have been delivered on 22 August 2001 and 21 September 2001. 2 The court records strongly suggest that only one judgment was delivered, namely the judgment of 21 September 2001. However, two notices of appeal were filed (possibly because the learned Magistrate delivered two sets of reasons for judgment) and the parties have treated the matter as involving two judgments and two appeals. Accordingly, it is convenient to deal with the matter in these reasons on the same basis. In relation to the "first judgment", the appellant complains that the learned Magistrate awarded him inadequate damages and failed to consider causes of action (other than the one upon which the judgment was based) upon which the appellant relied at first instance. In "the second judgment" the Magistrate made costs orders (awarding to the appellant only part of his costs and ordering him to pay a substantial part of the respondent's costs) by reason of the appellant's failure to accept an offer to compromise his claim. The offer to compromise was made by the respondent some 13˝ months before the trial, in an amount which was about 25% greater than the damages and interest awarded to the appellant under the first judgment. The appellant contends that the Magistrate erred in making those costs orders. factual and procedural background 3 On 2 February 1990 the appellant entered into a joint venture agreement with Messrs Stanley Frederick Leeder and Kim Roderick Mitchell, gold miners, for the development and operation of a gold mine conducted on Gold Mining Lease 63/2319 near Norseman in Western Australia. One of the terms of the joint venture required the appellant to advance to Messrs Leeder and Mitchell a sum of approximately $35,000 which they were to apply for the purposes of the joint venture. Any profits were to be shared equally between the three joint venturers. 4 It was part of the appellant's case at first instance that, as matters transpired, he advanced to Messrs Mitchell and Leeder amounts totalling $83,406.00. The Magistrate did not make a finding of fact about the amount of those loans. Nor, for reasons which will appear below, was it necessary for the Magistrate to make such a finding. 5 To secure repayment of the loans, Messrs Mitchell and Leeder executed, on 25 June 1990, a mortgage debenture in favour of the appellant and his wife June Mary Brady (now deceased). I shall refer to that document and the documents annexed to it as "the Mortgage Debenture". 6 Under the terms of the Mortgage Debenture, Messrs Mitchell and Leeder transferred and assigned certain property ("the Property") to the appellant and his wife. As the parties chose to use a pro forma document in the form of a bill of sale over a vehicle, the Property was described in the body of the Mortgage Debenture as the "Vehicle" which in turn was defined as "the vehicle described in the Schedule". In the Schedule "The Vehicle" was described as "Being all the items and matters in Schedule 11/3". The Magistrate found as a fact (and it appears not to be in issue) that Schedule 11/3 was in the following terms: "schedule 11.3 the vehicle (the term in this agreement to include all items and matters in the schedule below) (a) all plant – equipment – buildings – stock at present at mine site gold mining lease 63/2319 both above and below the surface (b) gold mining lease 63/2319 (c) without lessening any part of a above does include specifically as well as any further items herein scheduled 1. mitsubishi utility my 1678 2. toyota utility 6nc 404 3. foden truck al 10818 4. 3 air blasters ex australis 5. compressor 6. generator & switchboard 7. drilling unit 8. bogger 9. statesman deville-holden 10. mining equipment at 35 brockman st." 7 The appellant's case was that Messrs Leeder and Mitchell failed to repay any of the abovementioned loans. In about January 1991 the appellant seized some of the plant and equipment referred to above. He also sued Messrs Mitchell and Leeder in the Supreme Court of Western Australia, during the course of which proceedings the defendants obtained an interim order enabling them to regain possession of some of the plant and equipment seized. That action was pending when Mr Leeder was declared bankrupt on 25 March 1993 and Mr Mitchell was declared bankrupt on 30 March 1993. The respondent became the trustee of each of those bankrupt estates. 8 During the period between the commencement of those bankruptcies and 23 March 1995 the appellant claimed, and the respondent denied (and maintained such denial in the proceedings at first instance in this matter), that he was a secured creditor in each of the estates, holding security over the Property. There was much correspondence and several meetings between the appellant and the respondent to discuss that subject and the related subject of the sale of the Property. Eventually, on 23 March 1995, the respondent sold most of the Property to Mr Leeder for $8,000. The appellant had offered to buy those items from the respondent for $9,000, but his offer was not accepted. 9 On 24 March 1999 the appellant filed an application and a statement of claim in this Court. The relief sought in the application was described as follows: · damages; · an order under s 176 of the Bankruptcy Act; · such further or other orders as the Court thinks just and equitable; · interest; and · costs 10 The matter proceeded on pleadings (although some affidavits were filed). It is necessary to outline in some detail the issues which were raised in the statement of claim. 11 In the statement of claim (in its final form) the appellant relevantly pleaded that he loaned amounts totalling $81,706 to Messrs Leeder and Mitchell pursuant to the joint venture agreement and that they in turn had executed the Mortgage Debenture in favour of the appellant and his wife for the purpose of securing the loans made by the appellant. The appellant pleaded that by virtue of the Mortgage Debenture he was a secured creditor of Messrs Leeder and Mitchell. But, in the alternative, if the Mortgage Debenture did not create a valid security over the Property, the appellant claimed that he was an unsecured creditor of Messrs Leeder and Mitchell. The appellant pleaded that in March 1993 the value of the Property was approximately $90,000. 12 Next the appellant pleaded that the respondent had breached a duty of care owed to him as a creditor (and to other creditors) and/or alternatively had acted in breach of trust by: · failing to take appropriate steps to recover the Property for the benefit of the creditors of the bankrupt estates; · failing to inspect the Property to determine its nature and location or to secure possession or control of it; · failing to obtain a proper valuation of the Property; · failing to take possession of the Property or to take proper steps to ensure that it was secure from being dissipated or damaged; · failing to sell the plant at a maximum return "for creditors"; · selling the Property by private sale to Mr Leeder for $8,000 when this was said to be grossly less than its value; · failing to accept an offer from the appellant to purchase the Property for $9,000; · failing to obtain or apply to the Court for directions. 13 It is quite clear, in my opinion, from the terms of paragraph 15 of the final version of the statement of claim that the claims in negligence and breach of trust were pleaded by the appellant only in the alternative in the event that the Court held that the Mortgage Debenture did not create a valid security over the Property. 14 Next the appellant pleaded "further, or in the alternative", that by reason of the matters summarised above the respondent had been in breach of the "… duty owed to the appellant and the other creditors of the bankrupt estates of Leeder and Mitchell, under the Bankruptcy Act and at common law." 15 Seemingly by way of particulars, the appellant recited the facts that the respondent had admitted his proof of debt in Mr Leeder's estate in the sum of $44,689 and in Mr Mitchell's estate in the sum of $45,818, but had not paid any amount to the appellant in the administration of either of those estates. 16 The appellant next pleaded that by reason of the negligence and/or breach of trust of the respondent he "... had suffered damages and the bankrupt estates of Leeder and Mitchell respectively have suffered loss." Under the heading of Particulars it was stated that particulars of loss and damage would be provided prior to trial. 17 Finally the appellant pleaded as follows: "Further or in the alternative, the respondent by failing to acknowledge that the plant and equipment and lease belonged to the applicant, by virtue of the mortgage debenture, and selling the plant and equipment and lease to Leeder, wrongfully converted the property of the applicant, causing the applicant loss and damage. Particulars Particulars of loss and damage will be provided prior to the trial." 18 It is necessary to set out the prayer for relief in the statement of claim. It read as follows: "AND THE APPLICANT CLAIMS (a) Damages. (b) Under section 176 of the Bankruptcy Act an order directing the respondent to make good the loss to the bankrupt estates of Leeder and Mitchell caused by the breach of duty of the respondent. (c) Any other order the Court considers just and equitable. (d) Interest. (e) Costs." 19 On 31 January 2001 a Judge of this Court ordered that the application be transferred to the Federal Magistrates Court of Australia. The hearing before the Magistrate took place over a period of 4 days. Each side called witnesses and some affidavits were admitted into evidence. the decision at first instance 20 The learned Magistrate described the appellant's claim under s 176 of the Bankruptcy Act 1966 (Cth) ("the Act") as being "essentially based" upon two causes of action. He identified the first as being a conversion claim based upon the validity of the Mortgage Debenture and the second as being "breach of duty, negligence against the trustee causing loss to the Applicant as an unsecured creditor of the bankrupt estates …". 21 The Magistrate first turned to what he described as "the conversion claim". He considered the evidence of the appellant and that of Mr Mitchell in relation to the execution of the Mortgage Debenture. The Magistrate preferred the evidence of the appellant to that of Mr Mitchell and found that the Mortgage Debenture was a valid security for the loans advanced to Messrs Leeder and Mitchell. [The respondent does not challenge that finding.] The Magistrate noted that the respondent had conceded that in the event that there was a finding that the document was a valid Mortgage Debenture then there had been conversion of the plant and equipment which the respondent had caused to be sold on 23 March 1995. I pause at this stage to make two observations. First, it does not appear that the concession extended to the gold mining lease (which as noted above formed part of the Property). Secondly, the concession related only to that sale. The Magistrate then said this: "31. It is therefore unnecessary for me to consider the issue of whether the Applicant could be regarded as an unsecured creditor and indeed whether in those circumstances there has been a breach of duty of care. 32. I am satisfied that by virtue of the conversion which has occurred whereby the goods which were the subject of the mortgage debenture were sold that the trustee has breached a duty of care to the Applicant in failing to recognise the Applicant as a secured creditor and dealing with the assets accordingly." 22 The Magistrate then turned to the question of assessing damages, noting that the evidence in support of that claim was "vague and unsatisfactory". He accepted a submission from the respondent that damages should be assessed in an amount equal to the value of the plant and equipment at the time of conversion i.e. 23 March 1995. He also accepted a submission that one particular item which the appellant claimed to be part of the secured Property, a Caterpillar truck (or possibly track) loader, was not the subject of the Mortgage Debenture. It would appear that the Magistrate reached that conclusion partly on the basis that that item was not listed in the Mortgage Debenture. This is one of the issues raised by the appellant in the appeal. 23 The Magistrate held that the respondent should not be liable for any damages for deterioration in the value of the Property between the date when the bankruptcies first occurred and when it was sold. In doing so, he accepted the respondent's submission that the appellant was not prevented from exercising rights which he had asserted under the Mortgage Debenture and had taken no steps to exercise those rights despite the fact that he had taken Supreme Court proceedings which could have been continued. He summed up in these terms: "Whilst there has been conversion I do not accept that there has been "unlawful retention"." 24 The Magistrate then reviewed the evidence about the value of the plant and equipment. On the basis of that evidence the Magistrate assessed the value of the plant and equipment at the time of sale at $17,550 and also assessed damages in that amount. He then turned to the question of the value if any, of the gold mine. 25 The Magistrate reviewed the evidence adduced on behalf of the appellant through a Mr Websdale but rejected Mr Websdale's evidence, for reasons which he gave. On the basis of other evidence, the Magistrate held that at the time of sale the gold mine had no value. 26 The Magistrate rejected the appellant's claim for consequential damages as being "… far too remote to the claim in conversion" and not having been substantiated. 27 Next the Magistrate considered the appellant's claim for exemplary damages. He rejected that claim, essentially on the basis that the respondent's conduct was not sufficiently wrongful to justify an award of exemplary damages. In the result, the Magistrate initially proposed to order that the respondent pay to the appellant damages of $17,550 together with interest at the rate of 10.5% (implicitly per annum) on that sum calculated from 23 March 1995 to the date of judgment. 28 In his reasons for judgment, the Magistrate also said that he intended to award the appellant his costs against the respondent. However, the respondent's solicitors informed the Magistrate that there had been two offers made by him to compromise the matter pursuant to Order 23 of the Federal Court Rules. The Magistrate made orders directing the parties to file and serve submissions on the question of costs and interest. 29 From the Magistrate's reasons published on 21 September 2001, it appears that the first offer of compromise was served on 13 March 2000 in the sum of $42,000 inclusive of costs and interest. The second offer, in the sum of $42,962.50 (also expressed to be inclusive of costs and interest) was served on 12 September 2000. 30 For the reasons then published, the Magistrate ordered that the respondent pay the appellant interest at the rate of 10.5% (again implicitly per annum) on and from 23 March 1995 up to and including 14 March 2000 in relation to the damages of $17,550, that the respondent also pay the appellant's costs up to and including 13 March 2000, but that the appellant pay the respondent's costs from and including 14 March 2000 up to and including 23 August 2000 (including all reserved costs and interlocutory costs not at that time determined) all of which costs were to be taxed in default of agreement on a party and party basis. The Magistrate also ordered the appellant to pay the respondent's costs from and including 24 August 2000, on a solicitor and client basis, with the respondent being permitted to set off the appellant's liability to pay its costs against its liability to the appellant with execution on the judgment and orders on the claim and interest to be stayed until the provision of an order or certificate of taxation of costs in favour of the respondent. The significance of the date 24 August 2000 was that on 23 August 2000 the respondent's solicitors wrote to the appellant about the reasonableness of the offer and the risks to the appellant if it were not accepted. I deal with these matters in more detail in separate reasons below in respect of the appellant's appeal against the costs and interest orders. the appeal against "the first judgment" 31 I shall deal first with the appeal against the orders which formed the principal part of the reasons for judgment delivered on 22 August 2001. 32 Although the appellant was legally represented (including representation by senior counsel) at first instance he was not legally represented in the appeal. 33 There were nine grounds listed in the appellant's amended notice of appeal. Grounds (a), (b), (c) and (e) 34 The appellant complained [in Ground (a)], in effect, that the Magistrate erred in law by failing properly or adequately to consider the loss which he claimed to have sustained by the alleged failure of the respondent to discharge what the appellant described as the respondent's statutory duties under ss 58, 116 and 129(1) of the Act. The appellant contended that the respondent was required by s 176 of the Act to make good that loss. The respondent, so it was put, had owed him statutory duties under the three first-mentioned sections to ascertain the value of the property divisible amongst the creditors and to take possession of the bankrupt's property to protect the interests of the creditors. 35 The appellant further complained [in Ground (b)] that the Magistrate erred in law "… in finding that s 176 of the Act required a 'conversion' of property before damages were available, when the Act does not require a 'conversion'." In particulars to this ground the appellant asserted that s 176 of the Act imposed a duty on the respondent to make good losses caused by his failure to discharge his statutory duties; s 176 did not require that [the respondent] convert goods, but imposed a duty on the respondent to make good losses caused to the appellant during the administration of the bankrupt estates, however those losses were sustained. The respondent was, so the appellant contended, responsible for all losses sustained by the appellant as a result of the respondent's failure to discharge his statutory duty. 36 In his written submissions the appellant maintained that the Property had been 'converted', on or about the dates when the estates of Messrs Leeder and Mitchell were sequestrated, by reason of the alleged breach by the respondent of his duty to take possession of the divisible property of the bankrupts. As the appellant put it, "… but for the failure of the respondent to perform his duty, the appellant would not have suffered loss." The appellant submitted that there had been a further act of 'conversion' when the respondent amended the statements of affairs from listing the appellant as a secured creditor to showing him as an unsecured creditor. 37 The appellant maintained [in Ground (c)] that the Magistrate had erred in law in categorising the respondent's conduct "… merely as a 'breach of duty'" and by failing to consider the respondent's breach of the abovementioned duties and his "constructive failure" to perform or discharge those duties resulting in actual losses to the appellant. A further particular (the last particular) of this ground was that the Magistrate had failed to consider what the appellant described as the respondent's "contumelious conduct". 38 Next the appellant contended [in Ground (e)] that the Magistrate had erred in law when he considered the meaning of the term 'conversion'. From the particulars to this ground it would appear that the appellant's complaint was that the respondent had disposed of some of the Property otherwise than by sale i.e. by giving them to the bankrupts. my reasoning 39 In my view, these four grounds ignore the case which the appellant put at first instance. His case was that he was a secured creditor. Under the relevant provisions of Division 1 of Part 6 of the Act the appellant would have been entitled to prove for the whole or part of his secured debt in the bankrupt estates if he had either surrendered his security (and proved for the whole of his debt), realised his security (and proved for any balance due to him) or he could have estimated its value and proved for the balance – see s 90 of the Act. The evidence shows that the appellant took none of these courses. It would appear that he lodged a proof of debt in case he were held not to be a secured creditor. 40 It was the appellant's primary case that he was a secured creditor and that the respondent had converted the Property. The Magistrate found in the appellant's favour on both points. 41 In my opinion, it is quite clear from the statement of claim and from the manner in which the case was conducted at first instance that the rest of the appellant's claims were advanced in the alternative on the basis that (i.e. in case) the appellant were found to be an unsecured creditor. 42 On the findings of law and fact made by the Magistrate, the Property was never property divisible among the creditors of the bankrupts, but was vested in the appellant and his wife as security for repayment of the loans. 43 In my view, contrary to the submission of the appellant, the respondent owed no duty to the appellant to get in this secured property. In fact if the respondent had taken possession of the Property then the respondent would doubtless have had a further complaint. 44 As to the last of the particulars to Ground (c), it is clear that the Magistrate considered the nature of the respondent's conduct when dealing with the appellant's claim for exemplary damages. 45 I now turn to the appellant's complaints concerning the Magistrate's alleged failure to deal with further acts of conversion. I think it will be useful again to set out in these reasons the sole paragraph (paragraph 23) of the statement of claim which contained the appellant's plea in conversion. That paragraph was in the following terms: "23. Further or in the alternative, the respondent, by failing to acknowledge that the plant and equipment and lease belonged to the applicant, by virtue of the mortgage debenture, and selling the plant and equipment and lease to Leeder, wrongfully converted the property of the applicant, causing the applicant loss and damage. Particulars Particulars of loss and damage will be provided prior to the trial." 46 There is nothing in that plea to the effect that the respondent had given some or all of the Property to the bankrupt. 47 As to the respondent's failure to acknowledge that the plant, equipment and lease belonged to the appellant and as to the amendment of the statement of affairs which removed the appellant from the list of secured creditors and showed him as an unsecured creditor, even if such conduct might of itself amount to a conversion (which I doubt), this was not how the case was fought at trial. An examination of senior counsel's final address did not suggest reliance upon this as amounting to the relevant conversion. The relevant conversion relied upon was the sale on 23 March 1995. 48 In the written submissions the appellant stated that the date of conversion "… bears significance only as to the date from which interest on damages and consequential losses ought to be calculated". 49 There is a basic defect common to all four of the above grounds. The defect is the assumption that the Property was property of the bankrupts and that, accordingly, in relation to the Property, the respondent was under the statutory duties referred to in the various sections of the Act upon which the appellant seeks to rely. The assumption was not valid. The Property was not property of the bankrupts. On the Magistrate's findings, the Property was vested in the appellant as security for repayment of the loans. The appellant sought such a finding and successfully based his claim in conversion upon that finding. In my view there is no merit in these four grounds of appeal. Ground (d) - The Jones v Dunkel Point. 50 The appellant maintained [in Ground (d)] that the Magistrate had erred in law by failing to draw an adverse inference against the respondent as a result of the respondent's failure to give evidence in connection with his decisions. In written submissions the appellant complained that Mr Prebble, the officer in the respondent's department in charge of the relevant files, did not give evidence. The appellant also relied on the respondent's failure to tender in evidence a legal opinion obtained by the respondent about the status of the appellant as a secured creditor. my reasoning 51 The appellant (at paragraph 50 of his written submissions) acknowledged that "… the finding of his Honour did not turn on the matter …". 52 At the hearing of the appeal I invited the appellant to identify the adverse inference which he claimed the Magistrate should have drawn. His response was as follows: "He should have inferred that they did not want to answer the significantly hard questions of how the administration of this matter was badly handled in the initial situation … so that was the adverse inference that we were referring to, that clarification could have been made on some of the matters that we suspected went wrong." 53 As the appellant has not, in my view, identified any relevant inference which the Magistrate should have drawn, I reject this ground. Ground (f) 54 The substance of this ground was that the Magistrate excluded certain items which, on the appellant's case, formed part of the Property, when he assessed the damages to be awarded. The items were particularised as "… including, but not limited to:- "(i) the value of the items specified in the schedule; and (ii) the value of the TD 33 Caterpillar track; and (iii) the value of the Mitsubishi MY 1678; and (iv) the value of the Eimco 912B Deutz bogger; and (v) any other item of property of the bankrupts located at the mining lease or at 35 Brockman Street, Norseman that exceeded the prescribed amounts of property defined in s 116 of the Act." 55 In his initial written submissions the appellant contended that the Magistrate fell into error when he excluded items "such as" the Caterpillar TD33, which, so he submitted, although not specifically listed in the schedule to the debenture mortgage was clearly part of the property of the bankrupts secured by that instrument. The appellant argued that the fact that the Caterpillar TD33 was not specifically listed in the schedule to the Mortgage Debenture was irrelevant because it fell within the description of "… plant … at present at mine site gold mining lease 63/2319 …" in item (a) of schedule 11.3 which is reproduced at paragraph 6 of these reasons above. 56 The appellant contended that the Magistrate should have awarded him the full value of the plant as valued by a Mr Haslam. Mr Haslam provided a report setting out the following valuation. 1. "Eimco" 912B Deutz Engine Driven Bogger 25,000 Engine Number: 9201913-06004540 2. "Ingersoll Rand" Model P375W-177L/S 8,000 Mobile Air Compressor Serial Number 590.424 E 85 407 3. "Ingersoll Rand" Air Track Drill 6,000 4. "Caterpillar" 933 Track Loader 10,000 5. Dolly Mill 1,500 6. "Lister" 25KVA 3 Cylinder Generator Set 2,000 7. 1966 "Foden" 15 Ton 12 Wheel Tip Truck 5,000 TOTAL VALUE $57,500 MY REASONING 57 I shall deal first with the Caterpillar TD33 (sometimes referred to as a Caterpillar 933 Track loader and sometimes referred to as either a track loader or a truck loader) which is the fourth of the items listed above. In relation to this item, the Magistrate said the following (at paragraphs 42 and 50 of his reasons): "It was further submitted and I accept that one particular item namely a Caterpillar Truck Loader was not an item which was the subject to the mortgage debenture, was not listed in that document and therefore is not a relevant (sic)." . . . "I further accept that the mortgage debenture did not include in its schedule a Caterpillar Track Loader." 58 Although there is a degree of ambiguity in these findings, I do not think it is a fair construction of them to say that the Magistrate relied only on the fact that this item was not specifically listed in Schedule 11.3 to the Mortgage Debenture when he held that it was not subject to that document. 59 The question, as I see it, is whether it was open to the Magistrate to find that the Caterpillar was not an item which was subject to the Mortgage Debenture. That in turn requires one to focus on the evidence as to whether that item was "at present" (i.e. at the time of the grant of the Mortgage Debenture, which was 25 June 1990) at the mine site. 60 Mr Mitchell in paragraph 28 of his affidavit sworn on 18 December 2000 deposed as follows: "28. I refer to the affidavit of Keith Haslam sworn 7 August 2000 with his valuation report annexed. The report refers to a Caterpillar 933 Track Loader (Traxcavator). The Traxcavator came on to the mining tenement only in November 1990 and is not otherwise referred to in the "mortgage debenture" document. The applicant would not have known of the Traxcavator at the time of signing of that document." 61 The respondent submitted that the appellant had adduced no evidence to contradict Mr Mitchell's evidence on this point and that there had been no cross-examination on the point. The appellant did not take me to any such evidence or cross-examination. 62 At the hearing of the appeal the appellant sought leave to tender an affidavit sworn by him on 1 February 2002. This affidavit covered various subjects, including the presence of the Caterpillar TD33 on the mine site in June 1990. The respondent objected to that evidence and I ruled that it was inadmissible as further or fresh evidence. I deal with that subject below. 63 In those circumstances, I consider that it was open to the Magistrate to find, as he did, that the Caterpillar Track Loader was not the subject of the Mortgage Debenture. 64 In written submissions in reply, the appellant contended that the Mortgage Debenture was "similar in nature" to a floating charge and that the words "All plant" would extend the security to the Caterpillar 933 loader even though it was not specifically listed in Schedule 11.3. 65 It does not appear that this argument was raised at first instance. In any event, I do not consider that it has any substance. From its terms, the Debenture Mortgage is a fixed charge relevantly over all plant and equipment "at present" at the mine site. The document speaks as at its date, namely 25 June 1990. 66 The next of the above-listed items which was in controversy at the appeal was the first item which was referred to as "the bogger". 67 The Magistrate's finding in relation to the bogger was (at para 50 of his reasons) as follows: "In assessing damages for conversion I accept however as indicated earlier that it is not appropriate to include in the assessment the "Bogger" which was not converted." 68 The evidence before the Magistrate was that the respondent had not sold the bogger – see, for example, the sale agreement and in particular the schedule to that document. This was consistent with other evidence in the form of two letters from the respondent to the appellant dated 17 March 1995 and 20 March 1995 which were also in evidence. 69 At the hearing of the appeal, the appellant sought to argue that the respondent had converted the bogger by giving it to one of the bankrupts. There are two problems with that submission. 70 The first is that that was not how the alleged conversion was pleaded. The basis of the conversion alleged was that the respondent had sold the items listed by Mr Haslam. 71 The second problem is that the appellant was unable to take me to any evidence that the respondent had in fact given the bogger away. 72 In my view, on the evidence before the Magistrate, it was open to him to find that the bogger was not converted by the respondent. 73 The appellant did not submit that there was any other item of plant and equipment which the Magistrate had excluded in error from his calculations. In Ground (f) there is reference to "the value of the Mitsubishi MY 1678". But this was neither in Mr Haslam's list nor was it the subject of any written submissions. 74 At the hearing of the appeal, the appellant sought leave to adduce evidence in the form of a letter dated 8 August 2000 containing a valuation of this item. The respondent, not surprisingly, objected to this. 75 I refused leave on the basis that this evidence did not satisfy the requisite tests. This item was not in the schedule to the agreement for sale. 76 There was no evidence before the Magistrate to suggest that the respondent had converted this item. Furthermore, it was not the subject of the appellant's claim for damages. 77 In his written submissions in reply in relation to this ground the appellant complained that the Magistrate, when assessing damages, should not have made an allowance for costs of sale and disposition. In my view this submission does not fall within this ground of appeal. In any event, Mr R I Viner QC (in closing submissions on behalf of the appellant) told the Magistrate that the appellant "wanted the goods to sell them, convert them into money and repay the debt …". In those circumstances, when calculating the appellant's damages I do not think that the Magistrate erred in deducting 10% for costs of sale. He was engaged in a process of approximation, refusing to allow some further deductions urged upon him by the respondent, but concluding ["Doing the best I can on the inadequate material before me …"] that there should be a 10% reduction in the damages. In my view, the Magistrate did not err in doing so. 78 In my opinion, there is no substance in this ground. Ground (g) 79 Ground (g) amounted to a complaint by the appellant that the Magistrate had erred by rejecting the expert valuation evidence provided by him and by Mr Websdale about the value of the gold mining lease (No 63/2319). In particulars to that ground the appellant asserted that: · Mr Websdale's evidence was "best evidence" provided by an independent expert; · Mr Mitchell was found not to be a credible witness, his evidence regarding the value of the lease having been rejected, the evidence of the appellant and Mr Websdale ought to have been preferred; · It was unlikely that an asset which had had in excess of $300,000 in development costs spent upon it could have "no value". 80 It will be recalled that the Magistrate placed no value on the gold mine. His reasoning is contained in paragraphs 53 to 59 of his reasons for judgment. Nowhere in those reasons is any reliance placed upon Mr Mitchell's evidence. 81 Rather, the Magistrate rejected Mr Websdale's evidence for reasons which I do not consider involved any error. They were, as the respondent submitted, cogent reasons. It was, in my opinion, open to the Magistrate not to accept Mr Websdale's evidence and to find on the other evidence referred to by him, that the mine did not have any value. This ground has not been made out. Grounds (h) and (i) 82 These grounds were expressed in the following terms: "(h) His Honour erred in failing to recognise that the respondent had acted with reckless indifference to the harm or loss likely to be suffered by the appellant as a result of the failure of the respondent to discharge his statutory duty. AND FURTHER: (i) His Honour erred in rejecting punitive, aggravated and exemplary damages in respect of: (a) negligence; and (b) breach of statutory duty; and (c) misfeasance in public office; and (d) the contumelious disregard of the appellant's legitimate expectation that the respondent would protect the appellant's legal rights and interests; and (e) the respondents (sic) reckless indifference as the harm likely to be suffered by the appellant as a result of the failure of the respondent to properly or adequately discharge his duties under the Act (sic)." my reasoning 83 It became clear from the appellant's written submissions that he was seeking to advance a case of misfeasance in a public office as discussed in Beaudesert Shire Council v Smith (1966) 120 CLR 145 and Northern Territory of Australia v Mengel (1995) 185 CLR 307. 84 From the appellant's written and oral submissions it emerged that an essential part of the appellant's case on the appeal was that the respondent had failed to take possession of the property of the bankrupts by letting them keep the plant and equipment which was the subject of the Debenture Mortgage. I have dealt earlier in these reasons with the fundamental misapprehension on the appellant's part that the Property was part of the property of the bankrupts. 85 I accept the respondent's submissions that this cause of action was never part of the case below. It was not pleaded, nor was it advanced at the hearing at first instance. 86 The appellant, in oral argument, submitted that the respondent had failed to obtain the best price for the items sold and that this established malice on the respondent's part. 87 In my view, the appellant should not be allowed to raise this further Beaudesert claim because, as the respondent submitted, he would, had it been raised at first instance, in all likelihood have led evidence about what he described as "the necessary mental element". 88 In any event there was no evidence before the Magistrate that the respondent had acted with reckless indifference to the harm or loss likely to be suffered by the appellant as a result of any conduct on his part. Nor was there any evidence of intention on the respondent's part to cause harm to the appellant. I turn to the appellant's complaint that the Magistrate should have awarded "punitive, aggravated and exemplary damages". 89 The Magistrate dealt with this issue at paragraphs 66 to 76 of his reasons. It can be seen that he had regard to the whole history of the matter including "… an extraordinary exchange of correspondence between the Applicant and the Respondent over a number of years …" (para 69). The Magistrate noted that his finding of conversion was largely based upon the change in Mr Mitchell's evidence in the witness box from what was in his affidavit. The Magistrate further noted that either party could have had recourse to the Court to clarify or enforce their rights, and that the respondent had sought and acted upon legal advice (some of which was contradictory) in deciding that the appellant was not a secured creditor. 90 In my view, the Magistrate, by reference to the decided cases, correctly identified the legal principles concerning whether exemplary damages should be awarded. 91 He assessed the respondent's conduct both in relation to the act of conversion and in relation to the whole of the conduct of the bankruptcy against the principles explained in those cases. 92 In his written submissions in reply the appellant, in effect, argued that if exemplary damages were not an appropriate remedy, then punitive or aggravated damages should have been awarded. If there is any difference between exemplary damages and punitive damages (which I doubt), it is clear from the submissions of counsel at first instance that the appellant was seeking only exemplary damages. There was no claim for aggravated damages. 93 In my opinion, the Magistrate did not err in refusing to award exemplary damages to the appellant, and this ground is not made out. Further evidence 94 As I have mentioned above, at the hearing of the appeal the appellant sought to adduce further evidence. 95 The first was his affidavit sworn on 1 February 2002 and the annexures thereto. 96 The appellant told me that this evidence went to the value of the gold mine, the presence on the mine of the Caterpillar TD33, the reliability of Mr Mitchell as a witness and the value of the Foden truck. 97 The second body of evidence was contained in a folder of 18 numbered documents. The appellant told me that these documents were relevant to the costs which he had incurred prior to the offer to compromise (a matter relevant to the "second appeal" – i.e. the costs order), the value of the Mitsubishi vehicle, the price of gold, examples of other equipment on the site which were not the subject of the claim before the Magistrate, ownership of the gold mine, the reliability of Mr Mitchell's evidence, the presence of the Caterpillar TD33 on site and Mr Websdale's reliability as a witness. 98 I rejected all of that evidence because I was not satisfied that it was reasonably clear that if it had been available at first instance and had been adduced, the outcome of the trial would have been different or that it was so highly likely to be different as to make it unreasonable to suppose otherwise. I was also satisfied that, with reasonable diligence, the appellant could have procured that evidence for production at the hearing before the Magistrate: Wollongong Corporation v Cowan (1955) 93 CLR 435. I note that, although the appellant was not represented at the appeal, he was represented at the hearing before the Magistrate by senior and junior counsel who were instructed by a firm of solicitors. Mrs brady 99 As I have earlier mentioned, Mrs Brady was a joint mortgagee with Mr Brady and so named in the Mortgage Debenture and has since died. I raised the significance or otherwise of these facts with the parties at the hearing of the appeal. Neither party (and in particular the respondent) sought to raise this as an issue on the appeal and apparently had not done so at first instance. There is therefore no need for me to consider the matter. Conclusion 100 For the foregoing reasons the appeal will be dismissed with costs. "APPEAL NO. W485 OF 2001" 101 I now turn to the appellant's appeal against the orders made by the Magistrate in relation to costs and interest. the factual background 102 On 13 March 2000 the respondent's solicitors served on the applicant a document which was headed "Notice of Offer of Compromise". Omitting formal parts, the notice read as follows: "The Respondent offers to pay the Applicant the sum of Forty two thousand dollars ($42,000.00) in satisfaction of the Applicant's claims herein. The said sum of $42,000 is inclusive of costs and interest. Interest is calculated at the rate of 7% per annum on the principal sum of $27,500 for six years. This offer of compromise is made under Order 23 Federal Court Rules." 103 On 12 September 2000 the respondent served a further notice, again headed "Notice of Offer of Compromise", which (again omitting formal parts) read as follows: "The Respondent offers to pay the Applicant the sum of Forty two thousand nine hundred and sixty two dollars and fifty cents ($42,962.50) in satisfaction of the Applicant's claims herein. The said sum of $42,962.50 is inclusive of costs and interest. Interest is calculated at the rate of 7% per annum on the principal sum of $27,500 for six and a half years. This offer of compromise is made under Order 23 Federal Court Rules. This offer is open for acceptance on or before 27 September 2000." 104 The Appellant did not accept either offer and the application proceeded to hearing over a period of four days between 1 May 2001 and 4 May 2001 when judgment was reserved. 105 In the meantime, on 23 August 2000, the respondent's solicitors wrote to the appellant pointing out that they were about to undertake "… the considerable work required to prepare answering material to the extensive material filed by you." The respondent's solicitors said in that letter that they had been instructed to state explicitly what they regarded as the significant risks faced by the appellant if he were to persist with his application. 106 That letter put squarely to the appellant certain key questions, focussing first on the question how much the appellant could expect to receive if he were successful on either his claim to be a secured creditor, or his alternative claim against the respondent as an unsecured creditor. It drew the appellant's attention to the respondent's contention that even if one of those claims were successful, the prospect of the appellant recovering, as a principal amount, more than $27,500 seemed remote. It also dealt with the question of exemplary damages. As events turned out, the letter was quite an accurate forecast of the result of the proceedings. 107 In his submissions to the Magistrate on the matters of costs and interest, the respondent relied solely upon the earlier offer of compromise as forming the foundation for his application for costs on a solicitor and client basis from the date of that offer, and submitted that the subsequent offer was irrelevant. He cited a decision of Emmett J, Bates v Omareef Pty Ltd (unreported, Federal Court of Australia, 28 October 1997) in support of that proposition. The Magistrate accepted that submission. He accepted that the first offer of compromise complied substantially with the form required by Order 23 of the Federal Court Rules. 108 The respondent submitted, and the Magistrate accepted, that Order 23 rule 11, and in particular subrule 11(6) had no application to the circumstances of this matter, because the offer was made some 13˝ months before the trial and not "on the day before the trial" or "on any later day" as referred to in subrule 11(6). This submission (and its acceptance) appears to be based upon the words [in subrule 11(5)] "… taxed as provided in subrule (6)". I interpolate here, to say that I consider such a construction of subrule 11(5) is unduly restrictive. In my view, the manner in which subrule 11(6) provides costs are to be taxed applies not just to offers made on the day before the trial or later, but also to offers made in the circumstances described in subrule 11(5). 109 In any event, nothing turns upon this point because the respondent advanced, and the Magistrate accepted, the proposition that his discretion should be exercised by applying Calderbank principles i.e. the guidelines explained in Calderbank v Calderbank [1975] 3 WLR 586. The Magistrate found that the first offer was reasonable, that it was not rejected or met with a reasonable counter-offer within a reasonable time and that it was imprudent of the appellant to reject the offer. He further found that at least for part of the time the appellant had access to competent legal advice in making an assessment of the prospects of the success of his application and the prudence of accepting any offer of compromise. He referred to the authorities on the question of indemnity costs and expressed the view that it was appropriate to make an order for costs which in part would be calculated on a full indemnity basis. He said that the first offer and subsequent correspondence "… clearly identified the issues, the nature of the offer and indeed largely predicted the outcome of the trial particularly in relation to the issue of exemplary damages which had been vigorously pursued by the [appellant]." The Magistrate found that the appellant had continued with his claim because he had formed "… an unreasonable view that damages would be assessed at an unrealistically high level and/or that he would succeed in pursuing his claim for exemplary damages based, in part, on ill-conceived notions of what he would describe as 'quasi fraudulent' behaviour on the part of the Respondent." 110 He ordered the respondent to pay the appellant's costs on a party and party basis until the date of service of the first offer, but that the appellant pay the respondent's costs after that date until 23 August 2000 (the date of the abovementioned letter) on a party and party basis and thereafter on a solicitor and client basis. 111 In relation to interest, the Magistrate said that in view of his finding that the offer of compromise was reasonable and that it was imprudent of the appellant not to accept it, it was appropriate that no interest should be allowed after 14 March 2000. the appeal against the costs and interest orders 112 There were five grounds of appeal. I shall deal with them in sequence. Ground (a): Order 23 113 The appellant contended that the Magistrate erred in law in accepting that the first offer of compromise complied substantially with Order 23 of the Federal Court Rules. In my view, the Magistrate did not err in that regard. In any event, as I have mentioned above, the Magistrate did not apply Order 23, but applied the "Calderbank" guidelines. Order 23 does not constitute a code, see for example Alpine Hardwood (Aust) Pty Ltd v Hardys Pty Ltd (No 2) [2002] FCA 224. Ground (b): Certain corrigenda made by the respondent in submissions 114 It is not necessary to deal in detail with this ground. Whatever was contained in the respondent's submissions to the Magistrate, the Notice of Offer of Compromise spoke for itself. Ground (c): Whether the judgment obtained by the appellant was less favourable than the terms of the offer 115 The appellant disputed the Magistrate's finding that the judgment which he obtained was less favourable to him than the terms of the offer. The Magistrate's reasoning on this point was as follows: "A calculation of interest at 10.5% on the principal of $17,550 being the judgment sum results in the Applicant's entitlement to interest for the period commencing with the sale date and ending with the offer date of $11,818.84. In examining the figures it is submitted and I accept that the first offer clearly exceeds the judgment and interest to the date of the claim* as awarded by the Court. Indeed as pointed out by the submissions for and on behalf of the Respondent the offer of compromise is almost $10,000 or 25% greater than the judgment and interests (sic) awarded by the Court to the date of the claim.*" [*The reference to "the claim" would appear to be a reference to the offer, or at least should be so treated.] 116 Later in his reasons, the Magistrate said: "31. I am further satisfied that the first offer made it clear that it was inclusive of costs and interest and provided a basis upon which the recipient of the offer of compromise could calculate the amount of interest allowed for in that notice. 32. Having regard to the significant disparity between the total amount of the offer of compromise and the judgment, allowing for interest to the date of offer. (sic) It is clear in my view that the offer represented a reasonable and serious endeavour to resolve an application which had the potential to increase costs significantly." 117 It appears from Ground (c) and from the appellant's submission that his complaint was that the Magistrate had not properly taken into account, when assessing the worth of the offer, what he (the appellant) could have recovered by way of taxed costs in the application up to the time of service of the first offer. 118 This may well have been due to the fact that the appellant, in his written submissions to the Magistrate, made no reference to those costs or their quantum. He did not seek, until after judgment had been delivered, to adduce any evidence about those costs. 119 The respondent, in uncontradicted written submissions in the appeal, referred to the fact that prior to the first offer, the only documents filed in the application were the application itself, the statement of claim, a notice of appearance, a defence, the respondent's request for further and better particulars of the statement of claim, and a notice of motion and supporting affidavit seeking amendments to the statement of claim (which was dismissed with costs on 23 May 2000). 120 It is apparent, on the face of the first offer, that it comprises three elements, namely the principal sum of $27,500, interest (at 7% per annum for six years) on that sum i.e. $11,550, and the balance, namely $2950, being the costs which were expressly stated as being included in the offer. The respondent, in his submissions to the Magistrate, described that allowance for costs as being "extremely generous". He repeated that submission on appeal. 121 It is clear, from the passages which I have set out immediately above, that the Magistrate was well aware that the first offer included costs. It is true that he did not endeavour to make a specific assessment about whether $2950 was a reasonable allowance. But it had not been put to him that the allowance was deficient and he must be taken, in my view, to have accepted that the allowance was a reasonable one, given the stage which the proceedings had reached at the time when the first offer was made. 122 At the hearing of the appeal the appellant sought to put into evidence some evidence of the costs and expenses he had incurred. In particular, he sought to rely on a photocopy of a letter dated 7 May 1999 to his then solicitor which listed some of those expenses. 123 For the same reasons as I have given earlier in relation to the appellant's attempt to adduce further evidence in the appeal, I decided that the evidence was not admissible. 124 In my view, the appellant has not demonstrated that the Magistrate erred in the manner contended for in this ground. Ground (d): Error in applying authorities cited by the respondent in his submissions 125 In essence, the appellant asserted that the Magistrate erred in law in applying, by analogy, the reasoning of Emmett J in Bates v Omareef Pty Ltd. 126 The appellant has not identified any such error. In my view, the similarities between this case on the one hand and Bates v Omareef Pty Ltd on the other hand were sufficient for the Magistrate, in his discretion, to follow the course adopted by Emmett J in that case. 127 There is no merit in this ground. Ground (e): Access to legal advice 128 The appellant challenged the Magistrate's finding that at all material times when considering the offer of compromise he (the appellant) was either represented and/or had access to legal advice in relation to the prudence of accepting the offer of compromise. He drew attention to the periods during which he was not legally represented. 129 It is clear from paragraph 34 that the Magistrate understood that the appellant was unrepresented from 11 August 1999 to 8 February 2001. On this aspect of the case the Magistrate said (at [34] of his reasons): "… it can be concluded that for part of the preparation time the Applicant was represented. It is also important to note that at the hearing the Applicant was represented by Senior Counsel so that in my view at all material times when considering the offer of compromise the Applicant was either represented and/or had access to legal advice in relation to the prudence of accepting the offer of compromise." 130 As I read the Magistrate's reasons, the word "access" was used in the sense that the appellant, had he wanted to do so, could have obtained legal advice in relation to the first offer. That finding was open on the evidence. 131 I do not think that this ground has been made out. Ground (f): Error in reliance upon authorities 132 Under this ground the appellant complained that the Magistrate had erred in relying on Bates v Omareef Pty Ltd and the decision of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401. 133 In my opinion, the Magistrate made no such error. There is no substance in this ground. general 134 The orders as to costs and interest were made by the Magistrate in the exercise of his discretion. In my view, it is apparent from the Magistrate's reasoning, that he took into account the relevant factors. I do not think that he took into account any irrelevant factors. In particular he assessed the first offer against the judgment obtained by the appellant. He also had due regard to the letter of 23 March 1995 which accurately predicted the outcome of the litigation. He had regard to the manner in which the appellant responded to the offer and the extravagant counter-offer which the appellant made. Taken as a whole, the Magistrate's reasons for awarding solicitor and client costs against the appellant (for part of the relevant period) can be seen to have been based on an assessment that the appellant's conduct had been sufficiently unreasonable as to justify taking that course. 135 In those circumstances, in my opinion, the Magistrate was well within the boundaries for the exercise of his discretion when he made the orders which I have summarised above. 136 As mentioned earlier in these reasons, I doubt whether there are two separate appeals within the matter. I thought, initially, that it might be necessary to sort out whether in reality there is one appeal or two appeals. I do not think that the interests of justice require further exploration of that question. I think that they will be served by orders, in each appeal, that the appeal be dismissed with costs. In practical terms, it makes no difference if one of the appeals is incompetent. I certify that the preceding one hundred and thirty-six (136) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr. Associate: Dated: 28 March 2002 The Appellant appeared in person: Counsel for the Respondent: Mr A R Beech Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 12 February 2002 Date of Judgment: 28 March 2002