Dimitriou v Newtown Timber & Hardware Pty Ltd [1997] FCA 96 (18 February 1997)

Last Updated: 24 January 2012

IN THE FEDERAL COURT OF AUSTRALIA )
)
BANKRUPTCY DISTRICT OF THE STATE ) No. VN 1448 of 1996
)
OF VICTORIA )

RE: CHRIS DIMITRIOU
Judgment Debtor

EX PARTE: NEWTOWN TIMBER & HARDWARE PTY LTD,

WOODLANDS TIMBER & HARDWARE CENTRE

PTY LTD and WHITES HOLDINGS (ESTATES)

PTY LTD
Judgment Creditors

CORAM: Jenkinson J

DATE: 18 February 1997

PLACE: Melbourne

MINUTES OF ORDER

The Court Declares That:

The Court is not satisfied that any counter-claim, set-off or cross demand which the judgment debtor has is one that he could not have set up in the proceeding in the County Court of Victoria numbered MC 911758.

The Court Orders That:
The judgment creditors' costs of the proceeding determined by the preceding declaratory order be taxed and paid by the judgment debtor.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

IN THE FEDERAL COURT OF AUSTRALIA )
)
BANKRUPTCY DISTRICT OF THE STATE ) No. VN 1448 of 1996
)
OF VICTORIA )

RE: CHRIS DIMITRIOU
Judgment Debtor

EX PARTE: NEWTOWN TIMBER & HARDWARE PTY LTD,

WOODLANDS TIMBER & HARDWARE CENTRE

PTY LTD and WHITES HOLDINGS (ESTATES)

PTY LTD

Judgment Creditors
CORAM: Jenkinson J

DATE: 18 February 1997

PLACE: Melbourne

REASONS FOR JUDGMENT

Trial of a question whether the judgment debtor has satisfied the court that he has a counter-claim equal to or exceeding the amount of the judgment debt, being a counter-claim that he could not have set up in the proceeding in which the judgment founding the bankruptcy notice was obtained.

The proceeding in which the judgment was obtained was in the County Court of Victoria between the judgment creditors as plaintiffs and the judgment debtor and Nick Dimitriou as defendants, numbered MC 911758. On 12 August 1994 that proceeding and another proceeding in the same court, between the judgment debtor as plaintiff and the judgment creditors and an associated company as defendants, were compromised as between the parties other than Nick Dimitriou, on terms of settlement which provided that the judgment debtor pay the judgment creditors and the associated company (called in the terms of settlement "the White Group") the sum of $45,000. It was provided that the $45,000 should be paid as to $35,000 on or before 11 November 1994, $3,000 on each of 30 June 1995 and 30 June 1996 and $4,000 on 30 June 1997. The terms of settlement included the following:

"3.Further, Chris Dimitriou shall, in order to secure the payment of the sum of $35,000.00 referred to in sub-paragraph (a) of paragraph 2 hereof:

(a)procure the execution of a mortgage in favour of the White Group by Peta Marie Dimitriou and Chris Dimitriou in registrable form over 8 Miriam Street, South Caulfield more particularly described in Certificate of Title, Volume 4884 Folio 673 guaranteeing the payment of the sum of $35,000.00 referred to in sub-paragraph (a) of paragraph 2 hereof; and

(b)deliver to Messrs. Moores, solicitors for the White Group on or before 10.00 a.m. 12 August 1994 the mortgage referred to in sub-paragraph (a) hereof which mortgage the White Group shall not register unless Chris Dimitriou defaults in the payment of the sum of $35,000.00 referred to in sub-paragraph (a) of paragraph 2 hereof;

(c)pay all costs associated with the preparation, stamping and if necessary, the lodging of the mortgage referred to in sub-paragraph (a) hereof.

4.Upon payment of the sum of $35,000.00 referred to in sub-paragraph (a) of paragraph 2 hereof the White Group shall:

(a)deliver to Messrs Allan & Macaulay, solicitors for Chris Dimitriou, the mortgage referred to in paragraph 3 hereof;

(b)instruct the Sheriff of the payment of such sum and that the same has been accepted in full satisfaction of the order of the Magistrates' Court at Melbourne made on 17 March 1994 to the effect that Chris Dimitriou pay restitution to the White Group in the sum of $17,246.51.

5.If Chris Dimitriou defaults in any of the payments referred to in paragraphs 2 and 3 hereof, the White Group shall be entitled to reinstate the proceedings herein and to obtain a judgment for the total sum payable by Chris Dimitriou to the White Group, or if any part of the total sum has been paid, then for such amount thereof as remains unpaid, together with interest on that amount at the rate of 13.2% per annum from the date of such default, the costs of entering such judgment and the costs of the proceedings herein being County Court proceedings no. MC911758 and MC925584, calculated on Scale D of the County Court scale of costs then in place. The filing of an affidavit sworn by the solicitors for the White Group deposing to the default of payment by Chris Dimitriou and exhibiting a copy of these Terms of Settlement shall be sufficient proof of the consent of the parties hereto to the entry of judgment in the terms set out in this paragraph.

6.Further, if Chris Dimitriou defaults in the payment referred to in sub-paragraph (a) of sub-paragraph 2 hereof, the White Group shall be entitled to lodge for registration the mortgage referred to in paragraph 3 hereof and to exercise all rights granted to it under the mortgage without restraint.

7.Save for their respective obligations set forth in paragraphs 2, 3 and 4 hereof, the White Group and Chris Dimitriou hereby release and forever discharge each other from all liability, suits, claims or causes of action of whatsoever nature arising out of or connected with the subject matter of the County Court proceedings No. MC911758 and MC925584."

Payment of the $35,000, required by clause 2(a) of the terms of settlement to be paid on or before 11 November 1994, was not completed until 16 November 1994. Professedly for that reason the White Group refused to perform clause 4(a) of the terms of settlement. The $3,000 due on 30 June 1995 was not paid. Re-instatement of the proceeding No. MC911758 was sought by the judgment creditors on summons returnable on 2 February 1996. After several adjournments of the summons the following orders were made by a Master of The County Court on 23 February 1996:

"1.The proceeding be reinstated.

2.Judgment for the Plaintiffs against the First Defendant in the sum of $10,000.00 together with interest in the sum of $853.48.

3.The First Defendant to pay the Plaintiffs' costs of this proceeding together with the costs of proceeding MC925584 calculated on Scale D and the costs of this Application."

The judgment debtor was the first defendant in the proceeding. On 17 July 1996 a bankruptcy notice, which had issued on 5 July 1996, was served on the judgment debtor. On 31 July 1996 there was filed in this court an affidavit sworn by the judgment debtor, of the kind which s 41(7) of the Bankruptcy Act 1966 contemplates. Further affidavits have been filed concerning the question whether the debtor has a counter-claim that he could not have set up in the proceeding in which the judgment was obtained.

In January 1996 the judgment creditors notified the National Australia Bank, which held a first mortgage over the land comprised in Certificate of Title Volume 4884 Folio 673, of the existence of the mortgage to them and of their intention to procure registration of the mortgage. The judgment debtor alleges that, since the terms of settlement on their proper construction, and in the events which had occurred, did not confer on the judgment creditors any right to registration of the mortgage, the notification to the bank constituted misleading and deceptive conduct. It was, however, submitted by Mr McGarvie of counsel for the judgment debtor, that the cause of action under the Trade Practices Act 1974 (Cth) in respect of that conduct had not accrued when the proceeding in the County Court ended in judgment on 23 February 1996, because damage had not then been caused to the judgment debtor by the conduct.

The failure of the judgment creditors to deliver up the mortgage was said to be a breach of the terms of settlement sounding in damages. But, it was submitted by Mr McGarvie, a counter-claim for those damages could not have been set up in the proceeding in which the judgment was obtained.

In an affidavit sworn by the judgment debtor on 8 February 1996 and read before the County Court Master on 9 February 1996 the following is deposed:

"6.I have not paid the second instalment of $3,000.00 due on 30th June, 1995. The reason for this is that the plaintiff and its' Solicitors have refused to return to me or my Solicitor the mortgage referred to in paragraphs 3 and 4 of the Terms of Settlement. Further, it was a term in the Terms of Settlement that this should be done upon payment of $35,000.00.

7....

8....

9.On 26th May, 1995 I wrote a letter to the Plaintiffs seeking the return of the mortgage. Now produced and shown to me and marked with the letters "CD1" is a copy of that letter to the Plaintiffs.

10.That before these enforcement proceedings have taken place I advised the Plaintiffs' Solicitor I would pay the $3,000.00 together with interest upon the Plaintiffs returning the mortgage to me.

11.The Plaintiffs have attempted to register the mortgage with the Land Titles office which has caused me embarrassment with my bank. Further, due to the plaintiff withholding the mortgage I have suffered financial loss.

12.Financial loss has been incurred where I was unable to obtain a loan of $45,000.00 at 9.5% per annum secured by way of a registered mortgage on my property at 8 Miriam Street, South Caulfield, more particularly described Certificate of Title Volume 4884 folio 673. This loan would have reduced the indebtedness to the bank to which interest was payable at 13.5% per annum.

13.That I request this Honourable Court to:

a.Dismiss the Plaintiffs' claim;

b.Order the Plaintiff to return to me the mortgage currently held by the Plaintiff under the terms of Contract."

There is no material before this court to show that leave to counter-claim upon the cause of action for damages for failure to deliver up the mortgage had been refused by the Master, or that such leave would have been refused if it had been sought. The judgment debtor failed to appear, either personally or by counsel, on 23 February 1996. If before that day the Master had considered that leave to bring such a counter-claim was being sought, he would rightly have understood the application for that leave to have been abandoned when there was no appearance for the judgment debtor on what proved to be the last day of hearing.

A copy of that affidavit having been exhibited to an affidavit sworn by Philip Andrew Curtis, the judgment creditors' solicitor, and read in the proceeding before me, the judgment debtor in an answering affidavit deposed, inter alia:

"Mr Curtis draws attention to the fact that in that affidavit I said I had a claim against the White Group for losses connected with the non-return of the mortgage. It is correct that to paragraph 9 of that affidavit I exhibited a copy of a letter which I had sent to Mr White on or about 26 May 1995 in which I told him that the non-return of the mortgage was compromising my ability to deal with the asset secured, namely my matrimonial home. I also stated in that affidavit that I had previously informed the White Group's solicitor that I would pay the $3,000 owing, together with interest, upon his firm returning the mortgage to me. I was informed by my legal advisers at that time that, as the White Group had accepted payment of the $35,000 due in November 1994, albeit paid a few days late, their solicitors had no right to retain the mortgage.

At that time, in May 1995, I was constrained in my ability to seek finance secured by another second mortgage over my house. Had I approached a commercial lender, I would have been obliged to disclose the existence of the unregistered mortgage which was still being held by Messrs. Moores, solicitors on behalf of the judgment creditors. For that reason, I and my wife were unable to borrow further funds."

The letter to which reference is made (exhibit CD1 to the judgment debtor's affidavit sworn 8 February 1996 and part of exhibit PAC11 to the affidavit of Philip Andrew Curtis) was in these terms:

"26th May, 1995

Att: Mr.A.L. White

Whiteline Timber Products

Lot 7 Tatterson Rd

Dandenong Vic., 3175

Dear Sir,

Re: Woodlands Timber & Hardware Centre P/L and Myself

You are aware that next month I am required, under the terms of an agreement dated 12/8/94, to pay $3000.00 to you. You would also be aware that under the terms of that same agreement you were required to return the executed 2nd Mortgage over our property in December 1994. You have not done so despite numerous requests from our solicitors. We therefore advise that until such time as you comply with the terms of settlement we will withhold the aforementioned payment.

Furthermore as your refusal to return the executed mortgage document comprises our ability to deal with this asset freely we shall refer the matter for legal consideration to ascertain our position under the terms of settlement and claims for damages.

We await your response.

Yours Faithfully,

Chris Dimitriou

8 Miriam Street

Caulfield South Vic., 3162"

Damage flowing from the judgment creditors' breach of clause 4(a) of the terms of settlement had been caused before February 1996.
Proceeding No. MC911758 had been by order "struck out" at about the time the compromise was effected. Such an order does not terminate the proceeding (R. v. McGowan [1984] V.R. 1000 and cases there cited), which may be "reinstated" as a pending cause, as the County Court Master ordered in respect of the proceeding on 23 February 1996. Leave to counter-claim in the proceeding might then have been granted if in its discretion the County Court had thought fit to extend the time prescribed by the Rules for the filing of a counter-claim. The circumstance that the proposed cause of action accrued after the commencement of the proceeding was no bar to setting up the cause of action by counter-claim in the proceeding (see Orders 3.02, 10 and 36.01(13) of the County Court Rules. The failure of the judgment debtor to apply - or, if he did apply, to maintain his application on 23 February 1996 - for leave to counter-claim for damages for breach of clause 4(a) of the terms of settlement has for a consequence that this court cannot be satisfied that that counter-claim was one that he could not have set up in the proceeding No. MC911758: see Re Willats; Ex parte Nissan Finance Corporation Ltd [1991] FCA 407; (1991) 31 F.C.R. 206 and cases there cited.

Much of the argument advanced by Mr McGarvie to support his contention that the judgment debtor could not have set up the counter-claim in the proceeding derived from Roberts v. Gippsland Agricultural and Earth Moving Contracting Co Pty Ltd [1956] V.L.R.555. But that case involved an examination of the circumstances in which performance of an agreement - or of one or more of the terms of an agreement - for the compromise of a proceeding will be enforced by order on motion in the proceeding. The cause of action here in question is not laid in enforcement of performance of any term of the agreement for compromise: it is a cause of action for unliquidated damages for breach of such a term. The application by the judgment creditors was for enforcement of such a term, namely that contained in clause 5 of the terms of settlement. So, too, was the prayer for relief in paragraph 13b of the affidavit sworn 8 February 1996, quoted above. But not the counter-claim now in question.

Even if the considerations canvassed in Roberts' Case were relevant to a consideration of an application for leave to institute this counter-claim, they are considerations influencing the exercise of a discretionary power. To show, as Mr McGarvie sought to show, that those considerations tended against the grant of leave is not to show that the counter-claim could not have been set up in the proceeding, but only that it was unlikely that the application would have succeeded.

The argument that a counter-claim upon the cause of action said to have arisen out of the judgment creditors' breach of s.52 of the Trade Practices Act 1974 could not have been set up in the proceeding No. MC911758 rested on the circumstance that it was not until after 23 February 1996 that the National Australia Bank made formal demand that the judgment debtor repay moneys advanced to him by that bank. No damage had been caused, it was submitted, until that demand was made.

In affidavits sworn 31 July 1996 and 16 October 1996 respectively and read in the proceeding before me there are the following paragraphs:

"5.In or about late January 1996, I was requested by the Manager of National Australia Bank Moorabbin East Branch to attend a meeting. At that meeting I was shown a letter from Moores Solicitors solicitors for the Judgement Creditors to Manager National Australia Bank Moorabbin East Branch claiming that the Judgement Creditors had a valid registrable second mortgage and requested the certificate of Title to be made available so that the Judgement Creditors could lodge their mortgage. Kevin Rosley, Manager advised me that they considered the request valid and would be complying by making the Certificate of Title available to the Judgement Creditors. He also advised me that the Bank considered the existence of the second mortgage document to be a compromise of their security and accordingly demanded that our overdraft facility of my building business be reduced to $40,000 limit immediately. In the previous 12 months the overdraft facility highest average was around $80,000.

6.Now produced and shown to me marked Exhibit "CD2" is a copy of a demand from the bank dated 26 February 1996. The bank served the demand when we did not immediately reduce the overdraft limit to $40,000. The demand was withdrawn when the overdraft limit was reduced."

...

"15.Prior to my meeting with Mr. Rossely of the Bank in late January of this year, I had been in regular contact with him as to the financial position I was in. My business was in excess of the overdraft limit and had been for a considerable period. On the basis that I kept the Bank informed of the financial progress of the business, at no time prior to the meeting in late January did the Bank express any serious concern about its position. At the meeting in late January, Mr. Rossely said that, in view of his discovery of existence of a second mortgage which was about to be registered, it would be necessary for me to make dramatic reductions in the unsecured debt owed to the Bank by way of overdraft. The security held by the Bank on first mortgage was limited to specific amounts guaranteed by me and my wife and did not extend to cover excess amounts and above the overdraft limit."

In late January 1996 the judgment debtor's capacity to draw cheques on the bank while his unsecured overdraft was in excess of its limit was greatly reduced by reason of what is reported, in the paragraphs quoted, to have been said by Mr Rossely. That in my opinion constituted "damage" suffered by the judgment debtor, before 23 February 1996.

There will be a declaration that the Court is not satisfied that any counter-claim, set-off or cross demand which the judgment debtor has is one that he could not have set up in the proceeding in the County Court of Victoria numbered MC911758. The judgment debtor should pay the judgment creditors' costs of this proceeding.

I certify that this and the preceding nine (9) pages are a true copy of the reasons for judgment of his Honour Justice Jenkinson.

Dated:

Associate

Appearances

Counsel for the applicant

Judgment Debtor: Mr R W McGarvie

Solicitor for the applicant

Judgment Debtor: Franzese & Associates

Counsel for the respondent

Judgment Creditors: Mr J A Nolan

Solicitor for the respondent

Judgment Creditors: Moores

Date of hearing: 16, 18 and 22 October 1996