Arnautovic & Sutherland t/as Jirsch Sutherland & Co v Cvitanovic (as trustee for the bankrupt estate of Adrian Lawrence Rosee) [2011] FCA 809 (20 July 2011)

Last Updated: 17 October 2011

FEDERAL COURT OF AUSTRALIA

Arnautovic & Sutherland t/as Jirsch Sutherland & Co v Cvitanovic (as trustee of the bankrupt estate of Adrian Lawrence Rosee) [2011] FCA 809

Citation:	Arnautovic & Sutherland t/as Jirsch Sutherland & Co v Cvitanovic (as trustee for the bankrupt estate of Adrian Lawrence Rosee) [2011] FCA 809
Appeal from:	Cvitanovic & Anor v Arnautovic & Anor [2010] FMCA 888
Parties:	SULE ARNAUTOVIC AND RODERICK MACKAY SUTHERLAND T/AS JIRSCH SUTHERLAND & CO (ABN 57 045 615 571) and JOHN KUKULOVSKI IN HIS CAPACITY AS LIQUIDATOR OF ROSEE ROAD HAUL PTY LTD (IN LIQUIDATION) (ACN 103 475 976) AND PROTRANS TRANSPORT SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 129 867 705) v DANIEL I CVITANOVIC AS TRUSTEE FOR THE BANKRUPT ESTATE OF ADRIAN LAWRENCE ROSEE and DANIEL I CVITANOVIC AS TRUSTEE FOR THE BANKRUPT ESTATE OF KYLIE ROSEE
File number(s):	NSD 1792 of 2010
Judge:	KATZMANN J
Date of judgment:	20 July 2011
Corrigendum:	8 September 2011
Catchwords:	APPEAL AND NEW TRIAL – Practice and procedure – whether further evidence should be admitted – matters occurring after trial – principles applicable – whether denial of procedural fairness BANKRUPTCY AND INSOLVENCY – Bankruptcy Act 1966 (Cth) s 122(1) – equitable charges created by unstamped instruments – whether creditor was a “secured creditor” TAXATION – Stamp duties – Duties Act 1997 (NSW) ss 211, 304 – whether stamping after execution has retrospective effect
Legislation:	Acts Interpretation Act 1901 (Cth) s 13 Bankruptcy Act 1966 (Cth) ss 5(3), 55, 58(1) Duties Act 1997 (NSW) ss 205, 207, 208, 211, 304 Evidence Act 1995 (Cth) ss 55, 56, 60, 136 Federal Court of Australia Act 1976 (Cth) ss 27, 37M Federal Court Rules O 3, O 52 r 36 Stamp Duties Act 1920 (NSW) s 84(4) Supreme Court Act 1970 (NSW) s 75A
Cases cited:	ACN 075 911 410 Pty Limited (t/as Acuity Funding) v Almaty Pty Limited [2011] NSWSC 333 Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260 Boral Recycling v Wake [2009] NSWSC 712 CDJ v VAJ (No 1) (1998) 197 CLR 172 CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 Davis v Federal Commissioner of Taxation (1989) 86 ALR 195 Dent v Moore (1919) 26 CLR 316 Electricity Meter Manufacturing Co v Manufacturers’ Products Pty Ltd (1930) 30 SR (NSW) 422 John Robertson & Co Ltd (in liq) v Ferguson Transformers Pty Ltd (1973) 129 CLR 65 McCallum (aka Hain) v National Australia Bank [2000] NSWCA 218 Neoform Developments and Interiors Pty Ltd v Town and Country Marketing Pty Ltd [2002] NSWSC 344 Official Trustee v D’Jamirze [1999] NSWSC 1249; (1999) 48 NSWLR 416 Radnedge v Government Insurance Office of NSW (1987) 9 NSWLR 235 Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 Sobey v Nicol and Davies [2007] FCAFC 136; (2007) 245 ALR 389 White v Overland [2001] FCA 1333 Wills v Australian Broadcasting Corporation [2009] FCAFC 6

Date of hearing:	24 May 2011
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	79
Counsel for the Appellants:	Mr P Newton
Solicitor for the Appellants:	ERA Legal
Counsel for the Respondents:	Mr V Bedrossian
Solicitor for the Respondents:	Meehans Solicitors

FEDERAL COURT OF AUSTRALIA

Arnautovic & Sutherland t/as Jirsch Sutherland & Co v Cvitanovic (as trustee of the bankrupt estate of Adrian Lawrence Rosee) [2011] FCA 809

CORRIGENDUM

1. In paragraph 71 of the Reasons for Judgment, the first sentence,

“It is not inconceivable that, in the absence of a transcript, the federal magistrate had not, himself, simply forgotten that an undertaking had been given, but I think it unlikely.”

should read

“It is not inconceivable that, in the absence of a transcript, the federal magistrate had, himself, simply forgotten that an undertaking had been given, but I think it unlikely.”

I certify that the preceding paragraph is a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Katzmann.

Associate:

Dated: 8 September 2011

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1792 of 2010

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	SULE ARNAUTOVIC AND RODERICK MACKAY SUTHERLAND T/AS JIRSCH SUTHERLAND & CO (ABN 57 045 615 571) First Appellants JOHN KUKULOVSKI IN HIS CAPACITY AS LIQUIDATOR OF ROSEE ROAD HAUL PTY LTD (IN LIQUIDATION) (ACN 103 475 976) AND PROTRANS TRANSPORT SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 129 867 705) Second Appellant
AND:	DANIEL I CVITANOVIC AS TRUSTEE FOR THE BANKRUPT ESTATE OF ADRIAN LAWRENCE ROSEE First Respondent DANIEL I CVITANOVIC AS TRUSTEE FOR THE BANKRUPT ESTATE OF KYLIE ROSEE Second Respondent

JUDGE:	KATZMANN J
DATE OF ORDER:	20 JULY 2011
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed.
2. The respondents’ notice of contention be upheld.
3. The question of costs be reserved.
4. The parties file and serve any further application as to costs, and any affidavits in support, within 7 days.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1792 of 2010

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	SULE ARNAUTOVIC AND RODERICK MACKAY SUTHERLAND T/AS JIRSCH SUTHERLAND & CO (ABN 57 045 615 571) First Appellants JOHN KUKULOVSKI IN HIS CAPACITY AS LIQUIDATOR OF ROSEE ROAD HAUL PTY LTD (IN LIQUIDATION) (ACN 103 475 976) AND PROTRANS TRANSPORT SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 129 867 705) Second Appellant
AND:	DANIEL I CVITANOVIC AS TRUSTEE FOR THE BANKRUPT ESTATE OF ADRIAN LAWRENCE ROSEE First Respondent DANIEL I CVITANOVIC AS TRUSTEE FOR THE BANKRUPT ESTATE OF KYLIE ROSEE Second Respondent

JUDGE:	KATZMANN J
DATE:	20 JULY 2011
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introduction

1. The appellants’ case at trial depended on the existence of an equitable charge created by an instrument upon which stamp duty was not paid. The appeal turns on the question of whether fresh evidence should be admitted to show that duty has now been paid.
2. The appellants are partners in a firm of accountants (“Jirsch Sutherland”). On 4 June 2009 the second appellant, John Kukulovski, was appointed as the liquidator of two companies, Rosee Road Haul Pty Ltd (“Rosee Road Haul”) and Protrans Transport Solutions Pty Ltd (“Protrans”). At the same time Adrian Rosee, the sole director of those companies, entered into two deeds with Mr Kukulovski guaranteeing the payment of Mr Kukulovski’s fees and expenses and indemnifying him for all other costs incurred while acting as liquidator in consideration of him accepting the appointment (“the deeds”). The relevant provisions of the deeds are identical, except for the amount of maximum liability. Each deed contained a clause (cl 3.1) requiring that Mr Rosee pay Mr Kukulovski the maximum liability specified in them “by 2 September 2009 or within seven (7) days upon receiving written demand for all the monies hereby guaranteed by [Mr Rosee]”. Each deed also contained a clause in which Mr Rosee agreed to charge any property to which he had legal title in favour of Mr Kukulovski in respect of any liabilities Mr Rosee had under the deeds, acknowledged that Mr Kukulovski had a caveatable interest in any real property the subject of the charge, and undertook to grant him an unregistered mortgage in respect of any such property within seven days of receiving a request in writing.
3. The deeds were not stamped, although s 211 of the Duties Act 1997 (NSW) (“Duties Act”) provides that a mortgage on which duty must be paid under Chapter 7 is “unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid”. There is no dispute that the deeds had to be stamped to enable the charges to be enforced.
4. Three months after the deeds were executed, Mr Rosee and his wife, Kylie, sold their home in St Andrews, an outer suburb of Sydney, which they had jointly owned. Upon settlement on 27 October 2009, a bank cheque was drawn in favour of Jirsch Sutherland in the sum of $35,000. The sum represented payment for work done in connection with the liquidation of the two companies specified in the deeds. At the time of the sale Mr and Mrs Rosee were insolvent within the meaning of s 5(3) of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”). On 30 November 2009 they presented debtors’ petitions. Daniel Cvitanovic, who is named as both the first and second respondent, was appointed trustee of each of the bankrupt estates. Mr and Mrs Rosee’s debts to unsecured creditors, listed in their petitions, exceeded $1.4 and $1.3 million respectively. The effect of the presentation of the debtors’ petitions is that the Rosees became bankrupt (Bankruptcy Act, s 55(4A)(b)) and their property, not being “after-acquired property”, vested immediately in Mr Cvitanovic as the registered trustee (Bankruptcy Act, s 58(1)), save that a secured creditor retained the right to realize or otherwise deal with his or her security (Bankruptcy Act, s 58(5)). “Secured creditor” is defined in the Bankruptcy Act (s 5(1)) as “a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him or her from the debtor”. By reason of the charge created by the deeds Mr Kukulovski claims to be such a secured creditor.
5. When he learned of the existence of the bank cheque (which was then held by the Rosees’ accountant, Michael Lord), Mr Cvitanovic advised that the monies formed part of the property of the bankrupt estates and demanded that the cheque be paid to him. But on 10 February 2010 (and although no written demand for the monies had been issued) Mr Lord forwarded the cheque to Mr Kukulovski.
6. Section 122(1) of the Bankruptcy Act provides that a transfer of property by an insolvent person in favour of a creditor is void against the trustee in the debtor’s bankruptcy if the transfer had the effect of giving the creditor a preference, priority or advantage over other creditors and was made during one of three specified periods. Relevantly, one of those periods is the period beginning six months before the presentation of the debtor’s petitions and ending immediately before the date of the debtor’s bankruptcy. In this case that period commenced on 30 May 2009 – five days before Mr Kukulovski was appointed liquidator of Mr Rosee’s companies – and concluded on 30 November 2009. Only if Mr Kukulovski were a secured creditor could he avoid the effect of this provision.

The proceeding below

7. In an application filed in the Federal Magistrates Court Mr Cvitanovic alleged that the payment of the bank cheque to Jirsch Sutherland was void as a transfer of property in preference, priority or advantage over other creditors, contrary to s 122(1) of the Bankruptcy Act. He sought orders against the appellants that they pay to him $35,000 (the proceeds of the bank cheque sent to Mr Kukulovski) with interest and costs.
8. The appellants filed identical defences in which they claimed that the bank cheque was paid at Mr Kukulovski’s direction “in lieu of enforcement of an equitable charge over the [St Andrews] property” and, had the payment not been made, the proceeds of the sale would have vested in Mr Cvitanovic, subject to the equitable charge. Mr Kukulovski also contended that the effect of the 4 June 2009 agreement was to create a charge in his favour on any property (within the meaning of s 9 of the Corporations Act 2001 (Cth)) in which Mr Rosee had a legal interest as security for any liability of Mr Rosee arising under the agreement. Because of the equitable charge Mr Kukulovski claimed that the $35,000 would not have been available to Mr Rosee’s unsecured creditors and therefore the appellants had not received a preference, priority or advantage over other creditors.
9. No reply was filed.
10. On 1 December 2010 the federal magistrate made a declaration in favour of Mr Cvitanovic and the consequential orders he sought.

The federal magistrate’s reasons

11. The federal magistrate identified the issues as:

(a) Whether cl 3.1 of the deeds of guarantee imposed a liability on Mr Rosee to pay to Mr Kukulovski any amount immediately upon execution of the deeds or at any time afterwards, without receiving a written demand. If it did not, then on the concession that no demand under the guarantee has ever been served, whatever rights Mr Kukulovski might have under cl 5, which would need to be recognised under s 58(5), would Mr Kukulovski be justified in retaining the funds in the face of the trustee’s demand that he return property of the bankrupt? This refers to property received by Mr Kukulovski after the date of the bankruptcy and which had previously vested in Mr Cvitanovic under s 58(1).

(b) Whether any ‘charge’ created on 4 June 2009 under cl 5 of the deeds of guarantee on Mr Rosee’s ‘legal title’ in his St Andrews property extended to cover the proceeds of the sale of that property.

(c) Whether Mr Kukulovski had any rights in relation to the bank cheque in particular, in circumstances where no caveat had been lodged on its title, and where Mr Rosee had not been required to grant Mr Kukulovski an unregistered mortgage in relation to that property.

(d) Whether, assuming that Mr Kukulovski has a right under the deeds of guarantee to claim security interests in the bank cheque and the funds he received, and for that reason to resist Mr Cvitanovic’s demand, the security interest was acquired by transfers of property which are void under s 122(1) of the Bankruptcy Act.

12. The federal magistrate’s reasons exhibit considerable frustration with the level of assistance he received from the legal representatives of the parties, who, I hasten to add, were not the counsel briefed on the appeal. For this reason his Honour expressed some of his conclusions tentatively, preferring to rest his judgment on the fourth issue concerning the operation of s 122, which he considered sufficient to dispose of the case.
13. In summary, his Honour concluded:

(a) Liability to pay any amount under the guarantee arose only upon service of a demand before 2 September 2009 or within seven days if served after that date. Since it was conceded that no demand had been made under the guarantee, no liability to make the payment arose under the guarantee before the bankruptcy or to date. That would not, however, disentitle Mr Kukulovski from resisting Mr Cvitanovic’s demand. That would depend on the construction of the ambit and enforceability of the charge created by cl 5 of the deeds.

(b) Read in its context, cl 5 is intended to provide security in relation to a future contingent liability to pay a debt quantified and accruing upon the making of a future demand by the liquidator, in the event that he decides that he needs to call upon the guarantee because his recoveries in the liquidation are insufficient to cover his own remuneration and expenses. The reference in cl 5 to “any liabilities of the Guarantor under this Deed” would not, therefore, be understood as a reference to liabilities accrued and existing at the date of the deed, but would be directed at future contingent liabilities to meet future demands made by the appointee.

(c) Mr Kukulovski had no right under the terms of cl 5 to take possession of or to retain the bank cheque or its proceeds. He is in the position of a holder of an equitable charge who has prematurely taken possession of the charged property before he has any right to realise that property to discharge a secured liability and is unable to enforce the terms of the charge.

(d) The only contended source of a right in Mr Kukulovski and his firm to retain the bank cheque and its proceeds as security for any indebtedness of Mr Rosee to Mr Kukulovski is cl 5 of each of the deeds. There is no reason why the conferral of such an interest should not be regarded as “a transfer of property” within s 122(1) of the Bankruptcy Act. The security undoubtedly had the effect of giving Mr Kukulovski “a preference, priority or advantage over other creditors” and the deed was made within six months before the presentation of Mr Rosee’s debtor’s petition.

(e) Mr Kukulovski did not act in good faith when acquiring the security because the evidence leads to the inference that he knew or had reason to suspect that Mr Rosee was unable to pay his debts as they became due and the effect of the transfer would be to give him a preference, priority or advantage over other creditors. See s 122(4)(c) of the Bankruptcy Act.

(f) (By implication) the transfer to Mr Kukulovski of the $35,000 was void against Mr Cvitanovic in Mr Rosee’s bankruptcy pursuant to s 122(1) of the Bankruptcy Act.

The stamp duties question

14. Before the federal magistrate Mr Cvitanovic contended that, in any event, any charge created by the deeds was unenforceable because the deeds had not been stamped.
15. Section 211 of the Duties Act provides:

A mortgage on which duty is required by this Chapter [Chapter 7] to be paid is unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid.

16. Section 205 of the Duties Act defines “mortgage” for the purposes of Chapter 7 to include “a security by way of mortgage or charge over property wholly or partly in New South Wales at the liability date”. The “liability date” is the date of first execution: Duties Act, s 208. There is no dispute that the deeds created a charge over property wholly or partly in New South Wales at the liability date.
17. It is a curious feature of this case that, notwithstanding his contention that the deeds had not been stamped, it was the counsel for Mr Cvitanovic who tendered them and who did so – according to the respondents’ own evidence – without undertaking that duty would be paid.
18. Section 304 of the Duties Act relevantly provides:

304 Receipt of instruments in evidence
(1) An instrument that effects a dutiable transaction or is chargeable with duty under this Act is not available for use in law or equity for any purpose and may

not be presented in evidence in a court or tribunal exercising civil jurisdiction unless:
(a) it is duly stamped, or
(b) it is stamped by the Chief Commissioner or in a manner approved by the Chief Commissioner.
(2) A court or tribunal may admit in evidence an instrument that effects a dutiable transaction, or is chargeable with duty in accordance with the provisions of this Act, and that does not comply with subsection (1):
(a) if the instrument is after its admission transmitted to the Chief Commissioner in accordance with arrangements approved by the court or tribunal, or
(b) if (where the person who produces the instrument is not the person liable to pay the duty) the name and address of the person so liable is forwarded, together with the instrument, to the Chief Commissioner in accordance with arrangements approved by the court or tribunal.
(3) ...

19. The federal magistrate referred to the stamp duty question in two places in his reasons. The first place was at [5] where he expressed the opinion that Mr Kukulovski’s representatives would not have been alerted to the contention “raised at the tail of Mr Cvitanovic’s oral submissions”. His Honour did not explain why he thought that Mr Kukulovski’s representatives would have been caught by surprise. The second place was at [64]-[65] where he swiftly disposed of the issue:

[64] I have above referred to Mr Cvitanovic’s counsel raising this issue at the tail of his submissions. It was very poorly developed, as well as being raised too late. Copies of the deeds had already gone into evidence – as part of his own case. Argument had proceeded upon the basis that the unstamped copies of the deeds, which he had tendered as annexures to Mr and Mrs Rosee’s affidavits, evidenced documents which had taken legal effect according to their terms.

[65] My short conclusion on his submission invoking s.211 of the Duties Act 1997 (NSW) is that I am not satisfied that duty has not been paid on duly executed original copies of the deeds. I therefore have no need to explore the issues – not addressed by counsel – whether the deeds are being ‘enforced’ in the present proceedings, and the significance of my exercising Federal jurisdiction under the Bankruptcy Act.

The appeal

20. The notice of appeal contains 14 grounds but in substance they devolve into two issues:

(a) Whether the deeds of guarantee and indemnity created a charge in favour of Mr Kukulovski over the property (or more particularly over part of the proceeds of the sale of the property); and

(b) If the deeds created a charge over the property, whether the making of each deed was void under s 122(1) of the Bankruptcy Act.

21. The appellants submitted that the federal magistrate erred in his construction of cl 3.1 of the deed. They contended that:

(a) Clause 3.1 of the deeds, properly construed, means that, unless demanded earlier, the maximum liability payable under each deed was payable on 2 September 2009. Otherwise the insertion of the date would be redundant. The federal magistrate “impermissibly amended” the deeds by inserting a comma after “7 days” so that the obligation to pay the maximum amount or a lesser amount arose only upon the receipt of a written demand.

(b) Clause 4 should be understood as providing that if the liquidator recovers from the winding up an amount sufficient to meet all or some of his remuneration and expenses, the maximum liability will either be satisfied or reduced to the difference between the amount he recovered for his remuneration and expenses and his remuneration and expenses up to the maximum liability.

(c) The deeds created a fixed charge over the property, at the latest on 2 September 2009, but that, in any event, the acknowledgment in cl 5 that Mr Kukulovski was entitled to lodge a caveat carried with it, by implication, an agreement to confer a charge on the property.

22. For present purposes it is unnecessary to recite the terms of the deed, as Mr Cvitanovic made no submissions to the contrary and did not dispute that the federal magistrate fell into error in these respects. Nevertheless, Mr Cvitanovic contended that, as the deeds were not stamped as required under the Duties Act, the agreement and the charge it created were unenforceable. As the appellants’ case rested on the existence of a valid and enforceable charge, it followed that the appeal must necessarily fail.
23. By way of a notice of contention Mr Cvitanovic alleged that the federal magistrate erred:

(a) by placing upon [him] the onus of proving whether or not duty had been paid upon duly executed original copies of the deeds (each entitled “Deed of Guarantee and Indemnity”), thereby incorrectly reversing the onus of proof on that issue;

(b) by failing to conclude that the Appellants (more particularly [Mr Kukulovski]) had failed to establish that duty had been paid upon a duly executed original copy of each deed in accordance with Part 1 of Chapter 7 of the Duties Act 1997 (NSW), in particular section 204 of that Act;

(c) by failing thereby to conclude that duty had not been paid upon any duly executed original copy of each deed in accordance with the Duties Act 1997 (NSW); and

(d) by failing to conclude that, as a consequence of the failure to pay duty upon each deed, the Appellants were prevented, by force of section 211 of the Duties Act 1997 (NSW), from taking any step to enforce the charges purportedly contained in the said deeds, including by raising those charges as a basis for resisting [Mr Cvitanovic’s] claims in the proceedings.

24. Mr Cvitanovic contended that, instead, the federal magistrate should have held that:

(a) the charging provision contained in each of the said deeds was unenforceable by [Mr Kukulovski];

(b) there was no charge in favour of [Mr Kukulovski] against the bank cheque ultimately delivered to [him] on or about 11 February 2010;

(a) as at the date of the making of the sequestration order against the estate of Mr Rosee, namely 30 November 2009, the aforementioned bank cheque immediately became the property of [Mr Cvitanovic]; and

(b) [Mr Cvitanovic] thereby was entitled to demand, and the Appellants were not legally permitted to resist, the return to [him] of the bank cheque itself or an equivalent amount by restitutionary or compensatory payment.

25. The appellants accept that their asserted right to the $35,000 from the proceeds of the sale rests entirely on the existence of the equitable charge created by the deeds and therefore that, unless the charge was enforceable at the time the deeds were executed, they must fail. To get to this position they must first show that stamp duty on the deeds was paid. As they concede that it was not paid before judgment in the Federal Magistrates Court, they must at least show that it has since been paid. They also accept that if they cannot admit evidence to prove that, then the notice of contention must be upheld and the appeal dismissed. Accordingly, they applied to tender further evidence on the appeal.

The motion to tender further evidence

26. The appellants read two affidavits, one from Otim Oluk, a senior manager in their employ, and another from their solicitor, Simon Gallant, who had appeared for them at the trial. Mr Cvitanovic opposed the motion and tendered evidence from Karen Watson, his solicitor, disputing aspects of the appellants’ evidence, ostensibly to show that he was prejudiced by delay.
27. Mr Oluk stated that “the duty payable pursuant to the Duties Act 1997 (NSW) in respect of the Deeds had not been paid”. This admission had previously been made by counsel for the appellants in his written submissions. Mr Oluk also stated that “due to an oversight by [Mr Kukulovski] and his staff including me, payment of stamp duty on the Deeds had not been attended to”. He asserted that “if the issue had been brought to my attention or the attention of [Mr Kukulovski] earlier, stamp duty would have been paid on the Deeds.” He said that stamp duty had now been paid and annexed to his affidavit copies of the two deeds bearing stamps showing payment of stamp duty on 19 May 2011 – three working days before the appeal was due to be heard. He offered no explanation for the delay. He also deposed to a conversation related to him by Mr Gallant. Counsel for the appellants did not read that part of his affidavit but relied on evidence from Mr Gallant himself.
28. Mr Gallant’s evidence was that during submissions at the hearing before the federal magistrate the following exchange took place:

FM Smith: “Is this point seriously going to be run?”
Mr. Darvall: “Yes.”
FM Smith: “Isn’t it usually dealt with by an undertaking?”
Mr. Darvall: “No, that is not the point.”
Mr. Gallant: “I can obtain instructions to give the undertaking to pay the duty.”
FM Smith: “If the point is to be pressed that would be the appropriate way to deal with it.”
Mr. Gallant: “Thank you Your Honour, I will arrange for my client to pay the duty on the deeds”.

29. Mr Gallant went on to say that he did not recall addressing the stamp duty issue in any greater detail. Mr Gallant was cross-examined and I shall return to the cross-examination later.
30. In her affidavit Ms Watson disputed that this exchange had occurred but in cross-examination it emerged that she was only disputing the last three statements. Her evidence was that Mr Gallant made no offer, representation or undertaking to pay the duty, was not invited to say anything on the point, and in fact remained silent.
31. Mr Newton, who appeared for the appellants, also tendered a bundle of documents containing emails passing between his solicitors and the transcription service provider, Auscript. That evidence disclosed that attempts had been made to obtain a transcript of the hearing below with a view to including it in the appeal books, but a transcript was unavailable; “due to a technical issue whereby a mixer failed in court [and] the audio... was not captured”.
32. With the endorsement of the parties I admitted the evidence on the motion, but not the appeal, reserving my decision on whether I ought to receive it on the appeal, as the resolution of the question is affected by how the relevant provisions of the Duties Act are to be construed.
33. Section 27 of the Federal Court of Australia Act 1976 (Cth) (“FCA Act”) gives the Court the power to receive evidence that was not before the trial court, referred to in the section as “further evidence”. The relevant principles were summarised by the Full Court in Sobey v Nicol and Davies [2007] FCAFC 136; (2007) 245 ALR 389 at [68]- [72]:

[68] Section 27 of the Federal Court Act authorises the court in an appeal to receive further evidence by affidavit. The circumstances in which the court should exercise its discretion under s 27 to receive further evidence have been considered by the High Court in CDJ v VAJ (No 1) (1998) 197 CLR 172; 157 ALR 686; 23 Fam LR 755; [1998] HCA 67 (CDJ) (in the context of the similarly worded s 93A(2) of the Family Law Act 1975 (Cth)) and by the Full Court of this court in Cottrell v Wilcox [2002] FCAFC 53 at [20]–[24]; Gao v Official Trustee in Bankruptcy [2003] FCAFC 84 at [23]; Freeman v National Australia Bank Ltd (2003) 2 ABC (NS) 32 at 48–50; [2003] FCAFC 200 at [68]–[74] and Ye v Crown Ltd [2004] FCAFC 8 at [157]–[161] as well as in Williams: see [50] above.

[69] The above authorities reveal that the circumstances in which further evidence may be received in this court on appeal are not limited by the principles laid down in authorities such as Greater Wollongong City Council v Cowan [1955] HCA 16; (1955) 93 CLR 435 which concern common law procedures. The proper limits of the discretion vested in the court by s 27 are to be determined as a matter of statutory construction. As the Federal Court Act is silent as to the factors which govern its exercise, the discretion is confined only by the subject matter with which the Act is concerned. It should not be understood to be subject to implications or limitations not found in the words used by the legislature. It is a discretion to be exercised in the context of an appeal by way of rehearing. On appeal this court is required to determine the rights of the parties upon the facts and in accordance with the law as it exists at the time of hearing the appeal.

[70] A critical factor will be the subject matter of the proceeding with which the appeal is concerned. As the High Court observed in CDJ the court will more readily admit further evidence where the rights of third parties, such as children are at stake.

[71] The discretion to receive further evidence must be exercised judicially, consistently with proper judicial process and in the interests of justice. It is highly unlikely that the legislature intended that s 27 should be construed in such a way as to obliterate the distinction between original and appellate jurisdiction.

[72] The proper role of an appellate court under s 25 of the Federal Court Act has been considered on a number of occasions in recent years including in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 and Poulet Frais Pty Ltd v Silver Fox Co Pty Ltd (2005) 220 ALR 211; [2005] FCAFC 131 at [45]; it is ordinarily to correct error. Nothing in CDJ was, in our view, intended to minimise the force of the observation of Gibbs CJ and Wilson, Brennan and Dawson JJ in Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7; [1986] HCA 33; 65 ALR 656 at 660 that:

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.

34. Order 52 r 36(3) of the Federal Court Rules (“the Rules”) provides that an application to receive further evidence on an appeal shall be made by motion on the hearing of the appeal without filing or serving a notice of motion. Sub-rule (4) provides that the grounds of the application are to be stated in an affidavit and sub-rule (5) provides that the evidence in support of it be given by affidavit. Sub-rule (6) requires that the applicant file any affidavit no later than 21 days before the hearing of the appeal. Sub-rule (7) provides that any other party must file any affidavit no later than 14 days before the hearing of the appeal, unless the Court or a Judge otherwise orders. Sub-rule (2) provides that the rule applies unless the Court otherwise directs. Order 3 gives the Court or a Judge the power to extend or abridge any time fixed by the Rules before or after the time provided under the rules expires and whether or not any application for extension is made before the time expires.
35. Section 37M(3) of the FCA Act provides, amongst other things, that the civil practice and procedure provisions (defined in subsection (4) to include, amongst other things, any provision of the FCA Act and Rules) must be interpreted and applied, and any power conferred or duty imposed by them exercised or carried out in the way that best promotes the overarching purpose of those provisions. The overarching purpose is defined in s 37M(1) as the facilitation of “the just resolution of disputes according to law ... as quickly, inexpensively and efficiently as possible”. It includes, but is not confined to:

(a) the just determination of all proceedings before the Court;
(b) the efficient use of the judicial and administrative resources available for the purposes of the Court;
(c) the efficient disposal of the Court’s overall caseload;
(d) the disposal of all proceedings in a timely manner;
(e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

36. The affidavits were filed well outside the times prescribed by the Rules. I am, however, prepared to abridge the times. The evidence that the deeds had been stamped was only available on 19 May 2011 and the appellants filed in Court the affidavit from Mr Oluk the next day. Although Mr Gallant’s affidavit was only filed on the morning of the hearing of the appeal, the conversation about which he deposed had already been related by Mr Oluk. Mr Gallant was available for cross-examination and Mr Cvitanovic had already filed and served evidence to rebut it.
37. Mr Bedrossian, who appeared for Mr Cvitanovic, submitted that the motion should be refused because the delay in adducing the evidence (over six months) was excessive, the evidence could not, in any event, assist the appellants as the stamping of the deeds could only apply prospectively, and the explanation for the delay was inadequate. He also emphasised the principle of finality in litigation.
38. It is convenient to deal first with the question of whether the stamping of the deeds only operates prospectively because if the answer to this question is in the affirmative, then there is no point in admitting the further evidence.

The effect of stamping the deeds after the charge was executed

39. For the proposition that the payment would not have retrospective effect, Mr Bedrossian relied, in particular, on an ex tempore decision of McDougall J in Boral Recycling v Wake [2009] NSWSC 712 (“Boral Recycling”). That case concerned an application to extend the operation of a caveat against the title of two parcels of land. The caveatable interest was said to arise by a guarantor agreeing to charge its interest in freehold or leasehold property. His Honour said at [15]:

The starting point is, as I have pointed out, that if the provisions of cl 9 are to create a caveatable interest it must be because they operate as a mortgage or charge. Therefore, s 205 of the Duties Act attracts the obligation to stamp. A failure to stamp attracts the operation of s 211. There is no point in standing the matter down to enable the mortgage to be stamped because that would operate to make it enforceable from the date of stamping. Even if this were incorrect (and under the Stamp Duties Act, 1920, it appears that late stamping may have validated an instrument ab initio — see McKensey v Hewitt [2004] NSWSC 636 at [11]) the question is to be assessed today in respect of the particular caveat lodged.

40. In Electricity Meter Manufacturing Co v Manufacturers’ Products Pty Ltd (1930) 30 SR (NSW) 422 at 430 Street CJ (with whom Ferguson and James JJ agreed) held that, unless and until an instrument is stamped it will not be recognised in any court as an effective instrument; but once it is stamped, “even after [the] action brought, it is as efficacious between the parties to it as if it had been duly stamped when executed”. Dixon J, with whom the other members of the Court agreed, approved this principle in Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 (“Shepherd”) and said (at 383) that:

[W]hen by due stamping [an instrument] had become pleadable, receivable in evidence and admissible as good, useful and available, then its validity and operation as from the beginning were to be construed as unaffected by the enactment.

41. In reaching this conclusion his Honour noted, amongst other things, that it was the word “unless” that was used to condition the entitlement, not “until”.
42. In Official Trustee v D’Jamirze [1999] NSWSC 1249; (1999) 48 NSWLR 416 (“D’Jamirze”) at 426-427 Hodgson CJ in Eq discussed the decision in Shepherd and explained:

Plainly, this means that an unstamped instrument is not of absolutely no effect until stamped... Until stamped, an instrument has whatever effect is consistent with the proposition that, if stamped, it will be fully effective ab initio. To put this another way, Shepherd must mean that an instrument is effective from the start, conditionally upon being stamped before relied on in court, or alternatively, from the start carries the potentiality of being so effective.

43. Although these cases dealt with the Stamp Duties Act 1920 (NSW) (“Stamp Duties Act”) the relevant sections are materially indistinguishable from s 304 of the Duties Act. The question here is whether s 211 should be differently construed. McDougall J appears to have thought so, as did White J in Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260, who cited McDougall J’s comments in Boral Recycling with approval, although I note that, strangely, none of the other decisions to which I have referred were cited in the judgments and do not appear to have been raised. In ACN 075 911 410 Pty Limited (t/as Acuity Funding) v Almaty Pty Limited [2011] NSWSC 333 (“Almaty”) at [18] Barrett J expressed the same opinion, again citing Boral Recycling in support of the proposition that “any stamping that may in future occur cannot operate in a retrospective way to create, as at the date of the caveat, any interest that would have existed by virtue of the charge had it then been enforceable”.
44. In Neoform Developments and Interiors Pty Ltd v Town and Country Marketing Pty Ltd [2002] NSWSC 344 Young CJ in Eq had expressed a similar view about the effect of s 211 which, he considered, prevailed over the more general provisions of s 304 in the case of mortgages. He said (at [32]) that “as the mortgage duty had not been paid at the date the caveat was lodged, it would seem to me that ... the caveat could not be supported”. In a later case, however, he expressed his agreement with the decision in D’Jamirze, without referring to his own earlier decision: Ciavarella v Polimeni [2008] NSWSC 234 (“Ciavarella”), although I would point out that Ciavarella was concerned with s 304, not s 211.
45. The authors of Hill’s Duties Legislation express a tentative view on the question, stating:

Where an instrument liable to duty is not duly stamped, the normal sanction for failing to do so is the unenforceability of that instrument by virtue of it not being allowed to be given in evidence. That sanction is now to be found in s 304 of the Act. However, the general provisions of that section would give way to the specific provisions of s 211 in the event of an inconsistency. In one sense there is no inconsistency, since s 211 of this Chapter is specifically concerned with unenforceability, whereas s 304 may only be concerned with matters of evidence. The relationship between them is not clear, especially as s 304 permits undertakings to be given to permit an instrument to be given into evidence, whereas s 211, arguably, might still operate to require unenforceability [citing Neoform and Boral Recycling].

46. The idea that s 304 is only concerned with matters of evidence may have come from the heading (“Receipt of instruments in evidence”) but the heading forms no part of the Act: Acts Interpretation Act 1901 (Cth), s 13. Also the proposition is inconsistent with authority. In Dent v Moore (1919) 26 CLR 316 at 324 (“Dent”) (which dealt with an earlier, but relevantly indistinguishable, version of s 304) Isaacs J emphasised that one effect of the section is that unless and until the duty is paid:

[The instrument] cannot be considered as an instrument giving title, or as one which could be made the means of compelling anyone to give title. It is in the eyes of the law a nullity, except for criminal proceedings and, of course, for the purpose of being stamped.

47. Whether stamping the deeds after the date upon which they were executed only makes them enforceable from the date of stamping depends on a construction of s 211 in its context. Context includes the existing state of the law when the section was introduced: CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384.
48. The predecessor of s 211 in the Stamp Duties Act was s 84(4) which provided:

A loan security referred to in this section is unenforceable unless it has been stamped as provided by this section, whether or not the amount in relation to which the loan security is sought to be enforced is less than the amount in relation to which it is required to be stamped.

49. In McCallum (aka Hain) v National Australia Bank [2000] NSWCA 218 (“McCallum”) the appellant argued that, for a number of reasons, the principle in Shepherd did not apply to s 84(4). McCallum was a case in which the mortgage had been stamped at the relevant time but it was stamped for a sum less than the value of the loan. The mortgage was later “up stamped”, that is, stamp duty was paid on an additional amount ensuring that duty was paid on the full amount of the loan. The “up stamping” did not take place, however, until after the mortgagee bank had served a notice for possession on the appellant mortgagor and after it had brought proceedings in the NSW Supreme Court, seeking (amongst other things) possession of the property secured by the mortgage. The Master rejected a defence in which the appellant had contended that, because the mortgage had not been stamped in accordance with the Stamp Duties Act, the mortgage was unenforceable at the relevant time under s 84(4) of the Act. On appeal the appellant submitted that Shepherd did not apply because:

(a) Shepherd was only concerned with s 29 of the Stamp Duties Act, s 84(4) was only introduced in 1987 and it was wrong to apply the reasoning used in relation to s 29 to s 84(4).

(b) To the extent that Dixon J’s reasoning depended on the opening words of s 29, which referred back to ss 25 and 27, there was no equivalent in s 84(4).

(c) So far as Dixon J’s reasoning depended on the use of the word “unless” in s 29 it had no corresponding application to s 84(4), either because the “plain and clear meaning” of s 84(4) compelled a different result or because the word “unless” was at best ambiguous.

(d) The second reading speech revealed that s 84(4) was dealing with a particular mischief and that mischief would not be dealt with effectively if “unless” were given the construction it was given in Shepherd. Finally, it was said that no injustice would result because a fresh notice could be served after stamp duty was paid and the mortgagee could then proceed to enforce its rights.

50. The Court emphatically rejected the argument.
51. Heydon JA, with whom Sheller and Fitzgerald JJA agreed, said:

[17] It is necessary to examine the language of the statute rather than the language of the Minister. It does not point clearly to the construction for which the appellant contends. Further, it must be construed against the background of what has been said authoritatively about similar legislative language. A striking feature of s 84(4) is its use of the word “unless”. An essential aspect of Dixon J’s reasoning in Shepherd v Felt and Textiles of Australia Ltd is the construction it gave to the word “unless”. Dixon J treated that word as pointing to the consequence that late payment of duty would bring about a retroactively validating effect under s 29. The officers responsible for drafting s 84(4) must be presumed to have been aware of Dixon J’s approach to the word “unless” in s 29 - an approach which has been relied on in later authority, e.g. In re Dehy Fodders (Australia) Pty Ltd; Winter v The Bank of Adelaide (1973) 4 SASR 538 at 544 per Bray CJ and 556 per Walters J. The officers responsible for drafting s 84(4) must also be presumed to have been aware of Dixon J’s analysis of former stamp duty legislation and of the authorities on it which favour the view that stamping retrospectively validates conduct undertaken before stamping. If the parliament had intended to avoid in s 84(4) in relation to up stamping the consequence which Dixon J attributed to s 29 in relation to initial stamping, one would expect it not to have used the expression “unless”, but rather to have used language excluding the possibility of retroactive operation. The use of “unless” in s 84(4) in the light of the construction given to it by the High Court when it appeared in s 29 points against the validity of the appellant’s argument.

[18] The appellant’s arguments would produce curious results. Once up stamped, mortgages in the position of the Mortgage in this case would have full validity, and would be admissible in evidence, but would be wholly unenforceable to the extent that any act of enforcement preceded the date of up stamping, and would be unenforced until some fresh step was taken to enforce them. The anomalous position of up stamped loan securities might produce considerable practical inconvenience in some circumstances. These consequences would have to be endured if statutory language compelled them, but one would look for clear statutory language before lightly arriving at them.

[19] In short, the appellant’s arguments must be rejected because they find no clear support either in s 84(4) or in the Second Reading Speech; because if they were correct one would expect, in the light of prior authority, different language from that which was employed; and because if they were sound they are capable of producing inconvenient results which one would expect to be produced only by clear words.

52. McCallum does not seem to have been cited to any of the NSW judges upon whose decisions Mr Bedrossian relied. Certainly, none of the judgments refer to it. Section 211 does not use the word “unless”. This might point to a deliberate legislative intention to overcome the interpretation given to s 29. But the language is not clear. It certainly does not exclude the possibility of “retroactive operation”. And the inconvenience of the alternative interpretation to which Heydon J referred in McCallum remains. The Explanatory Note on the Duties Bill is silent on the question. And there is nothing in the second reading speech that throws any light on it. The Minister delivering the second reading speech, the Hon RJ Debus MP, said that the main purpose of the legislation was to replace the Stamp Duties Act with “simple, clear and equitable legislation drafted in contemporary language and modern style”: Hansard, Legislative Assembly, 12 November 1997, p 1612. He said nothing about the question of enforceability of unstamped mortgages.
53. Whatever the reason for the change in the statutory language concerning the unenforceability of mortgages, I very much doubt that the change from “unenforceable unless it has been stamped” to “unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid” was intended to have the effect that the mortgage was only enforceable from the time of stamping and not retrospectively from the time of execution, contrary to the previous authorities. In the light of the authorities, if the effect were to prevent a mortgage from operating ab initio one might have expected either the substitution of “unless” with “until” or some express statement to the effect that the stamping only operated prospectively. I am therefore inclined to follow the approach in McCallum and to hold that s 211 operates retrospectively to make the charge enforceable from the time it was executed. If I am right, this means that the admission of the evidence of the now stamped deeds would not only not be futile, it would be decisive; the appellants would succeed on the appeal.

Other considerations

54. This is a case in which the fact that stamp duty has now been paid is not in dispute, where it would not be necessary to have the proceedings re-heard, where the evidence was not available at the trial and, had it been available, on the concessions made on the appeal, the appellants should have succeeded. There was no delay in adducing the evidence because it was only available on 19 May this year. These considerations weigh in the appellants’ favour.
55. Nevertheless, the delay in having the deeds stamped is substantial. The appellants accepted that this is properly to be taken into account against them on the exercise of the discretion. There is no explanation for it. Moreover, in cross-examination Mr Gallant said he knew that duty needed to be paid on the deeds, that he was aware that the charge upon which his clients’ entire case was founded was unenforceable unless it were paid, that he had informed his clients of the need for it to be paid the day after the case was heard, and in fact reminded them of it three or four times. On his account he gave an undertaking to the court that it would be paid and three weeks elapsed between the time the undertaking was given and judgment was pronounced. He knew a week in advance of the date when judgment would be delivered. The amount of duty was minimal ($21 on one deed and $41 on the other). In the circumstances it is extraordinary that the duty was not paid before judgment was entered. It is even more extraordinary that it was not paid before the notice of appeal was filed. Mr Oluk said that if the matter had been brought to the attention of anyone at Jirsch Sutherland it would have been paid. But if Mr Gallant’s evidence is to be accepted, the matter was brought to the attention of the appellants on 8 November 2010 at the Federal Magistrates Court and on multiple occasions after that, yet nothing was done until the week before the hearing.
56. Quite properly, Mr Newton acknowledged the force of the arguments against him and did not attempt to minimise their significance. He also frankly conceded that the situation was extraordinary, the appellants’ conduct was unsatisfactory and that they had been extremely dilatory in paying the duty. Still, he submitted that the evidence should be received because, he said, it corrects two errors of the federal magistrate, errors reached without any prompting or suggestion from Mr Gallant or any fault on the part of the appellants, and without the point having been fully argued. The two errors were admitting the deeds into evidence in the first place and finding that stamp duty had been paid when the new evidence would show that it had not. The submission must be rejected.
57. As the plurality said in CDJ v VAJ (No 1) (1998) 197 CLR 172 (“CDJ”) at [109], the main purpose of the power is to facilitate the admission of further evidence which, if accepted, would show that “the order under appeal is erroneous”. See, too, Wills v Australian Broadcasting Corporation [2009] FCAFC 6 at [53] per Rares J (with whom North and Emmett JJ agreed). Here, admitting this evidence would not show that the order under appeal was erroneous. It would merely show that one part of the reasoning was wrong. The purpose of the tender was not to correct the magistrate’s errors, but to prove that circumstances have changed since the errors were made. To correct the errors, it would be enough to admit the stamped deeds but to limit their use under s 136 of the Evidence Act 1995 (Cth) (“Evidence Act”) to proof of the fact that stamp duty had not been paid when the reasons were published. Mr Newton opposed such a course. That is understandable, but it underscores the point I make. In any case, Mr Newton had conceded in his submissions that the finding that stamp duty had been paid should not have been made and stamp duty had not been paid. That concession means that receipt of the evidence for the purpose of correcting the errors is unnecessary. Strictly, it is inadmissible because to be admissible it must first be relevant and it is not. It is not relevant because it could not rationally affect the assessment of the probability of the existence of a fact in issue. See Evidence Act, ss 55 and 56. Once the concession was made, the fact was no longer in issue.
58. Section 75A of the Supreme Court Act 1970 (NSW) permits the Court to receive further evidence and, in the case of post trial facts, no special grounds need be shown. For all intents and purposes, therefore, it is no different from s 27 of the FCA Act. In Radnedge v Government Insurance Office of NSW (1987) 9 NSWLR 235 at 251-252 Mahoney JA, with whom Glass JA agreed, noted that, although the admission of evidence about post trial facts was originally not the subject of a requirement for special leave:

[t]he courts maintained a broader scope for the discretion. But they pointed to factors relevant to be taken into account in the exercise of it and to the weight which was to be given to such factors. Thus, the courts held that it was a general principle of the fair and proper administration of justice that a judgment regularly obtained (to use the words of Dixon CJ in the Greater Wollongong City Council v Cowan case (at 444)) “must not be disturbed without the need for finality”[:] ... Mulholland v Mitchell [1971] AC 666. With respect to those who may think otherwise, I believe these factors to be of substantial weight: the evil and cost of prolonged litigation brings justice into disrepute.

59. It is true, as the majority said in CDJ at [110], that “a provision conferring judicial power upon a court should be construed liberally and without the making of implications or the imposition of limitations not found in the words used by the legislature”. Nevertheless, I do not read CDJ as denying the need for finality in litigation in appropriate cases. On the contrary, their Honours (at [148]) expressly accepted that it has a role to play in the exercise of the discretion.
60. In my view, where the evidence was not available at the time of trial but could easily have been brought into existence then at minimal expense and when the legal representative of the aggrieved party was alive to the need to do so, it is hard to see why the discretion of the court should be exercised in favour of that party, particularly when it has provided no evidence to account for why it did not do so and why it delayed obtaining it.
61. Mr Newton contended that there would be a denial of procedural fairness if the evidence were not admitted. He submitted that the federal magistrate had made a finding that it would not have been apparent to the appellants that the issue would be raised, they were not given “a proper opportunity to be heard on it” and without the new evidence, the point would have to be decided against them. He developed the argument in this way:

In their points of claim they [Mr Cvitanovic] pleaded the allegation that we had a deed. They didn’t say the appellants are not entitled to rely upon the deed because stamp duty had not been paid. They never raised it in any submissions until right at the end, the tail end of the submissions. If the submission – if a contention or submission or advance notice had been given in relation to the stamp duty issue, the appellant had at least one of three things it could have done. One, pay the stamp duty promptly or more promptly. Two, during the trial, seek an adjournment to enable stamp duty to be paid. Or three, giving an undertaking to the court to ensure that stamp duty had been paid.

62. The argument is specious. It flies in the face of the very evidence the appellants seek to have admitted. In his affidavit Mr Gallant said he would “arrange for [his clients] to pay the duty”. It is true that in cross-examination he also said that the issue took him “completely by surprise, it had not been pleaded [and] I wasn’t aware of the point”. But Mr Gallant admitted that he was well aware before the issue was raised that the charge was unenforceable if duty had not been paid. What is more, even if he was not aware of the legal point, he not only had the chance to deal with the issue, he testified that he had told the appellants several times – first on the day after the hearing – that they had to see to it that the duty was paid. Whether or not the exchange before the magistrate about which he deposed took place and whether or not what he said should be characterised as an undertaking, the appellants were on notice of the stamp duty issue in sufficient time to be able to deal with it. Admitting the new evidence would not rectify a failure to accord the appellants procedural fairness because there was no unfairness. They were alive to the issue and had ample opportunity to pay the duty before the orders were entered. They did not need an adjournment to do so because the federal magistrate had reserved judgment on 8 November and notified them in advance when judgment would be delivered. On or before that day – or even after it but before the orders were entered – they could have paid the duty. That would not have altered the federal magistrate’s judgment but it would have assured their success on the appeal. Why they did not do so before taking out the orders and filing the notice of appeal is a complete mystery. What is quite clear, however, is that there is no unfairness in the approach urged by Mr Cvitanovic. It would have been prudent for Mr Cvitanovic to inquire of Mr Rosee whether he had paid stamp duty on the deeds (as the obligation is on him to pay the duty: Duties Act s 207). Once he knew that the deeds had not been stamped he should have pleaded in reply to the appellants’ defence that the charge was unenforceable because stamp duty had not been paid or, at least, raised the matter with the appellants at the earliest opportunity. See, e.g. White v Overland [2001] FCA 1333 at [4].
63. But his failure to do so did not cause any relevant detriment to the appellants. Their predicament is of their own making.

Was there an undertaking to pay stamp duty?

64. This leaves the question of the disputed evidence about whether or not an undertaking was given to the federal magistrate. If the undertaking had been given, and there was merely a delay in honouring it, then it is arguable that I should receive the evidence, notwithstanding the absence of an explanation for that delay. There would be no relevant prejudice to Mr Cvitanovic in doing so, save with respect to costs and that could be cured by an appropriate costs order. However, I am not satisfied on the evidence that an undertaking was made.
65. In cross-examination Mr Gallant was adamant that the exchange had occurred and he also appeared to accept that what he had said to the magistrate had, at least, the effect of an undertaking. There was, however, no record of any such representation having been made. Mr Cvitanovic issued the appellants with a notice requiring them to produce:

[a]ny and all documents (created or coming into existence at any time on or after 8 November 2010), created by ERA Legal, Jirsch Sutherland or their respective staff including notes, file notes or other records recording communications between ERA Legal, Jirsch Sutherland or their respective staff regarding the giving of an undertaking at the Hearing of the proceedings between the parties before Federal Magistrate Smith on 8 November 2010 in the Federal Magistrates Court of Australia to pay stamp duty on the Deeds of Guarantee and Indemnity dated 4 June 2009 between Adrian Lawrence Rosee and the Second Appellant including any steps taken regarding satisfaction of the obligation to pay stamp duty.

66. The only documents produced in answer to the notice were the stamped deeds themselves. That merely answered the call in the second part of the notice.
67. One of two inferences can be drawn from this evidence: either an undertaking was given but no record of it was made or there is no record because no undertaking was in fact given. Ms Watson said that at no point did Mr Gallant address the federal magistrate on the stamp duty issue and never gave an undertaking on behalf of the appellants to pay the duty. She said that, “had Mr Gallant put forward any argument on the issue or purported to take any steps to remedy the non payment of stamp duty it would have been a matter of particular note for me and I would have recalled it”. She explained that her usual practice was to make a note if such a promise was made in court but she made no note on this occasion. She also said that in her firm, if any undertakings are given – whether by or on behalf of a client of the firm, or by or on behalf of an opposing party – they are required to be recorded in a “book/register”. She said she has at all times been conscious of and adhered to that requirement and there is no note in the register of “the Appellants having given any such undertaking to the Court”.
68. Mr Gallant is a solicitor with over 25 years’ experience. He has practised frequently in litigation, whether instructing counsel or appearing himself. He said under cross-examination that he considered himself to be a diligent and careful person who understands the importance of undertakings given to the court. I find it difficult to understand why a diligent, careful and experienced solicitor, who knew that the charge upon which his clients’ case rested was unenforceable if duty had not been paid made no file note of any of the conversations he said he had with his clients about attending to that need to pay or of the steps taken to remind them of their obligation, let alone that there was no letter or email evidencing any such conversation. But that does not mean that the statements were not made. Still, in the absence of such a record, had such conversations occurred, one might have expected to see some evidence from someone at Jirsch Sutherland corroborating Mr Gallant’s account, particularly in the face of Ms Watson’s evidence. Mr Oluk’s affidavit did include a paragraph in which he said that Mr Gallant had told him about the same exchange that Mr Gallant said had taken place with the federal magistrate. The evidence would have been admissible to prove the conversation between Mr Gallant and Mr Oluk and, if it were read, it would also be evidence of the truth of what Mr Gallant said (Evidence Act 1995 (Cth), s 60), unless a direction had been given to limit its use pursuant to s 136. But the appellants chose not to read it and there was, in any event, no evidence of when Mr Gallant had had that particular conversation with Mr Oluk. Moreover, Mr Oluk’s evidence is difficult to reconcile with what Mr Gallant said. On Mr Gallant’s account, the issue was brought to the appellant’s attention on 8 November 2009, if not before. That was three weeks before judgment was entered. Mr Oluk said:

Due to an oversight by the Second Appellant and his staff including me, payment of stamp duty on the Deeds had not yet been attended to. If the issue had been brought to my attention or the attention of the Second Appellant earlier, stamp duty would have been paid on the Deeds.

69. This suggests that stamp duty was paid once the matter was brought to the appellants’ attention. It is strangely silent about when that was.
70. If there had been an exchange with the federal magistrate in the terms of Mr Gallant’s evidence, then it is difficult to understand why his Honour did not refer to it in his reasons and even more difficult to understand why he made a finding that stamp duty had in fact been paid. When his Honour reserved judgment on 8 November he gave the parties a further opportunity to provide the federal magistrate with a list of further authorities. Ms Watson emailed the list to the appellants’ solicitors on 25 November. The last item on the list reads (without alteration save that emphasis is added):
    11. Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260 – An agreement to lodge a caveat does not necessarily create a charge and pursuant to section 211 of the Duties Act a mortgage is unenforceable to the extent that duty has not been paid and this goes beyond section 304 of the Duties Act which states that provides that [sic] an instrument cannot be allowed into evidence unless duly stamped or an undertaking is given.
        
71. It is not inconceivable that, in the absence of a transcript, the federal magistrate had not, himself, simply forgotten that an undertaking had been given, but I think it unlikely. Judgment was handed down only three weeks after the case was argued.
72. I have no doubt that the earlier exchange between the federal magistrate and Mr Darvall took place. Indeed, there was no dispute about it. But I am not persuaded that the latter exchange did – at least not in the terms Mr Gallant deposed.
73. On the other hand I do not think that Mr Gallant set out to mislead the Court. In the absence of notes it is, generally speaking, impossible to accurately recall the terms of any conversation six months after it took place. Human memory is notoriously unreliable. As Spigelman CJ recently observed (“Truth and the Law”, The 2011 Sir Maurice Byers Lecture, 26 May 2011):

Witnesses can, without any dissimulation or propensity to lie, confidently assert the truth of conversations, observations and events which did not happen. The plasticity of memory impedes the truth finding process. This is not an uncommon phenomenon[.]

74. I am also prepared to accept that Mr Gallant spoke to someone at Jirsch Sutherland, probably Mr Kukulovski, about the need to attend to the payment of duty. It is likely that he would have done so irrespective of whether he had undertaken to the court that it would be paid, because he knew that the deeds were otherwise unenforceable. I consider that it is entirely plausible that Mr Gallant honestly believed that he had made a promise in the terms to which he deposed but that, at the time, whatever he said (if, indeed, he said anything at all) was not taken by Ms Watson or the federal magistrate to amount to an undertaking. That would explain why Ms Watson made no note of it and why his Honour did not refer to it. Although in cross-examination Mr Gallant appeared to accept that he had given an undertaking, the language in which his statements were expressed in the affidavit is arguably ambiguous. It is conceivable that Mr Gallant believed he gave an undertaking because, in the circumstances, that is what he would have expected of himself. I am, however, not satisfied on the whole of the evidence that any undertaking was given.

Conclusion

75. In all the circumstances, I am not persuaded that it would be fair and just to receive the new evidence and I therefore refuse to do so. In the light of the concessions that have been made, the notice of contention must therefore be upheld and the appeal dismissed. Before I make the orders, however, I would make the following observations.
76. The federal magistrate appears to have taken the view that, having tendered the agreement, Mr Cvitanovic ought not be permitted to argue that the charge was unenforceable. Although his approach at trial (on one view, at least) was odd, it does not preclude him from arguing that the charge was unenforceable. Plainly, as a matter of law, it was, and the appellants concede that.
77. Once the deeds were admitted into evidence bearing no stamp, the only available inference was that stamp duty had not been paid: Almaty at [15]. His Honour was wrong to conclude otherwise. The mere fact that the document had gone into evidence without objection was no proper evidentiary basis for his conclusion. Even if the point had not been taken, once it was apparent that the deeds were not stamped, a judicial officer is obliged to give effect to the terms of the Duties Act, as the public interest in the protection of the revenue rises above any of the private interests of parties to litigation: Dent at 330. Absent an undertaking this meant that his Honour was also bound to reject the tender of the document. Before me the appellants did not argue otherwise.
78. As the appellants also accepted, the fact that his Honour was exercising federal jurisdiction did not mean that he was not obliged to apply relevant State legislation. Indeed, the contrary is true: Judiciary Act 1903 (Cth), s 79. His accrued jurisdiction extended to determining the whole controversy, including those parts of the proceeding that were governed by the Duties Act because it arose out of the same substratum of facts as the federal claim. See John Robertson & Co Ltd (in liq) v Ferguson Transformers Pty Ltd (1973) 129 CLR 65 at 95 per Mason J and Davis v Federal Commissioner of Taxation (1989) 86 ALR 195, especially at 208-217.
79. The parties asked to be heard on the question of costs. For that reason I will refrain from making any costs order until they have had that opportunity. Having regard to my conclusions I would, however, indicate my preliminary view that costs should follow the event and that therefore the appellants should pay the costs of the appeal. If any other order is sought, I give the parties seven days to make any further application and, if appropriate, any affidavit evidence in support. If no such application is made during that time, I will order the appellants to pay Mr Cvitanovic’s costs.
    

I certify that the preceding seventy-nine (79) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.

Associate:

Dated: 20 July 2011