Sharp v Rangott [2008] FCAFC 45 (3 April 2008)

BANKRUPTCY – property of bankrupt – transfer of property prior to bankruptcy – whether void as against trustee in bankruptcy – whether bankrupt solvent at time of transfer – bankrupt not called as a witness by either party – whether federal magistrate entitled to draw inference from failure to call bankrupt

Held: No error in drawing inference – onus on transferee to prove solvency – open to federal magistrate to find that bankrupt was available to transferee to call as a witness

BANKRUPTCY – property of bankrupt – transfer of property prior to bankruptcy – whether void as against trustee in bankruptcy – whether transfer for valuable consideration – transfer expressed to be in consideration of natural love and affection – whether inconsistency in federal magistrate’s reasons for judgment between finding of no consideration and finding of consideration that was of no value

Held: No inconsistency in findings – no error by federal magistrate – result the same whether no consideration or consideration of no value

COURTS AND JUDGES – trial – witness – not called by either party – power of judge to call witness of own motion – whether federal magistrate had duty to call bankrupt who had not been called by either party

Held: No duty to call bankrupt – federal magistrate entitled to take view that bankrupt available to appellant if he had chosen to call her

APPEALS – power of Full Court to receive further evidence – whether discretion should be exercised in favour of appellant

Held: Application to adduce further evidence on appeal refused – evidence available to appellant at time of trial – forensic decision made not to call evidence – evidence would not have led to a different result

Australian Constitution Ch III
Bankruptcy Act 1966 (Cth) ss 5(2), 5(3), 120, 120(1)(b), 120(3), 120(5), 121
Evidence Act 1995 (Cth) s 26
Federal Court of Australia Act 1976 (Cth) s 27
Federal Court Rules O 52, r 36
Federal Magistrates Act 1999 (Cth) ss 3, 42, 81
Federal Magistrates Court Rules 2001 (Cth) r 15.04
Judiciary Act 1903 (Cth) s 78B

APLA Ltd v Legal Services Commissioner (NSW) [2005] HCA 44; (2005) 224 CLR 322 referred to
Bassett v Host [1982] 1 NSWLR 206 considered
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 distinguished
CDJ v VAJ (1998) 197 CLR 172 applied
Chouman v Margules (1993) 17 MVR 144 referred to
Conservation Council of SA Inc v Chapman [2003] SASC 398; (2003) 87 SASR 62 referred to
Coulson v Disborough [1894] 2 QB 316 referred to
Dietrich v The Queen [1992] HCA 57; (1992) 177 CLR 292 considered
Deutsche Bank und Disconto Gesellschaft v Banque des Marchands de Moscou (1931) 107 LJKB 386 distinguished
Ex parte Lloyd (1822) Mont 70 referred to
Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 applied
Herald & Weekly Times Ltd v Popovic[2003] VSCA 161; (2003) 9 VR 1 referred to
Huang v University of New South Wales (No 3) [2006] FCA 626; (2006) 154 FCR 16 considered
In re Enoch and Zaretzky, Bock & Co.’s Arbitration [1910] 1 KB 327 considered
John Fairfax Pty Ltd v Attorney-General (NSW) [2000] NSWCA 198; (2000) 181 ALR 694 referred to
John Fairfax Publications Pty Ltd v O’Shane [2005] Aust Torts Reports |P81-789 referred to
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 considered
Jones v National Coal Board [1957] 2 QB 55 considered
Milano Investments Pty Ltd v Group Developers Pty Ltd (unreported, NSW SC, Young J, 13 May 1997) not followed
New York Times Co v Sullivan, [1964] USSC 41; 376 US 254 (1964) referred to
Obacelo Pty Ltd v Taveraft Pty Ltd (1986) 10 FCR 518 considered
Parks Holdings Pty Ltd v Chief Executive Officer of Customs [2004] FCA 820 referred to
Payne v Parker [1976] 1 NSWLR 191 distinguished
R v Apostilides [1984] HCA 38; (1984) 154 CLR 563 considered
R v Damic [1982] 2 NSWLR 750 considered
R v Wilson [1998] 2 Qd R 599 referred to
Rangott v Sharp [2007] FMCA 324 affirmed
Retail, Wholesale & Department Store Union v Dolphin Delivery Ltd [1986] 2 SCR 573 referred to
Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 applied
Silvera v Savic [1999] NSWSC 83; (1999) 46 NSWLR 124 referred to
Shaw v The Queen [1952] HCA 18; (1952) 85 CLR 365 considered
Sobey v Nicol and Davies, In the matter of Guiseppe Antonio Mercorella [2007] FCAFC 136 referred to
Titheradge v The King [1917] HCA 76; (1917) 24 CLR 107 considered
Whitehorn v The Queen [1983] HCA 42; (1983) 152 CLR 657 considered
Yuill v Yuill [1945] P 15 considered

J D Heydon, Cross on Evidence (2004, 7^th Australian ed.)
Wigmore on Evidence (Chadbourn Rev.) v.9 SSSS 2483, 2484

JOHN SHARP v WILLIAM BALFOUR RANGOTT

ACD 10 OF 2007

GRAY, NORTH & BESANKO JJ
3 APRIL 2008
CANBERRA

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY	ACD 10 OF 2007

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	JOHN SHARP Appellant
AND:	WILLIAM BALFOUR RANGOTT Respondent

JUDGES:	GRAY, NORTH & BESANKO JJ
DATE OF ORDER:	3 APRIL 2008
WHERE MADE:	CANBERRA

1. The appellant’s application pursuant to s 27 of the Federal Court of Australia Act 1976 (Cth), that this Court receive further evidence on the appeal, be refused.

3. The appellant pay the respondent’s costs of the application and the appeal.

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

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY	ACD 10 OF 2007

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	JOHN SHARP Appellant
AND:	WILLIAM BALFOUR RANGOTT Respondent

JUDGES:	GRAY & NORTH JJ
DATE:	3 APRIL 2008
PLACE:	CANBERRA

1 This appeal is from a judgment of the Federal Magistrates Court, delivered on 27 March 2007, designated as Rangott v Sharp [2007] FMCA 324. The learned federal magistrate declared that the transfer by Susan Sharp (now a bankrupt) to the appellant (her husband, although they no longer cohabit) of her half-interest in their former matrimonial home, made prior to her bankruptcy, was void against the respondent (Ms Sharp’s trustee in bankruptcy). His Honour also ordered the appellant to transfer to the respondent a half-interest in the property, and to pay the respondent’s costs of the proceeding. Those orders were made in the exercise of the power given to the court below by s 120 of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act").

2 The facts and circumstances of the appeal are set out in detail in the reasons for judgment of Besanko J, which we have had the opportunity to read in draft form. It is unnecessary for us to repeat them. We agree with his Honour that the appellant’s application for this Court to receive further evidence on the appeal should be refused, that the appeal must be dismissed, and that the appellant should be ordered to pay the respondent’s costs of the application and the appeal. In our view, his Honour identifies correctly the issues raised, and those not raised, by the grounds of appeal. Subject to the qualification and the additional comments we make, we agree with his Honour’s reasons.

3 The area of our departure from the reasoning of Besanko J is in relation to what his Honour identifies as the first ground of appeal, namely whether the federal magistrate himself should have called Ms Sharp as a witness, when neither counsel then appearing for the appellant nor counsel for the respondent had chosen to call her. It is clear that the federal magistrate had power to call a witness of his own motion. The power was expressed in r 15.04 of the Federal Magistrates Court Rules 2001 (Cth). Even in a case such as the present, in which the appellant did not contend that the express power was any broader than the common law power of a judge to call a witness not called by any party, we do not necessarily accept that the common law power is constrained by the principle that Besanko J derives from the earlier authorities. In an age in which the focus of common law courts on ascertaining the truth is increasing, and the gap between the approaches of the common law courts and the "inquisitorial" courts of the Roman law/Napoleonic systems is perceived to be much narrower than previously supposed, we prefer not to express a view that would anchor the exercise of the discretionary power in the particular view of the adversarial system identified by his Honour.

4 We do not think it is necessary to invoke an underlying principle to decide this ground of appeal. Whether the power relied on is a power given by the rule of court, or a common law power, it is manifestly a discretionary power. In the present case, the discretion was not exercised. The federal magistrate did not call Ms Sharp as a witness; nor was it suggested to his Honour that he should exercise the power. It is therefore unnecessary to consider whether any exercise of the discretion miscarried. The non-exercise of the power, and the fact that no exercise was sought, is a problem for the appellant. It was necessary for the appellant to argue, and he did argue, that the federal magistrate had a duty to exercise the power in the circumstances of the case, in the interests of justice.

5 On any view, the ground of appeal must fail. The appellant bore the onus at first instance, of persuading the court that Ms Sharp was solvent at the time of the transfer of her interest in the property. It was open to the federal magistrate to take the view that the appellant’s counsel could have called Ms Sharp, especially given the obvious collaboration between the appellant’s representatives and Ms Sharp about the claim for privilege in respect of the letter to Mr Bates dated 24 April 2001. In any event, if the appellant’s counsel had desired to lead evidence from her, Ms Sharp’s attendance could have been procured by means of a subpoena. It was open to the federal magistrate to find, as he did, that the appellant’s failure to call Ms Sharp was the result of a forensic decision, taken on the basis that her evidence was unlikely to assist the appellant’s case. It is unnecessary for this Court to go to any of the further evidence proposed to be called on the appeal to uphold that finding although, as Besanko J points out later, that evidence would support that finding. Even if the power of a judge to call a witness extends as far as overriding such a forensic decision, it could not be said in these circumstances that the federal magistrate had a duty to exercise the power.

6 The second ground of appeal raised, to which Besanko J refers as the consideration issue, was entirely without substance. The appellant sought to exploit a semantic difference between the proposition that the appellant had provided no consideration for the transfer of Ms Sharp’s interest in the property, and the proposition that the appellant had provided consideration of no value for that transfer. We agree with Besanko J that there was no inconsistency arising from the federal magistrate’s use of the two propositions in his reasons for judgment. Even if there were an inconsistency, any argument based on it could lead nowhere from the appellant’s point of view. Whether the transfer was made for no consideration, or for consideration which s 120(5) specifically provides has no value, the result of the case is the same. Either way, the appellant lost. No order in his favour on appeal could result.

7 As to the third ground of appeal, like Besanko J, we can find no error in the way in which the federal magistrate dealt with the substantial issue in the proceeding, the question of Ms Sharp’s solvency at the time of the transfer to the appellant. The circumstantial evidence was very strong that she did not have the capacity to pay her debts as and when they fell due in the months leading up to the transfer. Even if she might have given evidence to explain away the circumstantial evidence, or evidence that her circumstances had changed shortly before the transfer, she did not give evidence at all. The result was that the appellant failed to satisfy the onus of establishing, on the balance of probabilities, that she was solvent. As Besanko J says, even if the federal magistrate had not drawn any inference adverse to the appellant from the failure to call Ms Sharp, and had looked only at the evidence before the court, the appellant was bound to lose the case.

8 We also agree with Besanko J that this is not a case in which this Court should exercise in favour of the appellant the undoubted power to receive further evidence on appeal. The case is not one in which there is an item of evidence, overlooked or not available at first instance, which overturns an assumption on which the judgment below was based, or otherwise demonstrates the incorrectness of a fundamental finding. It is a case in which, having fared badly because of the federal magistrate’s reliance on the evidence of Ms Jones and on other items of evidence tendered at first instance, and having passed up the opportunity to call available evidence in relation to the issues to which that evidence was relevant, the appellant now seeks to have a second opportunity. If he had been able to demonstrate that the further evidence he proposed to tender on appeal led to a finding that Ms Sharp was solvent at the time of the transfer, it might have been necessary to consider the exercise of the discretion more closely. The further evidence proposed to be called has no such clear tendency. The material before the Court contains nothing that would justify a finding that there was incompetence on the part of those who represented the appellant at first instance. In the absence of such a finding, a change of representation on appeal, resulting in a change of view about how the trial should have been conducted, ought not to ground an exercise of the discretion in favour of the appellant.

I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Gray & North.

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY	ACD 10 OF 2007

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	JOHN SHARP Appellant
AND:	WILLIAM BALFOUR RANGOTT Respondent

JUDGE:	BESANKO J
DATE:	3 APRIL 2008
PLACE:	CANBERRA

10 Mr William Rangott is a chartered accountant and a registered trustee in bankruptcy. On 13 August 2004 Ms Susan Sharp was made bankrupt on a debtor’s petition. On 8 October 2004 Mr Rangott was appointed to act as trustee of the bankrupt estate of Ms Sharp.

11 On 9 August 2002 just over two years before Ms Sharp was made bankrupt, she and Mr Sharp were husband and wife and were the joint owners of property at 2 Luckins Place, Fadden, in the Australian Capital Territory ("the property"). By a transfer dated that day, Ms Sharp transferred her interest in the property to Mr Sharp. The memorandum of transfer stated that the consideration for the transfer was:

12 It was common ground before the Federal Magistrate that this description is wrong and should be read as if it referred to the transferee’s natural love and affection for the transferor.

13 Mr Rangott, as trustee of Ms Sharp’s bankrupt estate, brought an action in the Federal Magistrates Court of Australia against Mr Sharp claiming a declaration that the transfer was void, and other orders. He relied on s 120 and s 121 of the Bankruptcy Act 1966 (Cth) ("the Act") as those sections were at the time of the transfer.

14 Mr Rangott brought his application on 7 December 2004 and it was opposed by Mr Sharp. It was heard by a Federal Magistrate on 15 September 2005, 20 December 2005 and 20 February 2006.

15 The Federal Magistrate held that Mr Rangott had established that the transfer fell within the provisions of s 120 of the Act and in those circumstances he said that it was not necessary for him to consider whether the transfer would also be void under s 121.

18 Two matters concerning the appeal should be noted at the outset. First, the appellant applies to this Court for it to receive further evidence in the appeal. The further evidence consists of three affidavits being an affidavit of the appellant sworn on 24 September 2007, an affidavit of Ms Sharp sworn on 22 September 2007 and an affidavit of Ms Misty Annabel sworn on 22 September 2007. The appellant gave evidence at the hearing before the Federal Magistrate but neither Ms Sharp nor Ms Annabel gave evidence at the hearing. Ms Sharp married the appellant in 1985 and it was common ground before the Federal Magistrate that Ms Sharp and the appellant had separated in February 2004. Ms Annabel is Ms Sharp’s daughter and the appellant was her stepfather.

19 The Court’s power to receive further evidence is contained in s 27 of the Federal Court of Australia Act 1976 (Cth). The application to adduce further evidence is also governed by the Federal Court Rules: O 52, r 36. The application to adduce further evidence was opposed by the respondent. For reasons I will give, the application to adduce further evidence should be refused.

20 Secondly, the appellant served notice of a constitutional matter under s 78B of the Judiciary Act 1903 (Cth) on or about 2 August 2007. No Attorney-General sought to intervene following the service of the notice. As I understand it, the appellant submits that a matter arising under the Constitution or involving its interpretation may arise in the following way. First, he contends that the Federal Magistrate made a number of errors, including an error in failing to call Ms Sharp as a witness at the hearing. In other words, it is contended that the Court itself should have called Ms Sharp as a witness. Secondly, the appellant refers to s 3 and s 42 of the Federal Magistrates Act 1999 (Cth). Section 3 provides that one of the other objects of the Act is to enable the Court "to operate as informally as possible in the exercise of judicial power", and s 42 provides that the Court "must proceed without undue formality and must endeavour to ensure that the proceedings are not protracted". The appellant contends that if these sections of the Federal Magistrates Act, or either of them, authorised the Federal Magistrate to proceed in the way in which he did, and of which the appellant complains, then the sections offend Ch III of the Constitution. In proceeding in the way in which he did, the Federal Magistrate did not make reference to either s 3 or s 42 and the respondent does not rely on these sections to support the course taken by the Federal Magistrate or his reasons. The respondent submits that the Federal Magistrate did not err having regard to ordinary principles. In fact I did not understand either party at the hearing of the appeal to suggest that the appeal was to be determined other than by reference to ordinary principles. In those circumstances, there is no matter arising under the Constitution or involving its interpretation.

22 Section 5(2) and 5(3) contain definitions of the terms solvent and insolvent. They are in the following terms:

23 There is no doubt that there was a transfer by Ms Sharp of her interest in the property to the appellant and that Ms Sharp later became bankrupt. The transfer occurred on 9 August 2002 which was within the five year period before the date of bankruptcy, being 13 August 2004. There was a dispute as to whether the circumstances of the case fell within s 120(1)(b). There was no dispute that the transfer took place more than two years before the commencement of the bankruptcy and, in those circumstances, the appellant sought to prove that on 9 August 2002 Ms Sharp was able to pay all her debts as and when they became due and payable within s 120 (3). In essence, they were the two main issues before the Federal Magistrate.

24 Both parties were represented by solicitors and counsel before the Federal Magistrates Court. The Court was told that the Federal Magistrates Court made standard directions for the filing of affidavits containing the evidence in chief of the witnesses the parties proposed to call. The appellant filed and served three affidavits of his own sworn 7 December 2004, 8 April 2005 and 8 August 2005, respectively, and he was cross-examined. He also filed and served as part of his case some additional affidavits. First, there was an affidavit of Ms Janice Beasley who is a director of a collection service. The relevant collection service was acting on behalf of a creditor of Ms Sharp. Ms Beasley was not cross-examined. Secondly, there was an affidavit of Mr Anthony Eastaway who is a commercial property manager of a company which acted as commercial leasing agent for the landlord of Ms Sharp and a creditor. Mr Eastaway was not cross-examined. Thirdly, there was an affidavit of Mr Gary Bates who is a legal practitioner. Between 1999 and late 2001 he provided legal advice to Ms Sharp and he acted on her behalf and is a creditor of Ms Sharp. Mr Bates was cross-examined. Finally, there was an affidavit of Ms Patricia Jones, who describes herself as a jewellery consultant. She was a friend and employee of Ms Sharp and she lent Ms Sharp a substantial sum of money. Ms Jones worked in Ms Sharp’s business, "Occasions Bridal Boutique". Ms Jones was cross-examined by counsel for the appellant and it was suggested that she was an unreliable witness. The Federal Magistrate found that she was reliable and truthful with (as he put it) "a consistent message flowing through her evidence", notwithstanding some inconsistencies in her evidence and some parts which were unhelpful. The appellant filed and served an affidavit and he was cross-examined. The Federal Magistrate found that he was neither a truthful nor credible witness. He said that the appellant repeatedly advanced positions which were completely at odds with written documents including ones produced by him, proffered explanations which appeared to be recent reconstructions designed to serve his present purposes and gave evidence under cross-examination that was often evasive, inconsistent and unresponsive. The appellant also filed and served an affidavit of Mr Terence McFawn sworn on 6 September 2005. Mr McFawn is Ms Sharp’s father. He was not cross-examined at the hearing.

25 Having made findings as to the credit of witnesses, the Federal Magistrate turned to consider the equities in the property immediately prior to the transfer on 9 August 2002. He was called upon to do that because the appellant contended that by reason of various payments he made, the equitable interests in the property were not commensurate with the legal interests in that there was a resulting trust in his favour as to an interest in the property of about 76 per cent. He contended that in equity Ms Sharp had only a 24 per cent interest in the property. The Federal Magistrate referred to the presumption of advancement and considered whether it had been rebutted. He concluded that it had not been and that, immediately before the transfer, Ms Sharp, like her husband, had a 50 per cent interest in the property both at law and in equity.

26 The Federal Magistrate then considered whether, despite the statement in the memorandum of transfer that the consideration was the appellant’s love and affection for Ms Sharp, the appellant had in fact, as he contended, provided monetary consideration for the transfer. The appellant identified four matters as consideration for the transfer. Each matter was considered by the Federal Magistrate and each was rejected by him. The Federal Magistrate expressed his conclusion in relation to s 120(1)(b) of the Act as follows:

27 The Federal Magistrate then turned to consider another matter raised by the appellant, namely, the "defence" in s 120(3). He said that the respondent had tendered a large volume of evidence and that it was not necessary to detail "all this evidence". He said that he would refer to the most important elements. He approached this matter by, in effect, putting the evidence into three categories. The first category was the loans made to Ms Sharp by Ms Jones. He referred to Ms Jones’ evidence as to the loans she made to Ms Sharp from time to time, and he accepted that by the time Ms Sharp transferred her interest in the property to the appellant, she had borrowed over $212,000 from Ms Jones. The Federal Magistrate accepted that Ms Jones made no written demand for repayment until August 2003. However, he rejected the contention of the appellant that Ms Jones had made no verbal demand for repayment prior to leaving Ms Sharp’s employment in September 2002. The Federal Magistrate said that he was satisfied on Ms Jones’ evidence that she "repeatedly made verbal demands for repayment going back to 1998" and he said that the evidence supported the conclusion that Ms Sharp has not been able to pay her debts to Ms Jones as they became due and payable.

28 The second category was the debt or debts Ms Sharp owed to Mr Gary Bates. The Federal Magistrate summarised Mr Bates’ evidence and said that it was clear that Ms Sharp, notwithstanding any instalment arrangements entered into after bills fell due, was not able to pay her debts to Mr Bates as and when they fell due. In particular, he referred to the fact that on 17 July 2002, which was less than a month before the transfer, Ms Sharp sent a facsimile to Mr Bates asking him to hold off banking two cheques which she had given him, noting "because of illness and my business being slow, I have had to apply to the Court to reduce my instalment payments on judgments". The Federal Magistrate referred to the fact that Ms Sharp paid $12,000, "but four cheques were dishonoured in August 2003". The Federal Magistrate said that the evidence showed that Ms Sharp was unable to pay her debts to Mr Bates as and when they fell due and, in particular, she was not in a position to pay her debts as at 17 July 2002 which was less than a month before the transfer.

29 The third category of evidence identified by the Federal Magistrate was what he called other evidence of Ms Sharp’s financial circumstances and he said that it included the following:

30 In considering Ms Sharp’s assets in August 2002, the Federal Magistrate said that it was accepted by the respondent that the business she conducted "was worth possibly more than $154,000" and the respondent agreed that Ms Sharp’s interest in the property was worth $150,000.

31 The Federal Magistrate said that Ms Sharp was not called to give evidence and he noted that she had been able to instruct on an issue of legal professional privilege which had arisen in the course of the proceedings. I will discuss the issue of legal professional privilege later in these reasons. The Federal Magistrate concluded that she could have been called by the appellant had he wished, and the fact that she was not called meant that an inference could be drawn that any evidence she may have given on her solvency would not have assisted the appellant. In that context he referred to the decision in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298. The Federal Magistrate then referred to the meaning of the term solvent and to two relevant authorities: Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 and Expo International Pty Ltd v Chant [1979] 2 NSWLR 820. He said that considering the "entirety" of Ms Sharp’s financial position, the appellant had not satisfied him that Ms Sharp was solvent at 9 August 2002.

32 The Federal Magistrate said that he could not be satisfied on the balance of probabilities that as at 9August 2002 Ms Sharp was able to pay all her debts as they became due and payable notwithstanding the interest she held in her business and in the property. He made particular reference to the following:

1. Ms Sharp failed to make repayments to Ms Jones despite repeated verbal demands made to her.
2. Ms Sharp repeatedly failed to meet her obligation to Mr Bates.
3. Ms Sharp was unable to pay her debts to a whole range of businesses and individuals .

4. Ms Sharp regularly forced her creditors to obtain court orders on her debts and then sought instalment orders for payment.
5. Ms Sharp more often than not failed to comply with instalment arrangements.
6. On one occasion Ms Sharp sought an instalment order to pay a sum of only $360.

33 The Federal Magistrate said that he was inclined to agree with the submission made by the respondent’s counsel that in fact a finding could be made that Ms Sharp was insolvent in August 2002. However, he said that it was unnecessary for him to reach such a conclusion because the onus was on the appellant to satisfy him that Ms Sharp was solvent as at August 2002 and he had not discharged that onus.

34 The above is a summary of the Federal Magistrate’s reasons for making the orders which he did.

35 The appellant relies on a supplementary notice of appeal and a document which provides particulars of the various grounds of appeal. He has also filed lengthy written submissions. It has to be said that it is not easy to discern clearly the particular challenges made by the appellant to the reasons for judgment of the Federal Magistrate. It seems to me that leaving aside the application to adduce further evidence, there are three principal challenges to the Federal Magistrate’s conclusions.

36 The appellant did not develop any challenge to the Federal Magistrate’s conclusions in relation to the respective interests of the appellant and Ms Sharp in the property immediately prior to the transfer on 9 August 2002, or the Federal Magistrate’s conclusion that the appellant did not provide any consideration for the transfer over and above that stated in the memorandum of transfer. I have read the reasons of the Federal Magistrate in relation to those issues and considered the evidence and to the extent that there is a challenge in relation to those issues it must be rejected.

37 At one point counsel for the appellant suggested that the respondent should have called Ms Sharp. He did not point to any authority in support of that submission and it must be rejected. A party is not obliged to call a witness although a failure to do so may give rise to an inference that that person’s evidence would not have assisted the party’s case. I note that it was not suggested that the Federal Magistrate could and should have compelled one of the parties to call Ms Sharp as a witness. The appellant submits that the Federal Magistrate should himself have called Ms Sharp to give evidence. This contention is put forward primarily on the basis of the evidence she could have given on her solvency as at the date of the transfer. Secondly, the appellant submits that the Federal Magistrate reached inconsistent conclusions in that he concluded that there was consideration for the transfer, namely, the appellant’s natural love and affection for Ms Sharp and that he concluded that the appellant had provided no consideration for the transfer. Thirdly, the appellant submits that there was insufficient evidence to support the Federal Magistrate’s conclusion as to Ms Sharp’s solvency as at 9 August 2002 and he refers to a number of matters in support of that submission.

38 I turn to consider each of these submissions and I will then consider the appellant’s application to adduce further evidence.

39 The appellant contended that the Federal Magistrate should have called Ms Sharp as a witness at the hearing. In the alternative, he should have indicated to the appellant the need for her to be called. The factual circumstances relevant to these submissions are as follows. As I have said, standard directions for the filing and serving of affidavits containing the evidence in chief of the witnesses to be called by the respective parties were made before trial and affidavits were duly filed and served. It would have been clear to the appellant before the hearing that the respondent was raising in effect a case to answer on insolvency by reference to Ms Sharp’s commercial relations with Ms Jones, Mr Bates and a number of smaller creditors. It would have been clear to the appellant before the hearing that the respondent did not propose to call Ms Sharp. It would also have been clear to the appellant prior to the hearing that the respondent sought to adduce evidence of a communication between Ms Sharp and Mr Bates being a letter from Ms Sharp to Mr Bates dated 24 April 2001. In the letter, Ms Sharp refers to her financial circumstances and states that she needs some advice from "Richard" as to whether she should divest herself of her assets. She states that she would like advice on "whether I should sign over my share of the house and the cars to my husband. Sign over the business to my daughter, so that if by the end of the year things become unstuck and too difficult to handle I can then go into voluntary liquidation." The letter was an annexure to the respondent’s first affidavit, being his affidavit sworn on 7 December 2004. On the first day of the hearing, the appellant objected to the tender of the letter. One ground upon which he did so was that the letter was protected by legal professional privilege. Counsel for the appellant sought to tender a letter from Ms Sharp in which she stated that she objected to the tender of the document. The Federal Magistrate ruled that he would not accept a letter from Ms Sharp as evidence of an objection by her and, at that point, counsel for the appellant said that he may have to call Ms Sharp to give evidence of her objection. On the second day of the hearing, which was some three months later, counsel instructed by Ms Sharp appeared and sought leave to intervene so that she could object to the tender of the document. After hearing submissions the Federal Magistrate said:

40 It appears that at that stage there was a question as to whether legal professional privilege had been waived.

41 At the conclusion of the second day of the hearing, the Federal Magistrate made orders requiring any affidavit from Ms Sharp or those representing her to be filed by 20 January 2006.

42 An affidavit was not filed. The matter proceeded on 20 February 2006 but this Court was not provided with a transcript of the hearing on that day. The Court was told that no further evidence was tendered that day and that the parties proceeded straight into submissions. The Court was told during the hearing of the appeal that in the result the letter from Ms Sharp to Mr Bates dated 24 April 2001 was not admitted in evidence.

43 It was not really disputed, but in any event it was established beyond argument, that if Ms Sharp had been called as a witness the respondent’s counsel would have had a good deal to put to her in cross-examination about her solvency. Furthermore, if the Federal Magistrate had called Ms Sharp he would have had to consider carefully the questions he asked her in light of her claim for legal professional privilege in relation to her letter to Mr Bates. It is also relevant to note that it was accepted by counsel for the appellant that had the Federal Magistrate raised the need to call Ms Sharp with the appellant’s solicitors and counsel he is likely to have been told that the matter had been considered. Finally, the Court was told by counsel for the respondent, without contradiction by counsel for the appellant, that before the Federal Magistrate he had pointed to the fact that the appellant had not called Ms Sharp as a witness.

44 These are the factual circumstances in which the submission that the Federal Magistrate should have called Ms Sharp as a witness must be considered.

The appellant contends that the evidence of Ms Sharp, which is sought to be adduced now as further evidence before this Court, was "vital evidence". It is submitted that the interests of justice required that the evidence be called at the trial "and by the Federal Magistrate if not otherwise". Unusually, this is not a case where an exercise by a judge of his or her limited power to call a witness is being challenged. The appellant submits that a miscarriage of justice was occasioned by the failure of the Federal Magistrate to exercise the power to call Ms Sharp. Consequently, the appellant must show not only that the Federal Magistrate had the power to call Ms Sharp but additionally that in the circumstances the Federal Magistrate ought to have exercised it. The appellant relied in his written submissions upon Huang v University of New South Wales (No 3) [2006] FCA 626; (2006) 154 FCR 16, Obacelo Pty Ltd v Taveraft Pty Ltd (1986) 10 FCR 518 and Wigmore on Evidence (Chadbourn Rev.) v.9, SS 2483. In argument, the Court was also taken to Deutsche Bank und Disconto Gesellschaft v Banque des Marchands de Moscou (1931) 107 LJKB 386, Bassett v Host [1982] 1 NSWLR 206 and R v Damic [1982] 2 NSWLR 750. It will be necessary to return to the authorities in greater detail at a later stage. The appellant submitted that the court derived its power from s 26 of the Evidence Act 1995 (Cth) and "as part of its statutory powers" and submitted that the basis for the exercise of the power was "where justice requires".

46 The respondent did not deny that a judge has power to call a witness of his or her own motion, but submitted that the power is exercisable only in exceptional cases and that the appellant had failed to demonstrate any exceptional circumstances. In his written submissions, the respondent referred particularly to the fact that the appellant was "represented by competent counsel and solicitors acting on his instructions" and was "present throughout the hearing".

47 In an adversary system such as ours, the parties to a matter enjoy the freedom to call evidence in their own cause, subject, naturally, to the rules of evidence governing admissibility. The freedom to call evidence in one’s own cause also entails a responsibility to do so. Usually, if not always, no party is entitled to expect that any other party will. Nor is it to be supposed that the judge will readily assume that function. Indeed, it is trite to observe that a strictly adjudicative role, and absence of inquisitorial power, distinguishes the common law judge from his or her civil law counterparts. Nevertheless, the relevant principle does not admit of accurate expression in such absolute terms. That there are exceptional cases in which it is appropriate for a judge to call a witness is borne out in the authorities.

48 The appellant relied, in part, upon s 26 of the Evidence Act 1995 (Cth) for the Federal Magistrate’s power to call Ms Sharp. Section 26 provides:

There is at least one case in which a judge has called a witness in reliance upon the "wide power" of that section: Milano Investments Pty Ltd v Group Developers Pty Ltd (unreported, NSW SC, Young J, 13 May 1997). For my own part, I do not consider that the powers conferred by the section extend so far. The powers relate to the questioning of witnesses. The statutory definition of the term, ‘witness’, is merely inclusive and does not assist for present purposes. It seems to me that before a person is called to give evidence, he or she cannot be said to be a witness. In my opinion, the powers conferred by s 26 extend only to those persons who have been called to give evidence by a party or by the judge in the exercise of a power at general law or under another statute.

49 The appellant also relied upon the "statutory powers" of the Federal Magistrates Court. I assume that the specific power relied upon is that contained in r 15.04 of the Federal Magistrates Court Rules 2001 (Cth), which provides:

50 No submissions were made as to the scope of the discretion in this rule. It appeared from the way in which the submissions proceeded that the appellant and respondent were agreed that the discretion was exercisable only in the exceptional circumstances recognised at common law. The logic of such an assumption is not obvious. The rule, the construction of which "is guided by the authorities regarding statutes" (Parks Holdings Pty Ltd v Chief Executive Officer of Customs [2004] FCA 820 at [87] per Goldberg J), must be interpreted in context having regard to both the rules and the Federal Magistrates Act 1999 (Cth), which authorises the rules: s 81. There is nothing in the language of the rule to suggest that it was intended to confer any narrower power than that at common law. In fact, it might have been intended simply to state expressly the general law power that the Court enjoys as part of its implied or incidental powers to supervise its own proceedings.

51 On the other hand, the informality of proceedings contemplated by the scheme of the Federal Magistrates Act 1999 (Cth) might suggest that the rule was intended to relax the strict common law position and give to Federal Magistrates greater freedom to call witnesses of their own motion. Such a construction may raise questions as to the validity of the rule on the ground that it is beyond the competence of the Parliament to deprive a Chapter III court, being a repository of the judicial power of the Commonwealth, of its essential character and the rule-making power conferred by s 81 of the Federal Magistrates Act 1999 (Cth) could not, therefore, authorise a rule in the observance of which the Court would depart from its essential character and function. However, it is unnecessary to consider that issue because, as I have said, the submissions of the parties proceeded on the basis that the power of the Federal Magistrates Court to call a witness, even insofar as it derived from r 15.04, was governed by the common law principles.

52 It was correctly accepted by the parties that at common law the exercise of the power is reserved only for the most exceptional cases and that it would be regarded as highly unusual for a judge to call a witness in a proceeding. The reasons why a judge ordinarily ought not call a witness of his or her own motion are well-established. In Jones v National Coal Board [1957] 2 QB 55 at 63 Denning, Romer and Parker LJJ said:

Speaking in the context of a judge questioning a witness, Lord Greene MR said in Yuill v Yuill [1945] P 15 at 20 that "a judge who himself conducts the examination ... descends into the arena and is liable to have his vision clouded by the dust of the conflict." Like questioning a witness, calling a witness also involves the judge in a descent into the arena.

53 Sometimes, the principles governing the power of a judge to call a witness are explained or justified by reference to an ideal of truth-ascertainment. The Court in Jones v National Coal Board (supra) at 63 said that "a judge is not a mere umpire ... [h]is object, above all, is to find out the truth, and to do justice according to law" and, quoting Lord Eldon LC in Ex parte Lloyd (1822) Mont 70, that "truth is best discovered by powerful statements on both sides of the question" (See also Coulson v Disborough [1894] 2 QB 316 at 318 per Lord Esher MR and at 318-19 per A L Smith LJ). The debate about whether one of the adversarial and inquisitorial systems is more apt to ascertain "the truth" in a matter is not, I think, to the point. The point to be noted is that, as Dawson J said in Whitehorn v The Queen [1983] HCA 42; (1983) 152 CLR 657 at 682 "[a] trial does not involve the pursuit of truth by any means". His Honour went on to say:

The passage was endorsed unanimously by the High Court in R v Apostilides [1984] HCA 38; (1984) 154 CLR 563 at 576 as a reason supporting "the need for the extreme reluctance with which the trial judge should even consider usurping the responsibility of the parties with respect to the calling of witnesses". The idea of descending into the arena is no more than a colourful description of what occurs when the distinct and separate roles of judge and advocate are confused.

54 Crucially, this is a notion different from that of how best to ascertain truth. The propriety of a judge calling a witness is not, I think, to be analysed against some underlying assumption that the ascertainment of truth is the fundamental purpose of the judge. It is undeniable that the adversarial system values truth and that the ascertainment of the truth may well be an outcome of the functioning adversary system. But the system as a whole ought not to be confused with the judge, who plays only one role, albeit a critical one, in what is at least a tripartite system. The parties play the other critical roles. Without two parties and an independent and impartial judge, there is no adversary system. Therefore, rather than truth- ascertainment – or, as Dawson J put it, "the pursuit of truth by any means" – the law governing the power of a judge to call a witness is explicable by reference to the fundamental division between judge and advocate in the adversary system.

55 The role of the judge is to adjudicate the parties’ controversy. It follows from the independence and impartiality required of the judge, that the creation of a controversy, or the redefinition of a controversy is no part of the judicial power. That may be a consequence of a judge calling a witness and, for that reason, it is usually impermissible for a judge to do so. The power to create and define a controversy belongs to the parties and their advocates. Their freedoms and responsibilities within their distinct roles are as important to the adversary system as the judge’s and ought not, in the usual course, to be usurped. The undesirability of a judge calling a witness of his or her own motion can be cast in terms of "descending into the arena" or in terms of creating an apprehension of bias, but essentially what is at stake is the proper distinction between the judge and the parties which is contemplated by the adversary system.

56 In the same way as the general rule against a judge calling a witness is justified by the fundamental nature of the adversary system, so too are the exceptions to that rule. An analysis of the exceptional cases shows them to be instances where the judicial intervention was directed to preserving the adversarial system itself. Sometimes, in the authorities, the judicial intervention is justified as necessary in "the interests of justice". But those references to "the interests of justice" cannot mean to import idiosyncratic notions of fairness, but rather the inter partes justice which is institutionalised in the adversary system and the requirements of which are discovered according to the method of the common law. The inter partes conception of justice, which might also be described as a justice concerned with fair processes rather than outcomes perceived to be "fair", and which the common law embodies, was recognised by Rares J in Huang v University of New South Wales (No 3) (supra) at [28]:

The fairness of the trial process is ensured by proper participation in the trial by the parties and the judge. That is to say, when the distinct roles are being fulfilled, the adversary system can function as intended; when one or more roles is not being fulfilled, then there is a resulting deficiency which causes the system not to work as intended and which may require remedial action. The exceptional instances of judges calling witnesses are explicable as exceptional instances of judges being able to remedy the deficiency in a party’s fulfilment of its role by the calling of a witness.

57 In Titheradge v The King [1917] HCA 76; (1917) 24 CLR 107 at 118 Isaacs and Rich JJ applied the decision of the English Court of Appeal in In re Enoch and Zaretzky, Bock & Co.’s Arbitration [1910] 1 KB 327. In that case, the Court held that a judge may not call a witness without the consent of both parties. Isaacs and Rich JJ considered the principle to be equally applicable in a criminal case. Barton J said that in a civil case, before the judge may call a witness, "there must either be the consent of the parties or an acquiescence on their part from which the strong inference is consent". Barton J also held that in a criminal trial, the accused must consent to the proposed course (at 117). In Shaw v The Queen [1952] HCA 18; (1952) 85 CLR 365 at 379, Dixon, McTiernan, Webb and Kitto JJ said that the Court had, in Titheradge v The King (supra) "denied the power", which decisions in England had recognised, allowing "the presiding judge at a criminal trial to call a witness if he thinks the imperative demands of justice require it."

58 Thus, the consent of the parties is one exception to the general prohibition against a judge calling a witness. There are various circumstances in which the parties may consent to the judge calling a witness. It may be, for example, that the parties desire a person to give evidence, but neither wishes to vouch for his credit. It may be that neither wishes to suffer the disadvantage of being unable to impeach in cross examination those aspects of the person’s evidence detrimental to his case while having those aspects favourable to his case impeached by the other party. This exception appropriately respects the freedom which the adversary system accords to the parties.

59 The appellant took this Court to cases which, it was submitted, recognised the power to call a witness in circumstances where consent was absent. It is clear that in a criminal trial the power may be exercised even where consent is absent: R v Apostilides (supra) at 575. Whether the position is different for civil trials is an unresolved question. In Whitehorn v The Queen (supra) at 681, Dawson J expressed the view that the position in criminal trials was the same as that in civil trials, a position which his Honour considered required consent. Gibbs CJ and Brennan J expressly reserved their opinion in that respect and later, in R v Apostilides (supra), the Court rejected that consent was necessary, but limited its remarks to criminal trials. The opinion of Issacs and Rich JJ in Titheradge v The King (supra) on this point was strictly obiter dicta. More recent authorities suggest that even civil trials may admit of exceptions other than consent: Huang v University of New South Wales (No 3) (supra). In my view, there is no reason in principle why the position in a civil trial should be any stricter than that prevailing in a criminal trial. This follows readily once it is accepted that the basis for judicial intervention in the trial process is the protection of the adversary system itself, which is equally important in both civil and criminal jurisdictions. It also would follow that the class of exceptional cases cannot ever be considered closed. The consent of the parties is one recognised category of exception, and there may be others.

60 In Obacelo Pty Ltd v Taveraft Pty Ltd (supra), Wilcox J reviewed the authorities on the point and concluded that the presiding judge in a civil case could "call a witness, even over the opposition of a party, but that the discretion to take this course should be exercised sparingly and with great care." I agree with Wilcox J to the extent that, as I have already said, there may well be cases where, despite opposition by a party, preservation of the adversarial system requires that the judge call a witness. I also agree, however, with what Rares J said in Huang v University of New South Wales (No 3) (supra) at [25] of the decision of Wilcox J:

61 The appellant referred the Court to the decision of the English Court of Appeal in Deutsche Bank und Disconto Gesellschaft v Banque des Marchands de Moscou (supra). In that case the Court directed an Official Solicitor to investigate a matter and adduce evidence before the Court. The case was an exceptional one in which the very existence of the defendant bank and the authority of the purported director to instruct on its behalf were in doubt and it was in neither party’s interest to prove the Soviet laws which would have settled the doubt. The case does not assist the appellant. The existence of a contending party is fundamental to the existence of a controversy. In my view, the case does not extend the power of the court to call evidence of its own motion at all beyond the boundary which I have identified, namely, that of ensuring the proper functioning of the adversary system.

62 Bassett v Host (supra), a case upon which the appellant relied, was a personal injuries case arising out of a collision between a motor cycle carrying two persons, one of whom was the plaintiff, and the defendant’s motor car. The defendant did not give evidence. The plaintiff, due to his injuries, had no recollection of the events, including whether he or the other person was driving the motor cycle. The other person on the motor cycle was not called. Mahoney JA expressed the view in obiter dicta (at 213) that "a trial judge has the right and ... the duty, in the proper case, to use his influence to see that the court has before it the evidence necessary for the proper determination of the issues." In the same case, Hope JA criticised the current law on the basis that it prevented the Court from calling the other person on the motor cycle but nevertheless appeared to accept that position. The other judge on the Court of Appeal, Reynolds JA, did not express a view on that point. In those circumstances, the case is not of great assistance in the elucidation of the law and certainly not in the disposition of the appeal. It is to be noted, nevertheless, that what Mahoney JA calls the "proper determination" of issues depends very much on the view taken of the function of the judge. It is critical to the adversary system that the parties themselves define the issues to be resolved: it is no part of the judicial power to create disputes. The definition of issues requiring resolution is intimately connected with the evidence presented. It is not to be supposed that simply because a party decides not to put on certain evidence, the court is prevented from reaching a "proper determination". The determination will be proper, having regard to the attitudes to the litigation adopted by the parties.

63 The appellant also cited Wigmore on Evidence (Chadbourn Rev.) v.9, SS 2483. That section reinforces the traditional division of the roles of judge and advocate. I assume that the appellant intended to refer the Court to SS 2484 in which section it is asserted that "the general judicial power ... implies inherently a power to investigate as auxiliary to the power to decide; and the power to investigate implies necessarily a power to summon and to question witnesses." I might also add, however, that the learned author, though asserting the existence of the power to call a witness, writes: "That [the judge] has no burden or duty of doing so is plain in law".

64 While the learned author may state accurately the position in the United States, that does not coincide with the law in Australia. It might be that the divergence between the United States and the Australian positions is attributable to the differing views taken in the respective jurisdictions of the nature of the judicial power. The more the judicial power is viewed as an action by the State, that is to say, the government, on behalf of the entire community, the more it is to be expected that the active investigation of "truth" be a prominent consideration. In the United States, the judicial power is seen as an exercise of State power: New York Times Co v Sullivan, [1964] USSC 41; 376 US 254 (1964) at 265. In contrast, in Australia, the exercise of judicial power is not considered to be governmental, at least in the sense of being exercised on behalf of the entire community. So much is evident from the denial that discussion of the exercises of judicial power lies within the protection afforded by the freedom of political communication implied from the constitutional prescriptions of representative and responsible government: John Fairfax Pty Ltd v Attorney-General (NSW) [2000] NSWCA 198; (2000) 181 ALR 694 at 709 [83] per Spigelman CJ; Herald & Weekly Times Ltd v Popovic [2003] VSCA 161; (2003) 9 VR 1 at 10 [9] per Winneke ACJ, at 103 [500]-[501] per Warren AJA; Conservation Council of SA Inc v Chapman [2003] SASC 398; (2003) 87 SASR 62 at 70-1 [15] per Doyle CJ, at 127-8 [295] per Besanko J; John Fairfax Publications Pty Ltd v O’Shane [2005] Aust Torts Reports |P81-789 at [95] per Giles JA; APLA Ltd v Legal Services Commissioner (NSW) [2005] HCA 44; (2005) 224 CLR 322 at 360-361 [64]- [65] per McHugh J; see also Retail, Wholesale & Department Store Union v Dolphin Delivery Ltd [1986] 2 SCR 573 at 600. That explains, at least in part, the adherence in Australia to the traditional conception of the judge as an impartial adjudicator of a dispute defined by the parties, on whose behalf alone the judicial power is ever exercised.

65 There are other exceptional circumstances, apart from the consent of the parties, where the adversary system is not able to operate as envisaged. The proper functioning of the system depends to a large extent on certain assumptions, and principal among these assumptions is that the parties enjoy an equality of arms in the conduct of their matter. The adversary system, with its distinct roles for judge and advocate, relies on the ability of the parties to present their cases competently and comprehensively. It is uncontroversial to observe that in practice there can be disparities between the quality of representation enjoyed by opposing parties. Where that disparity is so pronounced as to produce a state of affairs in which one party is unable to fulfil its role within the adversary system, then the integrity of the adversary system itself is undermined. This was recognised by the High Court in another context in the well-known decision of Dietrich v The Queen [1992] HCA 57; (1992) 177 CLR 292 at 302 per Mason CJ and McHugh J, 334-5 per Deane J, 354 per Toohey J, 370-1 per Gaudron J.

66 Thus, where a party is unrepresented by counsel before the court, there may be circumstances where the intervention of the judge is necessary to preserve the integrity of the adversary system. In serious criminal trials, that intervention may be as extreme as to stay the proceedings: Dietrich v The Queen (supra). Sometimes, the intervention required may be minimal advice on the procedures of the Court. In between the two extremes, calling a witness may sometimes be appropriate intervention. For example, in R v Damic (supra), at the trial of the unrepresented accused, the trial judge had called of his own motion psychiatric evidence raising a defence of mental illness. The Court of Criminal Appeal found no error in such conduct, relying upon the crucial facts that the accused was both unrepresented and suffering mental illness (see also R v Wilson [1998] 2 Qd R 599 at 658-660 per Fitzgerald P and Lee J).

67 It is not to be assumed that it is a consequence of this that in every case involving an unrepresented litigant the judge will have power or responsibility to assume the conduct of the litigant’s case. There is an important distinction between, for example, the criminal trial, in which a defendant is compelled by the State to answer charges, and private civil actions prosecuted by an unrepresented litigant.

68 Broadly similar considerations may arise where a party is represented, but where there is evidence of the incompetence of that representation (see Chouman v Margules (1993) 17 MVR 144).

69 In Huang v University of New South Wales (No 3) (supra), Rares J opined that another exception may exist in cases:

I respectfully agree with this observation, which recognises that there may be cases where a relevant third party interest is not adequately served by a bipartisan contest and the intervention of the judge to restore the integrity of the adversarial system vis-à-vis the third party interest is permissible.

70 It remains to consider whether in the present case there were present any exceptional circumstances which enlivened the judge’s power to call Ms Sharp.

71 Even if I assume that the evidence of Ms Sharp was, as contended by the appellant, "vital", that alone does not constitute exceptional circumstances sufficient to enliven the Federal Magistrate’s power to call Ms Sharp. It is not enough that the evidence would have shed light upon the matters in the proceeding, for truth of itself is not the touchstone of the power.

72 Nor is this a case where protection of a third party interest external to the dispute between the respondent and the appellant required the intervention of the Federal Magistrate to the extent that Ms Sharp be called. The respondent represented the creditors and Ms Sharp had no relevant third party interest. Her legal rights and obligations were in no way directly affected by the orders whatever might have been the arrangement between the appellant and Ms Sharp as to the latter’s right to reside at the property.

73 Nor is this a case where a party was unable to participate effectively in the adversarial process without the intervention of the Federal Magistrate for want of representation or competent representation. For the purposes of determining whether the power to call Ms Sharp was enlivened by exceptional circumstances, the relevant question is not whether the appellant’s decision not to call her as a witness was inadvertent or misjudged. The relevant question is whether the appellant’s representation was so incompetent as to give rise to a necessity that the judge assume, at least in part, their responsibilities. The evidence falls a long way short of establishing that in this case and, in fact, there is nothing to suggest that the appellant’s representation was other than competent.

74 In the absence of any exceptional circumstances, in my view, the power to call Ms Sharp was not enlivened.

75 It follows that because the Federal Magistrate lacked the power to call Ms Sharp in the circumstances, the appellant’s submission that he was obliged to call her necessarily fails. In any event, it is difficult to envisage a situation where, assuming the existence of the power, a trial judge would be bound to exercise it by calling a person as a witness. In this case, it is unnecessary to consider that question. It is sufficient to say that the circumstances of the case, particularly those identified in [43] above, would weigh heavily against any argument that a judicial officer in the position of the Federal Magistrate would be bound to exercise the discretion by calling Mrs Sharp.

77 The submission made by the appellant on this issue was not easy to follow. It proceeded from the premise that the only consideration provided by him to Ms Sharp was his love and affection for her. As I understood the submission, it was that the Federal Magistrate considered the provisions of s 120(1)(b) of the Act and concluded that the appellant gave no consideration for the transfer. He did not address whether the appellant gave consideration of lesser value than the market value of the property. Although he considered that the appellant gave no consideration for the transfer for the purposes of subs 1(b), he also said, inconsistently (so it was submitted by the appellant), that the appellant had provided consideration, albeit consideration which was, by reason of s 120(5), of no value. Particular emphasis was placed on that part of the Federal Magistrate’s reasons which I have set out above [26].

78 This submission must be rejected. In my opinion, the Federal Magistrate was saying that in view of his earlier conclusion that there was no consideration by way of money or forgiveness of debt, the only possible consideration was that stated in the memorandum of transfer and that was declared by the Act to be of no value as consideration and therefore no consideration. There is no error in that reasoning. Even if there were and the Federal Magistrate should have held the appellant’s natural and love and affection for Ms Sharp to be consideration within s 120(1)(b), it is clearly of no value and the result in this case would be the same under this approach.

80 The starting point in considering the submissions on this issue is that the onus was on the appellant to prove that as at 9 August 2002 Ms Sharp was able to pay all her debts as and when they became due and payable. The onus was not on the respondent to prove insolvency.

81 The observations of Barwick CJ in Sandell v Porter (supra) at 670 are well-known but, with respect, are worth repeating:

83 It was submitted by the appellant that the evidence was "too thin" to support the finding made by the Federal Magistrate. I take this to mean that the evidence was insufficient to support the Federal Magistrate’s finding. It must be remembered that the finding of the Federal Magistrate was the appellant had not proved that Ms Sharp was solvent. At times the appellant’s submissions seemed to overlook this fact. The appellant referred to Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 and submitted that the Federal Magistrate should have taken into account the seriousness of a finding that a person was insolvent, or at least that it had not been established that the person was solvent, before reaching one or other of those conclusions. I do not think Briginshaw v Briginshaw (supra) is relevant in the circumstances of this case because the Federal Magistrate’s conclusion was that the appellant had failed to discharge the onus of proving that Ms Sharp was solvent as at the date of the transfer. He said correctly that that needed to be established on the balance of probabilities. I see no error in the approach taken by the Federal Magistrate.

84 The appellant also submitted that the Federal Magistrate erred in drawing an inference that any evidence Ms Sharp may have given on her solvency would not have assisted the appellant. The particular submission here was that to reach this conclusion the Federal Magistrate must have considered that Ms Sharp was in the appellant’s camp and that was an error. It was pointed out by the appellant that they had been separated since February 2004. In the case of a failure to call a non-party witness the inference should be drawn only if "it would be natural for the party to call the witness, or the party might reasonably be expected to call the witness [O’Donnell v Richard [1975] VR 916 at 929] or ... ‘the missing witness would be expected to be called by one party rather than another’ [Payne v Parker [1976] 1 NSWLR 191 at 201-2 per Glass JA]": J D Heydon, Cross on Evidence (2004, 7^th Australian ed) at [1215].

85 In my opinion, this is a case where it was open to the Federal Magistrate to find that as between the appellant and the respondent the former could reasonably be expected to call Ms Sharp. The fact that the appellant and Ms Sharp were married, albeit separated, is relevant. The fact of their separation was not suggested to be any source of animosity between them. In Silvera v Savic [1999] NSWSC 83; (1999) 46 NSWLR 124 at [56], Hodgson CJ in Eq found that the relationship between a party and a witness, who had formerly been in a de facto relationship, was, despite the separation, "sufficiently close and cordial to make it appropriate that the Jones v Dunkel inference be drawn." In this case, co-operation between the appellant and Ms Sharp was apparent to the Federal Magistrate and the respondent when the appellant sought unsuccessfully to claim Ms Sharp’s privilege on the first day of the hearing and when Ms Sharp subsequently appeared by counsel to claim her privilege. Moreover, I think it was open to the Federal Magistrate to infer that Ms Sharp, whose solvency was in issue, would not be equally available to the party whose interest was in resisting the proof of solvency, that is, the respondent. This is not a case like Payne v Parker (supra) where the witness in question was a specialist medical practitioner who was available to both parties (the deceased patient’s wife and the defendant general practitioner who had procured the specialist’s services in the course of treatment) and whose independence weighed against any ready inference of hostility to one party or another.

86 Furthermore, the appellant’s submission must fail because, considering the Federal Magistrate’s reasons as a whole, it seems to me clear that he would have reached the same conclusion even if he had not relied on a Jones v Dunkel inference and in those circumstances, whether or not a Jones v Dunkel inference was drawn did not affect the outcome.

87 The appellant submitted that the Federal Magistrate could not have considered the "entirety" of Ms Sharp’s financial position as he claimed to have done because he did not have evidence from Ms Sharp. This criticism must be rejected. The Federal Magistrate considered the entirety of Ms Sharp’s financial position having regard to the evidence before him. It should be said that very little evidence as to Ms Sharp’s solvency was put forward by the appellant. In my opinion, not only has the appellant failed to demonstrate error but the Federal Magistrate’s conclusions were amply justified on the evidence before him (see [32] above). This ground of appeal fails.

89 The appellant asks this Court to receive further evidence under s 27 of the Federal Court of Australia Act 1976 (Cth). As I understood the submission the appellant accepts that should this Court receive the further evidence the action will have to be remitted to the Federal Magistrates Court for a retrial. This is not a case in which it is said that this Court can receive the further evidence and determine the merits of the respondent’s claim.

90 From time to time the further evidence was referred to in connection with the appellant’s submission that the Federal Magistrate should have called Ms Sharp as a witness. The further evidence cannot affect the question of whether the Federal Magistrate erred on that ground. From time to time during the course of submissions the appellant seemed to suggest that his solicitors and counsel had been grossly incompetent in failing to call Ms Sharp and that that had resulted in a miscarriage of justice. I do not think that was articulated as a separate ground of appeal but even if it had been, I do not think there is evidence that the appellant’s solicitors and counsel were grossly incompetent.

91 The thrust of the further evidence was that it was relevant to the Federal Magistrate’s finding as to Ms Sharp’s solvency as at 9 August 2002.

92 It is now well-established that the discretionary power in s 27 to receive further evidence is not constrained by the common law principles in relation to the setting aside of a jury verdict and the ordering of a new trial. The leading authority is CDJ v VAJ (1998) 197 CLR 172 ("CDJ"). The scope of the discretionary power in s 27 is to be determined as a matter of statutory construction. It is an ample power and the section itself is remedial in nature. The exercise of the discretionary power involves a weighing of relevant factors rather than the application of principles "bordering on fixed rules" as was the case on an application at common law: CDJ at 200 per McHugh, Gummow and Callinan JJ. If the subject matter of the appeal is or includes third party interests then that is a consideration on an application to adduce further evidence and may lead to a favourable exercise of the discretion. Other factors to be weighed are matters which are relevant on an application at common law including the need for finality, whether the evidence could have been obtained for use at trial and the likely effect of the further evidence on the orders: CDJ at 200 per McHugh, Gummow and Callinan JJ. The precise weight to be placed on a particular factor will depend on the other factors and all the circumstances of the case: CDJ at 203-204 per McHugh, Gummow and Callinan JJ. It is not intended that the discretionary power in s 27 be used in a way which obliterates the distinction between original and appellate jurisdiction: CDJ at 202 per McHugh, Gummow and Callinan JJ. In a case such as this where the best order the appellant could obtain is an order for a retrial, the likely effect of the further evidence on the orders made below is an important consideration. The appellant must establish to the satisfaction of this Court that the further evidence would have produced a different result if it had been available at the trial or, at least, was likely to have produced a different result: CDJ at 202 and 218 per McHugh, Gummow and Callinan JJ. For a recent application of the relevant principles I refer to Sobey v Nicol and Davies, In the matter of Guiseppe Antonio Mercorella [2007] FCAFC 136 at [68]- [73].

93 In order to understand the alleged significance of the further evidence it is necessary to examine in a little more detail the evidence given at the hearing by Ms Patricia Jones. In 1994 or 1995, Ms Jones was a librarian employed at the Australian National University. She met Ms Sharp at about that time and Ms Sharp asked her if she was interested in helping her in the bridal shop she operated in Kingston. Ms Jones commenced doing so and, in addition, she became friendly with Ms Sharp and started to socialise with her. In May 1997 she agreed to lend, and did lend, Ms Sharp the sum of $5,000 because Ms Sharp told her that she had "supplier difficulties". The loan was repaid. Thereafter, in the year 1998, Ms Jones said in her evidence that she made loans to Ms Sharp on about ten separate occasions and, for the most part, Ms Sharp told Ms Jones that she needed the loans in connection with the business or to pay outstanding debts or both. A similar pattern occurred in the year 1999 and Ms Jones said that she made loans to Ms Sharp on about seven occasions.

94 Ms Jones said that in May 2001 she made a very substantial loan to Ms Sharp and that the amount was in the region of $90,000-$100,000. She made further loans to Ms Sharp in August 2001, November 2001 and May 2002 respectively. Again, for the most part, Ms Sharp explained to Ms Jones that she needed the money for the business or to pay outstanding bills. In addition to the repayment of the first loan, Ms Jones said that repayments were made in relation to a loan made in June 1999 and some interest payments were made in relation to the large loan made in May 2001.

95 Ms Jones said that she was owed in excess of $212,045 in principal alone. She said that she made oral demands for the repayment of the loans whilst working for Ms Sharp and that she told Ms Sharp that she needed the moneys to be repaid. She said that she always received the same response which was "I don’t have any money" or words to that effect. The following question and answer appears in Ms Jones’ evidence during the course of cross-examination:

96 The Federal Magistrate accepted Ms Jones’ evidence subject to the qualifications referred to earlier (see [24] above) and, in particular, he accepted that she repeatedly made verbal demands for repayment going back to 1998.

97 I turn now to consider the further evidence which the appellant seeks to adduce.

98 I start with the affidavit of the appellant. He has changed solicitors since the hearing before the Federal Magistrate. His present solicitor is the same solicitor who acted for Ms Sharp when the issue of legal professional privilege was debated before the Federal Magistrate. The appellant’s present solicitor issued a subpoena directed to his previous solicitors seeking a number of documents, and a substantial quantity of documents were produced. In addition to the statements in his affidavit, the appellant seeks to put forward a number of these documents as further evidence.

99 The appellant states that he instructed his previous solicitors to gather and put before the Court all relevant evidence and to call all relevant witnesses including, in particular, Ms Sharp and her accountant Mr Tony Bandle. At this point, it may be noted that there is no affidavit from Mr Bandle and it is not known what he would say. The appellant states that at or about the time the proceedings were to be heard, he asked his then solicitors whether they were calling Ms Sharp. He was told either by his solicitor or by counsel the following:

or words to that effect. He states that he remained concerned throughout the proceedings about his legal representatives not calling Ms Sharp to give evidence and produce documents. He states that the evidence was not adduced before the Federal Magistrate through the error or oversight of his previous solicitors and that at all times it was his understanding and wish that it would be so adduced because it was important and relevant evidence in the case.

100 The affidavit of Ms Annabel is very short and it disputes one factual allegation made by Ms Jones in her evidence.

101 The most important affidavit in terms of the application to adduce further evidence is that of Ms Sharp.

102 Ms Sharp states that in late August 2005 she attended at the offices of the appellant’s previous solicitors with her father in order "to prepare my affidavit and my father’s affidavit". She gave a quantity of papers to the appellant’s previous solicitors. She gave information to the previous solicitors and she understood that she would be called to give evidence and be cross-examined in the proceedings. She states that she had this understanding because her evidence was "of vital importance".

103 Ms Sharp states that about a week before the hearing, the appellant’s previous solicitors contacted her and told her that she would not be needed to give evidence. She told them that she could not believe it after all the work she had done to help with the case. She asked the solicitors how they could defend the case in terms of Ms Jones’ evidence without her evidence. A little later, she had another conversation with the appellant’s previous solicitors when she said that she was a key witness in the case and they said to her that it was not necessary for her to give evidence and it was quite likely that the respondent would call her as a witness. She states that the transfer was effected because it was impossible to refinance in both her name and that of the appellant. Ms Sharp states that she never had any intention to delay or defeat her creditors.

104 It is convenient to pause at this point in the description of Ms Sharp’s affidavit to note the fact that the documents produced by the appellant show that there were a number of discussions between Ms Sharp and the appellant’s previous solicitors. I will summarise those discussions; it is not necessary to refer to each document. It is clear that Ms Sharp was providing information to the appellant’s previous solicitors. There were communications about the fact that Ms Sharp through her lawyer would object to the tender of her letter to Mr Bates dated 24 April 2001. There are communications which indicate that Ms Sharp was searching for documents including cheque butts. There are communications which indicate that there was a discussion between the appellant’s previous solicitors and Ms Sharp wherein Ms Sharp was told that the Court might want her to give evidence, and then there is a note by the solicitors which states: "Why I shouldn’t". There are communications which indicate that instructions were taken from Ms Sharp with a view to the preparation of a draft affidavit. Among the documents there is a draft affidavit and it deals with the circumstances surrounding the acquisition of the property and the transfer. It does not address the statements made by Ms Jones in her affidavit.

105 On 30 August 2005, the appellant’s previous solicitors wrote to Ms Sharp stating the following:

106 On 7 September 2005 the appellant’s previous solicitors put forward a proposed letter that Ms Sharp might wish to write to Mr Bates alerting him to her claim for legal professional privilege. On 12 September 2005 it seems that Ms Sharp wrote to the appellant’s previous solicitors providing her comments on the affidavit of Ms Jones. On 8 December 2005, Ms Sharp wrote to the appellant’s previous solicitors (with a copy to the appellant) stating:

108 On 10 January 2006 Ms Sharp wrote to the appellant’s previous solicitors (with a copy to the appellant) in the following terms:

109 This evidence establishes that there were numerous communications between Ms Sharp and the appellant’s previous solicitors and that consideration was given to her being called as a witness at the hearing before the Federal Magistrate, although a person or persons – and it is not clear from this evidence whether that included the appellant – considered that there were dangers in taking that course because of what she might say under cross-examination.

111 In her affidavit, Ms Sharp does the following. First, she produces certain cheque butts and other documents evidencing, according to her, repayment of moneys she has made to Ms Jones. In her affidavit, she states that these documents show repayments of at least $68,254. There is no table or schedule indicating how that amount has been calculated. In submissions, counsel for the appellant said that further checking led to a revised figure of $44,791. It seems that the revised figure came about because it was now accepted that certain amounts were paid as wages and not loan repayments. I note that Ms Sharp was paying a salary to Ms Jones, and, as stated above (see [94] above), that Ms Jones accepts that some limited repayments were made, although I acknowledge that the Federal Magistrate appears to have proceeded on the basis that only the initial loan of $5,000 was repaid. The problem with the cheque butts and other documents is that they are not sufficiently detailed for this Court to determine the amount which has been repaid. The Court was told that it was not easy even for Ms Sharp "to go through" the relevant documents. Secondly, Ms Sharp addresses many of the statements made by Ms Jones in her affidavit. In many instances she does so as if she were addressing a pleading in the sense that she states that some allegations are admitted and others are denied. Sometimes additional comments are made; on other occasions there is simply a statement that a paragraph is admitted or denied. This creates difficulties in knowing precisely what is denied. By way of example, the respondent referred to Ms Sharp’s response to Ms Jones’ assertion that she was to be paid $550 per week. It appears from this part of Ms Sharp’s affidavit that a number of the loans that Ms Jones alleges she made to Ms Sharp are denied. At the same time, it appears to be accepted by Ms Sharp that substantial moneys were lent to her by Ms Jones and that a substantial amount was unpaid as at the date of her bankruptcy. Thirdly, Ms Sharp addresses particular debts identified by the Federal Magistrate. As to the claim by Mr Bates she states that she paid Mr Bates $13,000 on the advice of her solicitor and after discussions that that was all to which he was entitled. Mr Bates later obtained judgment for about $23,000 and Ms Sharp states that she was duly paying him by instalments. As to Myuna Pty Ltd, Ms Sharp states that at the time of bankruptcy only $1,200 was owing to that company, but "I have been paying them instalments". As to Capital Finance, Ms Sharp states that she had been making payments on advice from Mr Bates and continued to pay up to the week of her bankruptcy. As to the debt to Melissa and Daniel Clode, Ms Sharp states that she paid the debt in full in 2001. As to the debt to SA Brown Pty Ltd, Ms Sharp states that that debt was paid in full in about 2000. As to the alleged debts to Cushla Morris, Sonja’s Italian Shoes Pty Ltd, Tony Welfare Formal Hire Pty Ltd and Cai Qin Shen, Ms Sharp states that all debts were paid in full. As to the debt to Carriage & Co, Ms Sharp states that that debt was paid in full. As to debts to Lion Finance Pty Ltd, National Australia Bank and Credit Union of Canberra, Ms Sharp states that "these were paid up to date to the week of her bankruptcy".

112 Counsel for the appellant told the Court that Ms Sharp was present at the hearing of the appeal and available for cross-examination by counsel for the respondent. However, that would not resolve the dispute (even if it were otherwise appropriate to adopt that course) because the fact-finder would also need to consider the evidence of Ms Jones and perhaps hear other evidence before resolving areas of dispute. It is for this reason that it is clear that if the further evidence were received the only order the Court could make would be an order for a remittal and retrial.

113 I turn now to examine the application to adduce the proposed further evidence in light of the relevant principles.

114 First, in this case there are no interests of third parties to be taken into account. The interests of the creditors of Ms Sharp are represented by the respondent as trustee in bankruptcy of her estate. Ms Sharp as the bankrupt has no interests affected by the orders of the Court. Neither the fact that she might be upset by the findings made by the Federal Magistrate, nor that because of an arrangement with the appellant she occupies the property (if that be the fact) and that the occupancy might come to an end as a result of the orders made give rise to a relevant third party interest for present purposes. The orders of the Court affect the respondent and creditors of the bankrupt estate on the one hand and the appellant on the other.

115 Secondly, the evidence of Ms Sharp was available to be called at trial. In fact, she had given instructions to the appellant’s solicitors in relation to an important aspect of the evidence which is now put forward as further evidence, that is, her response to statements made by Ms Jones in her affidavit (see [106] above). It seems that Ms Sharp was not called as a witness at the hearing because a forensic decision was made not to call her, although it is not clear why that decision was made. It may have been because it was considered that she would not add very much to the appellant’s case or it may have been because it was considered her evidence might damage the appellant’s case. On the appellant’s account of events he acquiesced in a decision made by his legal advisers although he had reservations as to whether it was the correct decision. I must say that having regard to some of the documents put before the Court, were the question to be fully explored by way of cross-examination it is difficult to predict the findings which would be made about the appellant’s involvement in the decision not to call Ms Sharp. For present purposes I am prepared to assume that the decision not to call Ms Sharp was a forensic decision made by the appellant’s legal advisers.

116 Thirdly, the appellant has not established that the further evidence will lead to a different result from that reached by the Federal Magistrate, or is likely to do so. In fact, the evidence falls a long way short of doing that. It is convenient to examine the matter by reference to the three categories of evidence identified by the Federal Magistrate.

117 In relation to the first category, being the debts of Ms Sharp to Ms Jones, it is clear on any view of the evidence that substantial amounts were lent to Ms Sharp by Ms Jones. In her Report of Affairs, Ms Sharp identifies the amount owing to Ms Jones as $150,000, an amount which would negate, or nearly negate, the value of the business. Ms Jones refers to a larger amount. The evidence in Ms Sharp’s affidavit is unsatisfactory in at least two respects. First, it is unsatisfactory in terms of her allegation as to the repayments she says were made to Ms Jones because it is very hard, if not impossible, from the documents put forward to form a clear picture as to what happened and that is in a context in which Ms Jones accepts that some limited repayments were made. Secondly, it is unsatisfactory because it is not helpful in terms of forming a clear picture of the facts for her to respond to a number of Ms Jones’ statements as if her affidavit were a pleading. It is for the appellant to prove that the further evidence will or is likely to produce a different result. The appellant submitted that if Ms Jones is shown to be untruthful on one aspect of her evidence, that is, the repayments made by Ms Sharp, that might affect the fact-finder’s view of her credit on the question of whether she made what the Federal Magistrate said were verbal demands for repayment. That is a possibility but that is not enough to satisfy the test. In any event, there is very little to challenge the conclusion from Ms Jones’ evidence that Ms Sharp was required to borrow substantial sums from her because of the financial difficulties she was experiencing.

118 In relation to the second category, being Ms Sharp’s debts to Mr Bates, I do not think the further evidence advances the appellant’s case. Ms Sharp does not deny writing the facsimile to Mr Bates dated 17 July 2002. Furthermore, her affidavit does not make clear when she entered into an instalment plan with Mr Bates. That was a matter that the Federal Magistrate said was not clear on the evidence before him. In addition to these matters, I note Ms Sharp does not suggest that the Federal Magistrate’s conclusion that four of her cheques were dishonoured in August 2003 is incorrect.

119 In relation to the third category, being the other evidence of Ms Sharp’s financial circumstances, I have summarised Ms Sharp’s allegations in response to the Federal Magistrate’s findings in [111] above.

120 I do not think that it can be concluded that Ms Sharp’s evidence will or is likely to lead to a different conclusion on these matters or at least the great majority of them. There are a number of problems with Ms Sharp’s evidence not the least of which is the lack of particularity as to, for example, when and how debts were repaid. There is a good deal of force in the respondent’s submission that some of Ms Sharp’s responses are so vague as to be meaningless or almost so. Furthermore, and by way of example, the assertion that the debt owed to S A Brown Pty Ltd was paid in full in about 2000 seems to contradict a statement issued by that company and put before the Federal Magistrate. It may also be observed that the fact that a person is entering into instalment arrangements, particularly in relation to small amounts, is some evidence that that person is, or may be, encountering financial difficulties.

121 In my opinion, in this case the matters which are relevant to an application to adduce further evidence point clearly to the conclusion that the further evidence should not be received.

122 The appellant’s application under s 27 of the Federal Court of Australia Act (1976) (Cth) that this Court receive further evidence should be refused. The appeal should be dismissed and the appellant should pay the respondent’s costs of the application and of the appeal.

I certify that the preceding one hundred and fourteen (114) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

Counsel for the Appellant:	Mr D Hassall

Solicitor for the Appellant:	Mamdouh Elmaraazey

Counsel for the Respondent:	Mr C Erskine

Solicitor for the Respondent:	Colquhoun Murphy

Date of Hearing:	1 November 2007, 2 November 2007

Date of Judgment:	3 April 2008

Federal Court of Australia - Full Court

Sharp v Rangott [2008] FCAFC 45 (3 April 2008)