Midland Imports v Asia Pacific [1999] NSWSC 12 (4 February 1999)

Last Updated: 18 February 1999

NEW SOUTH WALES SUPREME COURT

CITATION: Midland Imports v Asia Pacific [1999] NSWSC 12

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): 1940/98; 1941/98

HEARING DATE{S): 27 November 1998; 3-4 December 1998

JUDGDMENT DATE: 04/02/1999

PARTIES:

1940/98

Midland Imports Pty Ltd (Appellant)

v

Asia Pacific International Pty Ltd (Respondent)

1941/98

Midland Pty Ltd (Appellant)

v

Asia Pacific International Pty Ltd (Respondent)

JUDGMENT OF: Austin J

LOWER COURT JURISDICTION: Supreme Court (Master)

LOWER COURT FILE NUMBER(S): as above

LOWER COURT JUDICIAL OFFICER: Master McLaughlin

COUNSEL:

Michael Foley (solicitor) (Appellant)

Gordon McGrath (Respondent)

SOLICITORS:

Foleys, North Sydney (Appellant)

Brown & Fowler, Southport, by their Sydney agents L S Davis & Associates (Respondent)

CATCHWORDS:

Appeal - Master - consent orders - grounds for appeal - procedure for challenging validity of consent

Corporations Law - statutory demands - Court's power to vary

ACTS CITED:

Supreme Court Act 1970 (NSW), ss.75A, 101

Supreme Court Rules (NSW), Part 60 Rule 10

Corporations Law, s.459G(4)

DECISION:

Appeal dismissed

JUDGMENT:

CASES CITED:

Ainsworth v Wilding [1896] 1 Ch 673

Deputy Commissioner of Taxation v Chamberlain [1990] FCA 71; (1990) 26 FCR 221

Chandless-Chandless v Nicholson [1942] 2 KB 321

Doyle v Tutt (1997) 42 NSWLR 10

General Credits Ltd v Ebsworth [1986] 2 QdR 162

Harvey v Phillips [1956] HCA 27; (1956) 95 CLR 235

Kinch v Walcott [1929] AC 482

N T Resorts Pty Ltd v Deputy Commissioner of Taxation (1998) 16 ACLC 957

Paino v Hofbauer (1988) 13 NSWLR 193

Rogers v Curnow (1979) 22 SASR 204

Siebe Gorman & Co Ltd v Pneupac Ltd [1982] WLR 185

Sky-Ridge Pty Ltd (In Liq) v Burlington Pty Ltd [1995] TASSC 103; (1995) 4 Tas R 485

Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691

Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422

Tutt v Doyle (1997) 42 NSWLR 10THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

AUSTIN J

4 FEBRUARY 1999

1940/98 MIDLAND IMPORTS PTY LTD V ASIA PACIFIC INTERNATIONAL PTY LTD

1941/98 MIDLAND PTY LTD V ASIA PACIFIC INTERNATIONAL PTY LTD

JUDGMENT

The Proceedings

1 By a deed of loan dated 12 December 1997, the defendant/respondent in these two proceedings (`Asia Pacific') made a loan to Midland Pty Ltd, the plaintiff/appellant in proceedings number 1941 of 1998 (`Midland'). By the same instrument two individuals and Midland Imports Pty Ltd (`Midland Imports') guaranteed Midland's obligations as borrower. Midland Imports is the plaintiff/appellant in proceedings number 1940 of 1998. Security for the loan included a mortgage over real property of Midland Imports. Asia Pacific served a statutory demand on each of Midland and Midland Imports on about 10 March 1998 under s.459E of the Corporations Law, claiming a debt for the balance of principal and interest owing under the deed of loan.

2 On 3 April 1998 each of Midland and Midland Imports applied in separate proceedings to set aside the statutory demand made against it. The two sets of proceedings came before Master McLaughlin on 6 August 1998. He made orders by consent, dismissing each summons and varying the amounts of the statutory demands. Subsequently Midland and Midland Imports have each appealed from the Master's determination of their respective proceedings, notwithstanding that the Master's orders were made by consent.

3 The matters have accordingly come before me as appeals by Midland and Midland Imports from the Master's decisions, under Pt 60 rule 10 of the Supreme Court Rules. There is also a notice of motion filed on behalf of Asia Pacific for dismissal of the appeal in matter No. 1940 of 1998, but the motion was not separately dealt with.

4 Part 60 rule 10 confers a right of appeal from any `decision' of a master, with an exception which is not presently relevant. The word `decision' is defined in Pt 60 rule 1 to include an order, direction or determination. The Master's orders of 6 August 1998 constituted decisions by him within this definition, notwithstanding that they were made by consent. Section 101(2)(c) of the Supreme Court Act 1970 (NSW) states that an appeal does not lie to the Court of Appeal, except by its leave, from a judgment given or order made in proceedings in the Court with the consent of the parties. However, this provision is in terms confined to appeals to the Court of Appeal, and does not apply to an appeal from the Master to the Court constituted by a Judge.

5 The pleadings and affidavits in the two sets of proceedings are virtually identical, making allowance for the fact that in one case the plaintiff/appellant is the borrower and in the other case the plaintiff/appellant is the guarantor. In each case the Notice of Appeal alleges that the Master erred in four different ways, which I shall discuss later in this judgment. When the matters came before me on 27 November 1998 the appellants' solicitor made some submissions which raised grounds for appeal not stated in the Notice of Appeal. He sought, inter alia, to challenge the validity of the consent upon which the Master's orders were based, and to contend that Asia Pacific had acted unconscionably on 6 August 1998. It seemed to me that the proper way to advance and support these contentions would be in proceedings to set aside the agreement which constituted the consent upon which the Master's orders were made, and that it was inappropriate to seek to do so in an appeal against the Master's orders. I therefore made directions in each matter that the appellant initiate proceedings to set aside the Master's orders, and that the parties file and serve affidavit evidence in accordance with a very short timetable. When the matter returned to me on Friday 4 December 1998 the appellants had not complied with these directions but sought leave to file and read an affidavit sworn by Kerry Abadee on 3 December 1998 as additional evidence in the appeals. I admitted the additional evidence and, the hearing of the appeals having been concluded, reserved my decision.

6 I had already admitted additional evidence at the hearing of the appeals - principally two further affidavits by Gregory Huxley, a director of the appellants. The first, sworn on 20 September 1998, was relevant to the question of validity of the consent of the appellants to the Master's orders. The second, sworn on 6 October 1998, was relevant to a contention made in the appeal, though not before the Master, that neither the principal sum nor interest was owing at the time of service of the statutory demands. There are issues, discussed below, as to whether either of these matters may be properly raised in an appeal, but as those issues are not clear cut, I decided that the appropriate course was to admit the additional evidence on the ground that it was relevant to those matters. Section 75A(8) of the Supreme Court Act 1970 (NSW) restricts the admission of further evidence when the appeal is from a judgment after a trial or hearing on the merits; obviously different considerations apply when the appeal is from consent orders made without receiving any evidence.

Facts

7 The facts of the two matters, so far as relevant to the various grounds of appeal, are as follows. With the assistance of an agent, Midland negotiated a loan from Asia Pacific, as trustee for the Planet Securities Unit Trust, in the sum of $200,000 in December 1997. The loan was a short term bridging loan, repayable in full in February 1998, two months after it was made. The effective interest rate for the loan was 13.87% per calendar month, the `default' rate being 20% per calendar month. The schedule to the deed of loan states that instalments of interest at the lower rate are to be paid monthly in advance in the sum of $38,408, provided that the two months' interest for the term of the loan totalling $76,816 are to be paid on the advance date. In fact those two months' interest in advance were borrowed, so that the total amount of the loan at the advance date was $276,816.

8 Midland failed to repay the advance of $276,816 on the due date for repayment. An extension of time was negotiated but apart from a sum of $21,000, no further payment was made. On about 10 March 1998 Asia Pacific served the statutory demands on both Midland and Midland Imports, claiming $311,479.20 for outstanding principal and interest. Subsequently a notice of default dated 20 March 1998 was issued by Asia Pacific under s.111(2)(b) of the Conveyancing Act 1919 (NSW) and s.57(2)(b) of the Real Property Act 1900 (NSW), claiming the same principal amount and also interest of $110,726.40, together with costs of $300.

9 In his affidavit in support of the summons to set aside each demand, Mr Huxley asserted that the demand was defective for failing to specify an address for service in New South Wales, and that the amount of interest claimed in the statutory demand represented a penalty rate of interest and was void. He also asserted that the calculation of interest was defective because the due date was 15 rather than 11 February, the plaintiffs paid interest of $21,000 rather than $20,700 as acknowledged in the demands, and the interest calculated in the demands was not in accordance with the agreed rate and was inconsistent with the notice of default. Mr Huxley also asserted that Midland and Midland Imports had a cross-claim against the agent who introduced them to Asia Pacific, on a ground related to an undisclosed commission. This last matter was elaborated in his further affidavit sworn on 29 July 1998. Asia Pacific filed three affidavits by their solicitor to provide evidence in rebuttal, sworn 28 April, 13 July and 3 August 1998.

10 At the hearing of the applications to set aside the statutory demands, Gordon McGrath of counsel represented Asia Pacific, and Kerry Abadee, a solicitor employed by Bartier Perry, represented Midland and Midland Imports. There is a transcript of the proceedings before the Master, and the affidavit by Ms Abadee dated 3 December 1998 gives a fuller account of what transpired. According to Ms Abadee's affidavit, what was said was to the following effect:

Ms Abadee: These matters relate to a loan by the defendant. There is a dispute about the interest payable in respect of the loan.

Master: What amount is owing?

Ms Abadee: I have no instructions, Master.

Master: What amount is owing Ms Abadee?

Ms Abadee: I have no instructions, Master.

Master: Ms Abadee this is unacceptable. I cannot set this matter down for hearing until I know what amount your client says it owes to the defendant.

Ms Abadee: An amount of $200,000 was advanced by the defendant to Midland. To date that amount has not been repaid.

Master: Ms Abadee, why should your client not be wound up now? Your client admits it owes $200,000 and chooses not to pay.

Ms Abadee: There is an argument available that no amount is owing. The money might not have been borrowed on its terms because of certain misrepresentations made before the money was advanced.

Master: Your client owes $200,000 and chooses not to pay it. This is a reprehensible approach. When can you obtain instructions as to when the plaintiff will pay that amount?

Ms Abadee: I do not know if my client is contactable.

Master: Well, where is your client? In Sydney?

Ms Abadee: In Sydney.

Master: Well, I suggest you get immediate instructions as to when the money can be paid.

Ms Abadee: I point out there are two separate companies, the loan may not have been entered into had these representations not been made.

Master: Have your clients commenced proceedings in respect of those misrepresentations?

Ms Abadee: No.

Mr McGrath: The plaintiff does point to a number of defects in the statutory demand. It is by no means perfect. I think the appropriate course is for the plaintiff to obtain instructions.

11 The matter was stood down in the Master's list and Ms Abadee obtained instructions from her clients. Subsequently she and Mr McGrath signed handwritten short minutes of order for each matter, and the Master made the orders and noted the matters referred to in those documents. In matter No. 1940 of 1998 the short minutes were as follows:

`By consent:

1. Vary the amount of the statutory demand for payment of debt dated 9 March 1998 to $200,000.

2. Plaintiff to pay the defendant's costs as agreed or taxed.

3. Summons dismissed.

Note the agreement of the parties:

(a) Payment of the $200,000 in compliance with the statutory demand as varied in proceedings number 1940 of 1998 be taken as compliance with the statutory demand as varied in proceedings number 1941 of 1998.

(b) There be no estoppel as to the issue of another statutory demand for the balance of the sum claimed in the statutory demand dated 9 March 1998 by the defendant against the plaintiff or otherwise.'

The short minutes in matter number 1941 of 1998 were identical except for the changes to the matter numbers.

Written Grounds of Appeal

12 In each matter the appellant filed a Notice of Appeal on 4 September 1998 setting out four grounds of appeal, namely:

1. The Master erred in making an order to the effect that the appellant was indebted to the respondent in the amount of $200,000 for the purposes of Pt 5.4 of the Corporations Law whilst the respondent can still retain the appellant's real property as security for such further sum that the respondent alleges may be due and owing pursuant to its mortgage.

2. The Master erred in not making an order or finding that any debt pursuant to the mortgage was a contingent debt only for the purposes of Pt 5.4 of the Corporations Law until such time as the true amount due as between the parties pursuant to the mortgage was established and the respondent had taken the appropriate enforcement proceedings to realise the real property security that it holds.

3. Alternatively to paragraph 2, the Master erred in not making an order finding for the purposes of Pt 5.4 of the Corporations Law the true amount due as between the parties pursuant to the mortgage.

4. The Master erred in not making the necessary ancillary orders that would allow the appellant a reasonable time to be able to discharge the mortgage and redeem its security upon the payment of the true amount due and owing on the mortgage.

13 Assuming for the moment that the parties validly consented to the orders which were made (an issue which I shall consider later), in my opinion the fact of their consent is a short but complete answer to all four of the written grounds of appeal. On that assumption, the Master made the orders which were made because the parties consented, and he made no other orders because the agreement of the parties reflected in their consent did not require that other orders be made. The parties to the proceedings are sui juris. The Master followed the normal course of making orders on the basis of the consent of the parties signified by the signatures of their legal representatives to the draft short minutes of orders.

14 In certain special circumstances it is proper for a court to refuse to make orders requested by consent of all parties, those circumstances being conveniently summarised in Ritchie's Supreme Court Procedure (Butterworths, looseleaf), paragraph [s 101.6], at page 1164.2. Here, however, there was nothing on the face of the draft short minutes to suggest that the consent of the parties was defective; or that the orders were contrary to legal principle, or vague or uncertain; or that the Court had no jurisdiction to make them; or that there was any condition precedent to the exercise of the Court's jurisdiction or any special responsibility for the Court to make its own determination independently of the consent of the parties; or that the public interest prevented the Court from giving effect to the private agreement of the parties. There was accordingly no basis for the Master to decline to make the orders requested by consent of the parties, and no basis for contending on appeal from the Master's orders that he made an error of law or some other appealable error in making the orders which he made - assuming, as I have said, that the agreement signified by the parties' consent was valid.

15 In my opinion the orders made by the Master were of a kind which could have been made by the Court without the consent of the parties, had the two matters been fully heard. By clause 4 of the deed of loan Midland as borrower covenanted to pay Asia Pacific as lender the debt and all interest accruing on or before 11 February 1998. The covenant to repay the principal and interest was not expressed to be contingent in any way. The word `debt' was defined in clause 1(c) to include all advances outstanding. Clause 7(c) empowered Asia Pacific to recover the debt by exercising its rights under the agreement constituted by the deed or any collateral securities without prejudice to and without reference to Asia Pacific's rights under any other such instrument. By clause 8(m) neither the making of the agreement constituted by the deed or any other matter or thing was to extinguish, postpone or prejudice any other security or charge at any time held by Asia Pacific and no other such security or charge was to affect the agreement.

16 As a matter of contract, therefore, recoverability of moneys owing under the agreement was not contingent on the existence or release of any collateral security, or some subsequent calculation of the true amount owing, or the enforcement of any collateral security, or the allowance of time to the borrower to redeem the security. It follows that, to the extent that the amounts claimed in the statutory demands or pursuant to the Master's orders were based on the agreement constituted by the deed of loan, the terms of the agreement are inconsistent with the four grounds stated in the Notices of Appeal.

17 In an application to set aside a statutory demand served under s.459E of the Corporations Law, the Court does not normally determine whether the debt claimed in the statutory demand is owing, or whether the enforcement of the claim to payment may affect or be affected by any collateral security which the claimant may hold. The issue for the Court to determine is whether the statutory demand, failure to comply with which may give rise to a presumption of insolvency under s.459C, should be allowed to stand or be modified or set aside on any of the grounds specified in the Corporations Law. As Finkelstein J said in N T Resorts Pty Ltd v Deputy Commissioner of Taxation (1998) 16 ACLC 957, 959, there are in essence four grounds for applying to set aside a statutory demand: namely, that there is a genuine dispute about the existence or the amount of the debt (s.459H(1)(a)); or there is a genuine counter-claim, set-off or cross-demand that is equal to or exceeds the amount of the debt (s.459H(1)(b)); or that there is a defect in the demand and substantial injustice will be caused if the demand is not set aside (s.459J(1)(a)); or that there is some other reason why the demand should be set aside (s.459J(1)(b)). In the present cases the statutory demands were challenged as defective because they failed to state an address for service in New South Wales, but it is hard to see how that defect could lead to substantial injustice permitting the demands to be set aside under s.459J(1)(a). The other challenges to the statutory demands, stated in Mr Huxley's affidavits of 3 April and 29 July 1998, appear to relate to whether there is a genuine dispute about the existence or the amount of the debt. In my opinion it would have been open to the Court to conclude, after hearing the evidence, that even if those objections to the demands were made out, at least $200,000, the principal amount borrowed, was immediately repayable. Thus, the fact that the deed of loan may have imposed an unlawful penalty rate of interest would be unlikely to prevent restitution of the principal amount lent. Nor would the fact that interest may have been wrongly calculated in the statutory demands. Nor the fact that the borrower and guarantor may have been misled in some fashion by misrepresentations or failure to disclose an agent's commission, for if the loan agreement were to be set aside for misrepresentation it would probably be on terms that the borrower make restitution of at least the principal amount borrowed.

18 Section 459H(1)(a) requires the Court to determine whether there is a genuine dispute about the existence or amount of a debt to which the demand relates. If the Court is satisfied that such a genuine dispute exists, it has a statutory duty to calculate the substantiated amount of the demand in accordance with the formula set out in s.459H(2). This requires the Court to determine the admitted amount of the debt. If, had he heard the case, the Master had accepted all the arguments by Midland and Midland Imports other than arguments about defects in the demands themselves, he would have been obliged to ascertain the admitted amount of the debt and may well have concluded that, whatever be the position with respect to the amount of interest claimed, the principal amount of the loan in the sum of $200,000 was an admitted amount of debt and therefore the substantiated amount of the demand for the purposes of s.459H(2). Once that conclusion had been reached, the Master would be empowered by s.459H(4)(a) to make an order varying the demands to $200,000 in each case. That is in fact what he did by the consent orders which he made on 6 August 1998.

19 When the Court makes an order varying the amount of a statutory demand under s.459H(4)(a), it is desirable in the interests of clarity for the Court to make an additional order under s.459H(4)(b) declaring whether the demand is to have had effect, as so varied, as from when the demand was served on the company. Such an order was not made in this case, but it has not been submitted that the absence of such an order would ipso facto affect the validity of the orders which were made. Letters were exchanged by the solicitors for the parties on 11 August 1998, the effect of which was that the parties agreed that the time for compliance with the statutory demands, as varied, commenced to run on 6 August 1998 when the orders were made. In view of this correspondence, neither party suffered any prejudice by virtue of the absence of orders under s.459H(4)(b).

Oral Submissions for Appellants

20 At the hearing of the appeals on 27 November 1998, Midland and Midland Imports were represented by Mr Foley, solicitor, who supported the appeal on broadly four grounds. Although to a degree the grounds developed in his oral submissions may have arisen out of the written grounds in the Notices of Appeal, I believe it is best to treat them separately in the interests of clarity. In view of the conclusion I have reached in these cases, it is not necessary for me to consider whether any consequences should flow from discrepancies between the written grounds of appeal and the oral argument at the hearing of the appeals.

21 Mr Foley relied on these submissions:

a) the amount claimed in the statutory demands was not due and payable at the time they were served;

b) there was no valid consent by the parties to the orders which the Master made;

c) the Master applied undue pressure to the solicitor who appeared for Midland and Midland Imports;

d) Asia Pacific's conduct on 6 August 1998 was unconscionable.

22 The first of these submissions is that the amount claimed in the statutory demands and, specifically, the principal amount of $200,000, was not due and payable when the demands were served on about 10 March 1998. Mr Foley submitted that an arrangement was in place, evidenced by a letter of Christopher Carmody on behalf of Asia Pacific to Mr Huxley dated 27 February 1998, according to which the principal amount of the loan would not become due and payable while interest continued to be paid. Mr Foley submitted that interest was paid either up to 25 March 1998 or up to 1 April 1998, depending on which of two alternative methods of calculation set out in Mr Huxley's affidavit of 6 October 1998 is adopted.

23 There is a dispute about the exact dates of the making of the loan and the due date for repayment. Midland and Midland Imports say that the date of the advance was 15 December 1997, not 12 December 1997 as shown in the schedule to the deed of loan. Therefore the due date for repayment was 15 February 1998 rather than 11 February 1998, as shown in the schedule. They point to the letter from Christopher Carmody to Mr Huxley dated 27 February 1998 as evidence that Asia Pacific acknowledged that the later dates were the correct ones (affidavit of Mr Huxley sworn on 3 April 1998, annexure C). Asia Pacific says that the loan funds were remitted to its solicitors' trust account on 12 December 1997, but the borrower had not satisfied the requirements for the loan and accordingly the funds could not be advanced on that date. The outstanding requirements were satisfied on behalf of the borrower on 15 December 1997 and the funds were transferred in accordance with the borrower's direction on that day. Asia Pacific says that the date of drawdown of the funds was accordingly 12 December 1997, and that the schedule to the deed of loan is therefore correct; any delay in remittance of funds to the borrower was the result of the borrower's failure to satisfy the requirements attaching to the advance; Mr Carmody wrote his letter to Mr Huxley at a time when the facts surrounding the reason for delay in the advance were not known to him (affidavit of David Christopher Brown of 3 August 1998, paragraph 4).

24 Midland and Midland Imports say that the amount of $38,808 per month specified in the schedule to the deed of loan in fact represents an interest rate of 19.2% per month on a mortgage loan advance of $200,000. If a correct calculation were to be made at the interest rate of 13.87% per month, the amount of $76,816 would constitute payment of interest for a period of 84 days from the date of the mortgage advance (Mr Huxley's affidavit sworn on 6 October 1998).

25 On 18 February 1998 Midland paid an amount of $21,000 on account of interest at the request of the mortgagee. There is also a dispute about this amount, Asia Pacific claiming to be entitled to deduct $300 for legal expenses and to give credit for only $20,700 towards the payment of interest.

26 Midland and Midland Imports claim that the combined effect of the 3-day deferral of the advance date and the capitalisation of $76,816 for interest and the payment of $21,000 is that as a matter of mathematical calculation, interest was paid up at the rate of 13.87% until at least 1 April 1998 on a capital amount of $200,000, and at least 25 March 1998 on a capital amount of $276,816. Consequently nothing was due and payable at the time when the demands were served.

27 In the N T Resorts case, referred to above, Finkelstein J considered an application to set aside a statutory demand on the ground that the debt was not due and payable, because it was alleged that the creditor had given the debtor an extension of time which had not passed when the statutory demand was served, though the debtor admitted that the amount became due and payable subsequently. His Honour took the view that in such circumstances the challenge to the demand fell to be considered under s.459J(1)(b). Claiming the debt before it was due and payable did not amount to a `defect' in the demand under s.459J(1)(a). He said that for the purposes of s.459J(1)(b) there would be `some other reason why the demand should be set aside' if the Court were to be satisfied that there was a genuine dispute about whether the debt to which the demand related was due and payable at the time when the demand was served. I respectfully agree. In the present case, however, this ground for challenging the statutory demand was not advanced in any pleadings or affidavits filed on behalf of Midland and Midland Imports prior to the hearing before the Master on 6 August 1998. It appears from the transcript and the affidavit of Ms Abadee of 3 December 1998 that this ground was not advanced at the hearing itself. If the matter had been raised for the first time at the hearing before the Master, the interests of justice would have required that Asia Pacific be given the opportunity to adduce evidence with respect to the alleged arrangement and the calculation of interest before the question could be properly addressed by the Court. In any case, orders were made by consent which disposed of the proceedings. Unless the consent is vitiated, my opinion is that it is not open to the appellants to raise the issue in the context of an appeal.

28 Mr Foley's second ground is that there was no valid consent by the parties to the orders which the Master made. He put this matter in two ways. First, he said that the orders which were made were in substance proposed by the Court and merely accepted by his clients, and there was no underlying bargain between the parties prior to the making of the orders. He relied on two cases, both of which explore the meaning of `consent' for the purposes of the proposition that an appeal does not lie without leave against an order made by consent of the parties (a proposition arising out of case law in the circumstances of the first case, and enshrined in a statute applicable in the circumstances of the second case). In Rogers v Curnow (1979) 22 SASR 204, 207 Zelling J drew a distinction between an order of the Court which embodies a compromise agreed to by the legal representatives of the parties or by a pre-existing agreement between the parties, reflecting in each case a bargain made between the parties or on their behalf, and the mere acceptance by the appellant of the orders offered by the Court. In Sky-Ridge Pty Ltd (In Liq) v Burlington Pty Ltd [1995] TASSC 103; (1995) 4 Tas R 485, 494 Underwood J referred to Chandless-Chandless v Nicholson [1942] 2 KB 321 where the English Court of Appeal drew a distinction between a consent order `in the technical sense', where the order reflects a contract made by or on behalf of the parties, and an order which merely embodies provisions to which neither party objects. He also drew attention to Siebe Gorman & Co Ltd v Pneupac Ltd [1982] WLR 185, 189 where Lord Denning MR saw the question as being whether the order evidences a real contract between the parties, or is merely an order made without objection. Underwood J also identified cases where the parties' consent is a factor in the exercise of the judicial discretion but is not the only factor, in which case the orders of the Court are not properly described as consent orders.

29 In the present case the Master made it emphatically clear to Ms Abadee that if the plaintiffs in the two cases acknowledged an indebtedness for at least $200,000, he could not see the justification for hearing their application to set aside the statutory demands entirely rather than merely to vary them. But he then stood the matter down in his list and did not purport to dictate or impose the terms of any orders which would be made. He left it to the parties to obtain instructions. When he returned to the matter he was informed that the legal representatives of the parties had obtained instructions to consent to orders in the form of draft short minutes of orders which were handed up, duly signed by both of them. The Master did not have any part in drafting the short minutes. He made the orders in terms of the short minutes as orders made by consent.

30 The Master proceeded on the basis that there was a real bargain between the parties and the parties by their legal representatives proceeded on the basis that they had made an agreement to be embodied in the orders. On the facts, therefore, this was not a case where the parties merely accepted orders offered by the Court or the Court merely made orders to which neither party objected. While there is an issue (discussed below) as to whether the parties' bargain was vitiated by unilateral mistake, there was nothing before the Master to suggest to him that the bargain was deficient in any way. While the orders varying the statutory demands were made in the exercise of the judicial discretion conferred by s.459H(4), the exercise of that discretion was the result of the parties' consent and in view of the presence of that consent, there was no other factor which needed to be taken into account. The orders were made to perfect the pre-existing contract represented by the parties' consent to the disposition of the proceedings. I therefore reject Mr Foley's contention that the orders were merely accepted by his clients without any underlying bargain between the parties.

31 Mr Foley also submitted that, if there was a contract entered into by the legal representatives of the parties on behalf of their respective clients, that contract was vitiated by a mistake on the part of his clients which entitles them to have it set aside. Harvey v Phillips [1956] HCA 27; (1956) 95 CLR 235, 243-4, is authority for the proposition that if the legal representatives of the parties consent to orders with their clients' actual authority, the question whether their contract is to be set aside depends on the existence of a ground which would suffice to render a simple contract void or voidable or to entitle a party to equitable relief against it: see also General Credits Ltd v Ebsworth [1986] 2 QdR 162, 165; Deputy Commissioner of Taxation v Chamberlain [1990] FCA 71; (1990) 26 FCR 221, 230; Paino v Hofbauer (1988) 13 NSWLR 193, 198, 200-201. Mr Foley said that the unilateral mistake lay in his clients' understanding that the security held by Asia Pacific for repayment of the loan would be released, so that they could offer security over that property to permit them to raise $200,000 to meet the varied amount of the statutory demands. In his submission, it would be illogical for them to have agreed to orders having the effect of obliging them to pay $200,000 to Asia Pacific, while leaving their property secured to Asia Pacific to meet its disputed claim for interest (see Mr Huxley's affidavit sworn on 20 September 1998).

32 According to Ms Abadee's affidavit of 3 December 1998, Mr McGrath said to her before the orders were made `we will want to keep our security' and she made no response. The orders which were then made contained no reference to the security. Ms Abadee wrote to Asia Pacific's solicitors on 11 August 1998 stating that in order to pay the $200,000, it would be necessary for her clients' incoming mortgagee to take the security then held by Asia Pacific, and seeking confirmation that Asia Pacific would release its security. By a letter of the same date Asia Pacific's solicitors responded stating that their client would not release its security without payment of the outstanding debt in full, and setting out a calculation of the outstanding amount of the debt including interest, which according to them was $955,071.88 by that time. Ms Abadee also wrote to Mr Huxley on 11 August 1988 expressing the `preliminary view' that it would be unconscionable for Asia Pacific to make applications for winding up in circumstances where it was not willing to release its security to allow the debt to be paid.

33 The central principle of law governing the effect of unilateral mistake on a contract was set out by Mason ACJ, Murphy and Deane JJ in Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422, 432 as follows:

`a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension.'

34 The application of that principle requires the Court to embark on a factual inquiry as to whether the first party was indeed under a serious mistake in relation to a fundamental term of the contract, and as to whether the other party was aware of circumstances indicating the first party's misapprehension and deliberately sought to ensure that the first party did not discover its mistake. Even the wider principles to which Handley JA referred in Tutt v Doyle (1997) 42 NSWLR 10,14, require a substantial factual inquiry.

35 The evidence before me in the present case is too skimpy and incomplete for me to make the factual findings which would support a case of unilateral mistake, even if it were appropriate for me to do so in the context of the present appeals. Moreover, the procedure by which the issue comes before me is so far removed from the normal procedure for raising and testing such issues that there would be a serious risk of miscarriage of justice if I were to purport to deal with the matter at the present stage. The question of unilateral mistake was raised, evidently for the first time, in oral submissions in the appeal, and was put in a number of different ways in the course of argument. The appellants rely on the affidavits of Mr Huxley dated 20 September 1998 and Ms Abadee dated 3 December 1998, but the evidence of those witnesses has not been tested by cross-examination. The respondent has not provided affidavit evidence in reply. Evidently unaware of the possibility that an issue may arise upon which he might personally be called to give evidence, Mr McGrath has appeared before me as counsel for Asia Pacific.

36 There may be cases where it is appropriate to entertain an application to set aside the bargain upon which consent orders have been made, and consequently the orders themselves, in an appeal against the making of the orders. But I would have thought it unlikely that it would be appropriate to do so unless the grounds for setting aside the bargain have been notified to the respondent in a timely manner, and appropriate directions have been made for the filing of affidavits and the taking of other evidence. The usual and generally preferable course will be for separate proceedings to be commenced to set aside the bargain and consequent orders: Kinch v Walcott [1929] AC 482, 494; Ainsworth v Wilding [1896] 1 Ch 673; Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691.

37 In the present case there is nothing to induce departure from the normal course, although the matter is obviously one of considerable urgency. As earlier mentioned, after I heard the submissions of the parties on the appeals on 27 November 1998, I made directions which were intended to put the appellants' application to set aside the orders and the underlying bargain on a proper procedural footing. The appellants have not complied with those directions and consequently they have not taken up the opportunity to constitute separate proceedings to set aside the orders and the underlying bargain. In those circumstances, and for the reasons set out above, my opinion is that the evidence is insufficient for me to make the findings of fact necessary to set aside the orders and bargain on the ground of unilateral mistake, and further my opinion is that it would not be appropriate to do so in the proceedings as presently constituted.

38 The appellants also contend that Ms Abadee, their legal representative on 6 August 1998, was subjected to undue pressure by the Master. Mr Foley submitted to me that the Master `badgered' her, and `oppressed or frightened' her. He did not spell out the precise legal consequences which were alleged to flow from such conduct, but I am prepared to proceed on the basis that if the allegations were made out, the Master's conduct would constitute a ground of appeal whether or not it supplied the ingredients necessary to vitiate the bargain between the parties on the ground of duress or undue pressure. I find, however, that the Master's conduct was not oppressive or otherwise unfair, and therefore that this ground of appeal has not been made out on the facts.

39 It appears from the transcript and from Ms Abadee's affidavit of 3 December 1998 that the Master played a very active role in the hearing on 6 August 1998. In my opinion, however, the Master's response to the material placed before him was fair and proper. He was entitled to infer on the basis of the documentary material in the file and the submissions made to him that the grounds advanced by Midland and Midland Imports for disputing the debt would be most unlikely to lead to the consequence that they would have no obligation to repay the sum of $200,000 which Midland had received. At that stage it had not been contended that nothing had become due and payable at the time of service of the demands.

40 In those circumstances, the Master was right to perceive that if Midland and Midland Imports admitted to owing $200,000, the most they could hope for would be an order under s.459G(4) varying the demands down to that amount. That being so, I believe he was entitled to insist, as he did, that Ms Abadee obtain instructions as to whether her clients acknowledged that at least $200,000 was due and payable, and if so, whether both parties would consent to orders along the lines which were in fact made. This would give Midland and Midland Imports the best result which they could hope for, assuming they admitted a debt of $200,000 presently due and payable, while allowing Asia Pacific to take advantage of the statutory presumption of insolvency in proceedings for liquidation, if the demands were not met, and leaving the issue of indebtedness for interest totally at large. There was nothing to indicate that the Master considered the question of release of security, and it was unnecessary for him to do so.

41 Mr Foley also submitted that Asia Pacific acted unconscionably in the events which happened on 6 August 1998. He said that when the statutory demands were served, Asia Pacific was not entitled to serve demands, and it was unconscionable of it subsequently to stand by and allow orders to be made varying the statutory demands to $200,000, knowing they were defective and that its security would be retained for the balance claimed. Mr Foley relies on the judgment of Young J in Doyle v Tutt (Supreme Court of New South Wales, 16 September 1993), the appeal from which is reported at (1997) 42 NSWLR 10.

42 In Young J's judgment, under the heading `estoppel', his Honour referred to estoppel `in its most primitive form', estoppel by conduct. He said:

`If, for instance, a person stands by knowing that another person has made a mistake and acted to his or her detriment, then the first person is estopped from afterwards asserting the true facts.'

43 Mr Foley's submission is not made out on the facts before me in these appeals. It is true that according to the transcript and Ms Abadee's affidavit of 3 August 1998, Mr McGrath acknowledged that there were defects in the statutory demands, which were `by no means perfect'. However, according to s.459J(1)(a) defects in a statutory demand do not provide a ground for setting it aside unless the Court is satisfied that substantial injustice will be caused unless the demand is set aside. It was not in any way unconscionable for Asia Pacific by its counsel to seek orders varying the statutory demands even though the demands were acknowledged to be defective, since there was no acknowledgment that the defective demands would cause substantial injustice unless they were set aside. Moreover, Ms Abadee consented to the orders which were made after Mr McGrath conceded that the demands were defective. Nor was it unconscionable for Asia Pacific by its counsel to seek to retain the security which had been granted to it in respect of the interest as well as principal on the loan, while consenting to orders which varied the statutory demands, in the absence of evidence establishing that Mr McGrath knew that Ms Abadee had proceeded on a mistaken basis. The security had been granted at the time when the loan was made, and Mr McGrath made it clear before the draft short minutes were handed up to the Master that Asia Pacific would want to retain the security (see Ms Abadee's affidavit of 3 December 1998, paragraph 4).

44 Apart from the matters set out in the Notices of Appeal and the submissions made by Mr Foley at the hearing of the appeals, there is some evidence to suggest that the agent who assisted Mr Huxley to negotiate the loan from Asia Pacific, for a fee, also obtained a secret commission from Asia Pacific. Mr Huxley's affidavit of 29 July 1998 provides evidence to this effect. The factual contention was not developed or tested either before the Master or before me on appeal. But even if the facts were as alleged, it is far from clear that those facts would provide a basis for setting aside the deed of loan; and even if they did, it is likely that Asia Pacific would be entitled at least to restitution of the $200,000 principal sum which it lent. It would therefore not have been irrational for Midland and Midland Imports to acknowledge that $200,000 was owing notwithstanding the claim to non-disclosure of the commission. In any event, that admission was in fact made and they consented to Master McLaughlin's orders. The claim to non-disclosure of commission provides no basis for challenging the consent given on 6 August 1998.

Conclusion

45 My conclusion, therefore, is that none of the grounds of appeal advanced in the Notices of Appeal or in oral submissions is successful. The appeals in both matters should therefore be dismissed. I shall hear the submissions of the parties on costs, though I am disposed to order that the appellant in each matter pay the respondent's costs of the appeal.

LAST UPDATED: 04/02/1999