FEDERAL COURT OF AUSTRALIA Shephard v Chiquita Brands (South Pacific) Ltd [2003] FCA 465 DEREK GEORGE SHEPHARD v CHIQUITA BRANDS (SOUTH PACIFIC) LIMITED N697 of 2002 MADGWICK J 28 MAY 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N697 OF 2002 BETWEEN: DEREK GEORGE SHEPHARD APPELLANT AND: CHIQUITA BRANDS (SOUTH PACIFIC) LIMITED RESPONDENT JUDGE: MADGWICK J DATE OF ORDER: 28 MAY 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal is dismissed. 2. The appellant is to pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N697 OF 2002 BETWEEN: DEREK GEORGE SHEPHARD APPELLANT AND: CHIQUITA BRANDS (SOUTH PACIFIC) LIMITED RESPONDENT JUDGE: MADGWICK J DATE: 28 MAY 2003 PLACE: SYDNEY REASONS FOR JUDGMENT HIS HONOUR: 1 This is an appeal against a decision of Raphael FM in proceeding SZ233 of 2001, [2002] FMCA 115 dismissing an application by Derek George Shephard ("the appellant") to set aside Bankruptcy Notice No. NN317 of 2001, served upon the appellant on behalf of Chiquita Brands (South Pacific) Limited ("the respondent"). Background 2 In 1984 the appellant and his wife entered into a series of agreements with two companies, Johnson Farm Management Pty Ltd and Vosington Pty Ltd, whereby the appellant acquired certain land and rights as part of a proposed co-operative scheme for the farming of blueberry plants near Coffs Harbour. The parties have an underlying dispute as to whether, and to what extent, property passed to the appellant and his wife. The parties are also in dispute as to the nature of the rights to the supply of water obtained from Vosington Pty Ltd and whether numerous easements were created over the property acquired by the appellant and his wife. 3 In 1985 Johnson Farm Management Pty Ltd experienced financial difficulties. The respondent, then known as Blueberry Farms of Australia (Corindi) Limited ("Blueberry Farms") progressively assumed control of certain of the farm management and supply operations. 4 In 1987, the respondent changed the terms upon which farm services were to be provided to the appellant. The appellant was, however, dissatisfied with the standard of services provided by the respondent and was also dissatisfied with the arrangements made by the respondent for the supply of water to his property. 5 In July 1991, the appellant commenced proceedings against the respondent claiming a refund of monies that had been paid for farm management services and shares in Blueberry Farms. Blueberry Farms lodged a counter-claim for money alleged to be owing to it. Following arbitration, the Local Court on 20 November 1995 ordered the appellant to pay the sum of $8,574. 6 This judgment established a judgment debt, pursuant to which the respondent issued an earlier Bankruptcy Notice No. NW633 of 2000. The appellant applied to have the bankruptcy notice set aside in proceedings SZ85 of 2000. The appellant challenged the bankruptcy notice on two grounds. First, the appellant submitted that it was invalid because it contained a number of technical defects or irregularities. Second, the appellant submitted that he had a series of counter-claims, set-offs or cross demands amounting to a value equal to, or greater than, the judgment debt. 7 On 1 February 2001, Driver FM allowed the appellant's application, setting aside the notice: Shepherd v Blueberry Farms [2001] FMCA 2. The Federal Magistrate concluded that the bankruptcy notice was invalid by reason of irregularity, however, he also went on to consider the counter-claim in some detail. He concluded that the appellant failed to establish the existence of a counter-claim, set-off or cross demand. Driver FM's views on those matters are set out in his judgment at [46] to [65]. The respondent did not lodge an appeal. 8 On 14 February 2001, the respondent, claiming a debt of $11,793.32, issued the bankruptcy notice presently in question, No. NN317 of 2001. 9 The appellant applied to have this bankruptcy notice set aside before Driver FM in September 2001. The appellant challenged the notice on several grounds, including that he had counter-claims, set-offs or cross demands within the meaning of s 40(1)(g) of the Bankruptcy Act 1966 (Cth) ("the Act"). Driver FM relied upon his judgment in the earlier proceedings between the parties that the claims were either without substance, amounted to less than the amount due under the judgment, or could have been set up in the original proceedings supporting the notice. The learned Federal Magistrate accepted the respondent's submission that the earlier proceedings had created an issue estoppel, preventing the appellant from raising issues dealt with and decided at the earlier proceedings. The appellant also sought to rely on counter-claims not dealt with by Driver FM in his previous judgment. As to these, Driver FM held that these matters could have been set up in the original proceedings between the parties and were the subject of an Anshun estoppel or were an abuse of process. On 12 September 2001 Driver FM delivered judgment, dismissing the application and ordering the appellant to pay the costs of the respondent: Shephard v Chiquita Brands (South Pacific) Ltd [2001] FMCA 78. 10 The appellant appealed to this Court against the decision of Driver FM in proceeding N1335 of 2001. This was heard by Gyles J: Shephard v Chiquita Brands (South Pacific) Ltd [2002] FCA 466. As to the grounds upon which the appellant sought to rely, Gyles J on 15 April 2002, held that there was no defect in the bankruptcy notice; there was no abuse of process and the appellant could not rely on bias as a ground of appeal, and issue estoppel had not arisen from the earlier proceedings so as to preclude the appellant from re-ventilating matters considered in those proceedings. However, his Honour held that Driver FM had not adequately dealt with the merits of all of the counter-claims alleged by the appellant. Finally, his Honour held that the appellant's alleged assault claims lacked the requisite mutuality to constitute counter-claims. His Honour ordered the matter be remitted to the Federal Magistrates Court to be determined in accordance with law. 11 The re-hearing occurred before Raphael FM. As a result of Gyles J's determination of the appeal, the only ground for challenge left to the appellant was whether he had a counter-claim, set-off or cross demand which could be raised to defeat the bankruptcy notice pursuant to s 40(1)(g) of the Act. The appellant alleged approximately eighty-three cross-claims. Raphael FM gave consideration to each of the claims but held that the appellant was unable to establish a prima facie case sufficient to satisfy the requirements of s 40(1)(g). On 17 June 2002, the application was dismissed and the bankruptcy notice set aside: Shephard v Chiquita Brands South Pacific Ltd [2002] FMCA 115. Appellant's submissions 12 In his Notice of Appeal from the decision of Raphael FM, the appellant relied upon five grounds: "i) Raphael FM erred by failing to properly consider the merits of the Appellant's claim that he had a counter claim, set off or cross demand against the Respondent equal to or exceeding the amount in the judgment or order relied upon by the Respondent and which the Appellant could not have set up in the action in which the judgment order was obtained. ii) Raphael FM erred by holding that matters relating to breach of fiduciary duty were statute barred when there is no statutory time limit for bringing a claim for equitable compensation. iii) Raphael FM erred by finding that matters relating to ownership of irrigation equipment situated on and or serving the Appellant's land could have been set up in the action or proceeding in which the judgment was obtained when the Local Court had no jurisdiction to determine those matters and no Court had power to transfer the proceedings to a Court having jurisdiction to determine those matters. iv) Raphael FM erred by finding that the fact that the Appellant's counter-claim, set off or cross demand against the Respondent was being pursued in proceedings where there were other claims against other parties arising from the same or similar circumstances that gave rise to the claims against the Respondent, meant there was no mutuality between the Appellant's claims against the Respondent and the judgment debt relied upon by the [Respondent]. v) A reasonable observer would apprehend that Raphael FM might not bring an unprejudiced and impartial mind to the resolution of the issue before him because he was influenced by views he had formed about the rights of a vehicle owner to eject another from a vehicle without warning, and his views about the lack of rights of an owner of goods to recover those goods from the land of another holding the goods without having lawful obtained them." 13 In his written submissions, the appellant clarified his Notice of Appeal, alleging that Raphael FM had not adequately addressed the legal and factual merits of his case; that questions as to the ownership of irrigation equipment and the right to take water could not have been set up in the original proceedings, and that the line of authority upon which Raphael FM relied to find against the appellant on the issue of mutuality ought not to be followed. The appellant made no further submissions regarding the allegation of bias or the claim of breach of fiduciary duty. Respondent's submissions 14 The respondent submitted that the appellant's first ground of appeal reflects a misapprehension of the role of the Court on an appeal by way of rehearing. The respondent submitted that: "The task of a court on an appeal by way of rehearing is the correction of error": Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; Argus Real Estate Holdings Pty Ltd v Lyristakis [2002] FCAFC 256. … "What is error in any given case depends, of course, not only on the evidence, but also on the nature of the findings or conclusions made by the primary judge. The demonstration of error may not be straight-forward where findings or conclusions involve elements of fact, degree, opinion or judgment or when the findings or conclusions in question can be seen as made with the advantage of hearing the evidence in its entirety, presented as it unfolded as the hearing with the opportunity over the course of the hearing and adjournments for reflection and mature contemporaneous consideration and assessment, in particular in a long and complex hearing": Branir, supra… … The appellant must allege and prove some specific error in fact-finding or reasoning of the trial judge. This first ground of appeal discloses no such allegation of specific error. In any event, the suggestion that Raphael FM failed to properly consider the appellant's claims is without foundation. His Honour methodically addressed each and every claim alleged. His reasoning and conclusions are not just rational but manifestly correct. …Whether the appellant adduced sufficient evidence to satisfy the court that he had "reasonable prospects" of establishing a cross claim is a classic example of an assessment which "involve elements of fact, degree, opinion or judgment", in respect of which the appellate courts recognise the advantage of the trial judge, and are slow to interfere." 15 The respondent next submitted that it is not open to the appellant to press a claim for breach of fiduciary duty because he had not pressed any such claim at trial and Raphael FM had made no findings in relation to the issue. The respondent relied on Suttor v Gunddowda Pty Ltd (1950) 81 CLR 418 for the proposition that: "where a point is not taken in the court below and evidence could have been given which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards" (See also Obrien v Komesaroff (1982) 150 CLR 310 at 319; Coulton v Holcombe (1986) 162 CLR 1 at 7)." 16 As to the ownership and use of irrigation equipment, the respondent submitted that the applicant had made no assertions, let alone provided evidence, to satisfy the requirements of s 40(1)(g) of the Act in respect of a counter-claim. 17 As to the fourth ground of appeal, the respondent submitted that: "(a) His Honour did not err in holding that the claims lacked the requisite mutuality; (b) In the alternative, His Honour's decision in relation to the Assault Claims can be supported on the basis set out in the respondent's Notice of Contention: namely, that there is not sufficient evidence to satisfy the court that the appellant has a counter-claim set-off or cross-demand equal to or exceeding the amount of the judgment debt." 18 It was submitted finally for the respondent that there is no basis for the contention that any conduct of the Federal Magistrate gave rise to a reasonable apprehension of bias: Johnson v Johnson (2000) 201 CLR 488 at 492. Merits 19 The first matter raised concerns the appellant's claim that Raphael FM "failed to properly consider" the merits of his claims. Raphael FM dealt with each of Mr Shephard's alleged cross-claims in the following way at [10]-[27]: "There are approximately eighty-three alleged cross claims. … The first eight items in the schedule of cross claims are all dated November 1995. The first three relate to an alleged blocking of a right of carriageway, the next three relate to an alleged blocking of a right to use an irrigation pipe and the next two relate to the blocking of a right to use an irrigation pump. The respondent argues that all these matters relate to the rights which the applicant maintains he has over the land which he purchased at Curindi including the alleged rights to utilise irrigation equipment and water flowing through that equipment. Success or failure in these claims depends upon a finding as to the ownership of the irrigation equipment and the contractual right to take water. Those matters were already disputed by the parties prior to judgment and could have been the subject of a claim transferred from the Local Court to either the Supreme Court or the District Court of New South Wales in which declarations were sought. A similar view could be taken of the allegations concerning the blocking of the right of carriageway. The respondent submits that there is no evidence of any of these claims merely assertions. The respondent submits that there is no evidence of loss in the amounts claimed and finally notes that no claim has been filed in respect of these allegations. I have perused the affidavits which have been filed and relied on and I do not believe that they establish a prima facie case sufficient to satisfy the standard required by Ebert but even if it did I would be reluctant to come to a view that the claims are likely to be successful when they rely on conduct which commenced seven years ago and in respect of which no proceedings have been commenced. The respondent would surely be able to mount a very strong case of laches, acquiescence or delay on the part of Mr Shephard in so far as the alleged torts are continuing. Claim 9 relates to the alleged withholding of consent for the erection of fences. It is dated November 1995. There is no evidence that consent was sought. I am not satisfied that this is a claim which has any prospects of success. Claim 10 relates to allowing timber poles to remain upon the applicant's land. It seems that the respondents removed an erection of which the poles formed part but did not remove the poles themselves. They are on the applicant's land, they were put there by the applicant. I cannot see how the respondent can be responsible for their continued existence. Claim 11 relates to the detention of irrigation fittings and includes a claim for loss of blueberry crops. It is dated November 1995. This is another matter which was part of the general dispute between the parties prior to the date of the judgment. The claim must be treated with considerable scepticism given that no proceedings have been filed in relation to it notwithstanding that a claim of over one half of one million dollars is being made. The evidence is scant, if it exists at all, and I would not conclude that there is a viable cross claim within s.40(1)(g). Items 12 and 13 relate to activities which occurred in December 1995, are not continuing and which are now statute barred. Item 14 to 39 relate to a series of alleged incidents of what can best be described as minor trespass. Although the applicant claims $360,000.00 in respect of each (including the allegations of harassment and abusive language) I do not believe that even if the allegations could be proved that they would result in a finding in damages of much more than a few hundred dollars. I note also that there is no indication that proceedings have been commenced in respect of any of these alleged incidents which took place in 1998. Items 42 and 43 allege blocking a right of way. They are dated in 1998, no claim has been filed in respect of them and no particulars of any evidential value are provided. Items 43 to 45 relate to the alleged removal of a wallaby proof fence in 1998. The claim is said to be $5,063.00 in respect of each of the parcels of land upon which this fence was alleged to have been erected. There is most certainly a dispute between the parties as to the applicant's right to erect a fence in the first place and in cross-examination he accepted that he had plucked the figure for damages "out of the air". Given the knowledge which I have of the proceedings between the parties and the allegations each make against the other it would be difficult to form an opinion that there were reasonable prospects of success in these claims. I would also note that the incidents are alleged to have taken place in "about 1998" and yet no claim has been filed in regard to them. Item 46 relates to the blocking of an irrigation pipe. Again there is no evidence other than the assertion. The incident is alleged to have taken place "about 1998". The ownership of the irrigation pipe is in any event disputed and could have been raised by the applicant in the original proceedings. Item 47 relates to driving a tractor across the applicant's land. There is no evidence that I can see identifying the tractor. I do not think the claimed damages of $360,000.00 are likely to be achieved even if the allegation was proved. I note that no claim has been filed even though the alleged trespass occurred on 16 February 1999. Item No 48 relates to a slasher being operated on the applicant's land on 16 March 1999. The remarks I have made above apply equally to this. Items 49, 50 and 51 relate to blocking a right of way. Once again no claim has been filed, there is no evidence other than the assertion and no indication of how the alleged damages of $5,063.00 in respect of each parcel of land is likely to be achieved. Items 52 to 55 relate to the wallaby proof fence upon which I have already commented and it seems to be a repeating of the earlier allegations. There were then a series of allegations numbered 56 to 61 and 63 to 67 also 70 to 74 and 76 which relate to alleged assaults upon the applicant in respect of which a claim was filed in July 2001. These claims are made against the respondent and a series of other persons some of whom are its employees. When the matter was before Driver FM he held that these claims could not constitute a cross claim because there was no mutuality between the parties. His Honour followed the decisions such as re E J Brown (1923) 40 WN 73, re Wedd (1962) WAR 42 and re Camilleri; ex-parte Maguire (unreported) Federal Court, Olney J, 8 May 1996. This issue was dealt with by Gyles J on the appeal where at [34] he said: "In my opinion, there is much to be said for the submissions for the appellant (which I have not fully reproduced) particularly (but not only) in relation to the several claims in tort. However, as the decisions in question are not plainly wrong, it is appropriate that they be applied until reviewed in a full court. This should be borne in mind on the retrial when making findings on this issue." Gyles J was sitting in the appeal as a Full Bench of the Federal Court. I am bound by his views in that capacity. The allegations of assault cannot be maintained as cross claims, cross demands or set offs in these proceedings. The remaining items are small allegations of trespass for which no evidence is provided and in respect of which, if they were capable of proof, the damages would be very low. I refer to such items as placing a surveyor's peg on the eastern boundary of the lot, slashing the south western corner of the land. Other similar items relate to alleged acts of vandalism against the applicant's property. There is no proof that these were caused by the respondent. Item 77 is an allegation relating to the spread of fire on Christmas Day 2001. There is no suggestion in the documentation that the fire was caused by the respondents. It appears to have been part of the Christmas Day fires that damaged a considerable amount of property in that area. The prospects for the applicant succeeding in such a claim are small. Taking these allegations as a whole it is my view that even if the applicant did succeed in some of his claims of trespass, in respect of none of which have claims been commenced, the applicant would be hard pushed to obtain damages likely to exceed even the small amount that is claimed under the bankruptcy notice." 20 His Honour proceeded to deal with the various matters comprehensively and rationally. That conclusion does not, of course, negate the possibility that some specific errors were made. That possibility is considered below. There can, however, be no overall, quasi-jurisdictional objection to his Honour's approach to the matter. Fiduciary Duty 21 In the schedule of cross-claims submitted before Raphael FM, the appellant made no allegation as to the existence of a fiduciary relationship between the parties, let alone any breach of such relationship. Nor was there any or any adequate evidence about it. The learned Federal Magistrate, accordingly, made no findings as to that claim. 22 On appeal, Mr Shephard was unable to offer any reasonable explanation. The transcript records: "HIS HONOUR: So why did you not run those fiduciary matters before the Magistrate when you went to the trouble of handing him up a [particularly] detailed schedule? MR SHEPHARD: I overlooked it, your Honour, evidently." Clearly, the respondent might well have been able to adduce evidence in response to the appellant's claims. No reasons have been advanced which would justify the attempted litigation of a claim not pressed below. That ground of appeal must fail. As was said by Allsop J (Drummond and Mansfield JJ agreeing) in Branir Pty Ltd & Ors v Owston Nominees (No 2) Pty Ltd & Anor (2001) 117 FCR 424 at [36]-[37]: "The roles of the trial and the appeal need to be kept distinct. The appeal is not a reworking of the trial taking account of such impediments as are thrown up by the judge´s findings which alter the landscape. As was said in Coulton v Holcombe at 7: It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish. It is beyond question that if a new matter is raised and evidence could have been given which by any possibility could have prevented the point from succeeding, the point cannot be taken: Coulton v Holcombe at 7-8. " And see also [38]-[39]. Irrigation Pipes 23 The only reference to the ownership and use of irrigation equipment in the schedule of cross-claims handed up before Raphael FM is the cross-claim numbered item 46. It states: "About 1998 Subsequent to the date of judgment upon which the respondent relies, the respondent has blocked an irrigation pipe situated to the west of lot 36/731384. I claim damages in the sum of $5,063". An affidavit dated 4 June 2002 was relied upon in support of this claim. The only reference in the affidavit to the blockage of an irrigation pipe situated on the west of lot 36/731384 is in paragraph 1(j), as follows: "Subsequent to the date of judgment upon which the respondent relies, the respondent has blocked an irrigation pipe situated to the west of lot 36/731384. I claim damages in the sum of $5,063." 24 Raphael FM held that the ownership of the irrigation equipment was part of the general dispute between the parties prior to the date of the judgment debt and therefore this claim could have been raised by the appellant in the original proceedings. The claim alleged by the appellant, however, relates to the blocking of this particular irrigation pipe in "about 1998". It is unclear, therefore, how the appellant could have raised this issue in the original proceedings. 25 In any event, to 'satisfy the court' that he hasa counter-claim, set-off or cross demand the appellant must show that: "… he has a genuine demand…But…a demand must be more than bona fide: the Court must be satisfied that it has a reasonable probability of success": Re Debtor [1958] 1 Ch 81, 99 (per Roxburgh J)" cited with approval in Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350. "The mere production of a statement of claim in an action alleging facts which, if true, might give rise to such a claim will be insufficient to satisfy the Court as required: Re Cox (1934) 7 ABC 98. The debtor must 'show' the existence of the counter-claim, set-off or cross-demand, by producing evidence": Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135. 26 There is an obligation on the debtor to adduce evidence that provides reasonable grounds for the institution of proceedings: Vogwell v Vogwell (1939) 11 ABC 83 at 85 (per Latham CJ). The appellant, although alleging the blocking of an irrigation pipe, has not placed before any court evidence (if indeed any such evidence exists) that supports any recognisable cause of action. The effort to assert this counter-claim must therefore fail. Assault/false imprisonment/trespass claims 27 As to these claims, the appellant challenged Raphael FM's finding that there was no "mutuality" between his claims against the respondent and the judgment debt relied upon by the respondent. Raphael FM was bound by the decision of Gyles J in the appeal from Driver FM. Gyles J, in turn took the view that he was bound to follow, despite some reservations about their correctness, a line of cases holding that a debt for which the judgment creditor is jointly liable can not be set off against a debt owed by the debtor to the judgment creditor alone: Re Edwin John Brown (1923) 40 WN 73; Re Wedd; Ex parte Parker [1962] WAR 42; Re Camilleri; Ex parte Maguire (unreported, FCA, Olney J, 8 May 1996); Stec v Orfanos (unreported, FCAFC, 4 March 1999). I am not satisfied that Gyles J was in error as to the approach he took and I think that I should follow it, despite sharing Gyles J's doubts about the correctness of the earlier decisions. Consequently, until these decisions are reviewed by the Full Court, I am bound by this line of authority. On this basis, therefore, the allegations of assault cannot be maintained as cross-claims, cross-demands or set offs in these proceedings. Were this point decisive in the case, I should, on account of Gyles J's and my own doubts, have sought to have the Court reconstituted as a Full Court to consider the matter. However, there is another fatal answer to the appellant's claims. 28 The respondent submitted a Notice of Contention that the judgment of Raphael FM, in relation to the assault claims, should be affirmed on the grounds that in each instance there was no sufficient evidence of a cause of action and/or damages to satisfy the Court that the appellant has a cross-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt. I have examined each of the assault claims alleged and the evidence before Raphael FM in relation to them. Without tediously rehearsing the detail, it is clear that as to none of the particular claims is there any or any adequate evidence of the facts asserted by the appellant sufficient to satisfy the requirements of s 40(1)(g). The deficiencies to some extent vary from allegation to allegation. They were discussed seriatim in argument. In many cases the deficiencies include an inadequacy of material to suggest that anything other than nominal damages might be recoverable. In others, the evidence is, for example, insufficient, in the light of the respondent's evidence, to ground a cause of action sufficiently viable as to justify delaying any question of bankruptcy pending its further curial investigation. In particular, the mere allegation of facts in (or as in) a statement of claim is not evidence that a debtor has a cross-claim and is insufficient unless supported by prima facie evidence of their truth: Re Cox; Re Rivett. Bias 29 There is simply no basis for a contention that any conduct of the learned Federal Magistrate gave rise to a reasonable apprehension of bias: Johnson v Johnson (2000) 201 CLR 488. 30 For these reasons the appeal must be dismissed. 31 The appellant is to pay the respondent's costs. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick. Associate: Dated: 28 May 2003 Appellant appeared in person. Counsel for the Respondent: Mr C R Newlinds and Mr H Stowe Date of Hearing: 4 February 2003 Date of Judgment: 28 May 2003