Bendigo and Adelaide Bank Limited v Watts
[2010] FMCA 623
•11 August 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BENDIGO AND ADELAIDE BANK LIMITED v WATTS & ANOR | [2010] FMCA 623 |
| BANKRUPTCY – Creditor’s petition – act of bankruptcy within six months of petition – interpretation of order extending bankruptcy notice until ‘first return date’ of notice of appeal from refusal to set aside notice – whether expired at appeal index conference or later call‑over – claims against Bank for selling security at an undervalue – assessment of merits and prospects of success – no sufficient cause for dismissing or adjourning petition – sequestration order made. |
| Bankruptcy Act 1966 (Cth), ss.41(6A), 44(1)(c), 52(2)(b), 52(3), 54(1) Corporations Act 2001 (Cth), s.420A Federal Court of Australia Act 1976 (Cth), ss.23, 25(2B)(ab) Federal Court Rules (Cth), O.10 rr.1(2)(h), 1(2)(h)(i), O.52 r.28A Federal Court (Bankruptcy) Rules 2005 (Cth), r.2.02, Sch.2 Legal Profession Act 2004 (NSW), s.347 |
| Adelaide Bank Limited v BMG Poseidon Corp Pty Limited [2008] NSWSC 68 BMG Poseidon Corp Pty Ltd v Adelaide Bank Limited; In the Matter of BMG Poseidon Corp Pty Ltd (No 2) [2009] FCA 404 Cain v Whyte (1933) 48 CLR 639 Davidova v Murphy [2009] FCA 601 Ebert v The Union Trustee Company of Australia Ltd (1960) 104 CLR 346 Glew v Harrowell of Hunt & Hunt Lawyers [2003] FCA 373, (2003) 198 ALR 331 Ling v Commonwealth of Australia (1996) 68 FCR 180 Ling v Enrobook Pty Ltd (1997) 74 FCR 19 Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540 Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 Re James & Anor; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No2) (1994) 51 FCR 14 Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 Repatriation Commission v Nation (1995) 57 FCR 25 Totev v Sfar [2006] FCA 470, (2006) 230 ALR 23 Universal Music Australia Pty Ltd v Sharman Networks Ltd (2006) 150 FCR 110 Vogwell v Vogwell (1939) 11 ABC 83 Watts & Anor v Adelaide Bank Limited [2010] HCATrans 70 Watts v Adelaide Bank Limited [2009] FCAFC 169 Watts v Adelaide Bank Limited [2009] FCA 420 |
| Applicant: | BENDIGO AND ADELAIDE BANK LIMITED (ACN 068 049 178) |
| First Respondent: | GAMBHIR WATTS |
| Second Respondent: | BHOJI WATTS |
| File Number: | SYG101 of 2010 |
| Judgment of: | Smith FM |
| Hearing date: | 11 August 2010 |
| Delivered at: | Sydney |
| Delivered on: | 11 August 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr T Mehigan |
| Solicitors for the Applicant: | Gadens Lawyers |
| Counsel for the Respondents: | Mr C Cassimatis |
| Solicitors for the Respondents: | PA Legal |
ORDERS
A sequestration order be made against the estates of GAMBHIR WATTS and BHOJI WATTS.
All proceedings under the sequestration order are stayed under s.52(3) of the Bankruptcy Act 1966 (Cth) for 21 days, on the following conditions:
(a)That Mr Watts shall deliver all his current passports to his trustee before 4pm on 12 August 2010, and shall not leave Australia without the permission of his trustee.
(b)That Mrs Watts shall return to Australia and deliver all her passports to her trustee no later than 4pm on 19 August 2010, and thereafter shall not leave Australia without the permission of her trustee.
(c)That Mr and Mrs Watts before 4pm on 25 August 2010 shall file with the Official Receiver and furnish to their trustee statements of their affairs in accordance with s.54(1).
(d)That Mr and Mrs Watts shall not enter into nor incur any new liability exceeding the amount of $5,000, or such other amount as is agreed upon by their trustee.
The applicant creditor’s costs, including all reserved costs, be taxed and paid from the estate of the respondent debtors in accordance with the Bankruptcy Act 1966 (Cth).
Note that the date of the act of bankruptcy is 29 July 2009.
Note that a consent to act as trustee has been signed by Scott Pascoe and has been lodged with the Official Receiver in Sydney.
The applicant must within 2 days give a copy of this order to the Official Receiver in Sydney.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG101 of 2010
| BENDIGO AND ADELAIDE BANK LIMITED (ACN 068 049 178) |
Applicant
And
| GAMBHIR WATTS |
First Respondent
| BHOJI WATTS |
Second Respondent
REASONS FOR JUDGMENT
(revised from transcript)
In this judgment, I explain my reasons for making a sequestration order today in relation to the estates of Mr and Mrs Watts, on the petition of Bendigo and Adelaide Bank Limited (“the Bank”) filed on 20 January 2010. The petition was brought after a long history of litigation between Mr and Mrs Watts and the Bank. In the present proceedings, they do not dispute the debt relied upon in the petition, nor the validity of the bankruptcy notice served upon each of them, but make two contentions in opposition to the petition.
The first is that the petition was not brought within six months after the actual date of the act of bankruptcy relied upon in the petition, being the earliest date of their non‑compliance with the specified bankruptcy notices. Their second contention is that the Court should be satisfied within s.52(2)(b) of the Bankruptcy Act 1966 (Cth) that there is “other sufficient cause” for not making a sequestration order, and that this should provide a discretionary reason for dismissing the petition. In particular, Mr and Mrs Watts point to further litigation which they have recently commenced against the Bank.
The Court also has power, which in some cases is exercised in the context of claims invoking s.52(2)(b), to adjourn a petition to await developments in pending litigation in other courts. No clear application for such an adjournment was made today. In any event, if there were such an application before me, I would not have granted an adjournment since, for reasons which will emerge, the balance of discretionary considerations in the matter favour the making of a sequestration order today, and not deferring further consideration to an uncertain later date during the potential life of the petition.
The background to the matter
The indebtedness of Mr and Mrs Watts to the Bank arises in circumstances which have been detailed in several previous judgments. In particular, I would gratefully adopt the recitation of the background found in the judgment of Foster J in BMG Poseidon Corp Pty Ltd v Adelaide Bank Limited; In the Matter of BMG Poseidon Corp Pty Ltd (No 2) [2009] FCA 404.
In short, the Bank lent money to BMG Poseidon Corp Pty Ltd (“BMG”) under two loan agreements entered into in 2004. Mr and Mrs Watts were the principals and controllers of BMG at all relevant times, and gave guarantees for the obligations of BMG under the loan agreements. They also provided security over a residential house property at Lyons Road, Drummoyne, whose value never exceeded the amount of BMG’s indebtedness.
Default by BMG occurred in 2005, and a statutory demand was served in relation to the mortgaged property. The Bank obtained orders for possession of the property on 3 April 2006, and took possession of it on 1 November 2006. There were then exchanges between Mr and Mrs Watts and the Bank concerning realisation of the security, and a summary of their exchanges appears in the judgment of Foster J. Eventually, the Bank ended the efforts of Mr and Mrs Watts themselves to find a purchaser, and itself entered into a contract to sell the property on 2 April 2007 for $1,000,000, with a purchaser, Mr Campbell, with whom Mr and Mrs Watts had previously been negotiating.
The Bank also obtained a default monetary judgment against BMG and Mr and Mrs Watts on 3 April 2006, in the sum of $1,028,725.29. As a result of the Bank’s sale of the Drummoyne property, it realised a substantial part of that indebtedness, but a significant debt remained owing, and the Bank proceeded to take further recovery measures against BMG and Mr and Mrs Watts. The indebtedness relied upon under the petition is $64,561.19, and additional liabilities may be owed to the Bank, including under costs orders.
A statutory demand was served on BMG on 27 August 2007, and bankruptcy notices were issued against Mr and Mrs Watts. A series of bankruptcy notices were set aside in circumstances which it is unnecessary to explore. The bankruptcy notice which is now relied upon was issued on 21 November 2008, and was served personally on Mr Watts on 5 December 2008 and on Mrs Watts on 26 November 2008.
BMG disputed the statutory demand by commencing proceedings in the Federal Court in its corporation’s jurisdiction on 11 September 2007. These proceedings were adjourned pending the outcome of litigation which was also commenced by Mr and Mrs Watts and BMG in the Supreme Court, seeking to set aside the default judgment.
The application to set aside the default judgment was dismissed by McCallum J on 12 February 2008 (see Adelaide Bank Limited v BMG Poseidon Corp Pty Limited [2008] NSWSC 68). An application for leave to appeal to the NSW Court of Appeal was refused on 6 August 2008. An application for special leave to appeal to the High Court, requiring an extension of time, was refused on 11 February 2009.
The judgment of Foster J
The outstanding application to set aside the statutory demand on BMG was heard by Foster J on 10 December 2008, and his Honour gave judgment on 24 April 2009 (see BMG Poseidon Corp Pty Ltd v Adelaide Bank Limited; In the Matter of BMG Poseidon Corp Pty Ltd (No 2) [2009] FCA 404). Foster J set out the history of the matter up to that time, including extracts from the reasoning of the Supreme Court justices, before explaining his reasons for declining to set aside the demand.
A number of contentions were made on behalf of BMG and Mr and Mrs Watts to the Supreme Court and to Foster J, to point to a genuine or bona fide or prima facie defence or claim to answer the Bank’s default judgment. It is necessary in the present proceedings only to identify one of them. This was a contention that BMG had offsetting claims equal to or exceeding the amount claimed in the statutory demand, being claims based on an allegation that the Bank had sold the Drummoyne property at an undervalue.
Foster J dealt with that contention as follows:
85The first contention relied upon by BMG in support of this ground is that Adelaide Bank sold the property at an undervalue. This allegation amounts to an allegation that the bank breached the duty owed by it to BMG as mortgagee in possession when exercising its power of sale.
86In Upton v Tasmanian Perpetual Trustees Ltd (2007) 158 FCR 118 at [86]‑[90] (pp 138‑143) a Full Court of this Court summarised various propositions that may be drawn from the relevant decisions of the High Court as to the content of the duty of good faith owed by a mortgagee to a mortgagor in the context of the exercise of a mortgagee’s power of sale. In the passages referred to, the Full Court held that a mortgagee is entitled to exercise the power of sale for its own benefit but must take reasonable steps to obtain a fair price which in turn will involve taking reasonable steps to ascertain the value before selling.
87Further, the position in Australia remains that there is no common law duty in negligence by which a mortgagee can be found liable for damages if it fails to obtain a good price or the best price upon the sale of a mortgaged property (as to which see Fisher and Lightwood’s Law of Mortgage, (2nd Australian edition, 2005) at 496‑497 [20.21]). The duty of the mortgagee is one of good faith. That duty requires the mortgagee not to act fraudulently or wilfully or recklessly or to recklessly sacrifice the interests of the mortgagor (Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 at 680).
88BMG tendered no evidence to support its contention that the property was sold at an undervalue. Adelaide Bank, on the other hand, tendered the three valuations which it had obtained. The valuers were not cross‑examined. Their opinions were not challenged at all. In addition, Mr Watts’ anecdotal recounting of the casual offer made to BMG in mid 1996 of $850,000 tended to support the valuations which Adelaide Bank had obtained.
89Furthermore, the obvious difficulties which BMG had encountered in selling the property in 2006 and early 2007 and in procuring sufficient funds to refinance its debts to Adelaide Bank in the same period provide additional support for the conclusion that the property was not likely to have commanded a price much above $850,000‑$900,000 viewed from the perspective of a seller looking forward in late 2006 and early 2007.
90In my view, there is nothing to support the contention of BMG that the property was sold at an undervalue.
The judgment of Buchanan J
Meanwhile, the present bankruptcy notices had been served on Mr and Mrs Watts, and they had applied to the Federal Court to set them aside. Their application was filed on 16 December 2008, and on the same day the Registrar made an order under s.41(6A) extending time for compliance with the bankruptcy notice to 11 February 2009. This was the date noted on the application as an appointment for directions before a docket Judge.
Further extensions were made while the matter was pending for hearing, on 11 February 2009, 18 March 2009, and 22 April 2009. The last order was made by Buchanan J, when reserving judgment at the conclusion of the hearing held on 22 April 2009.
Buchanan J delivered his judgment on 29 April 2009, dismissing the application to set aside the bankruptcy notice (see Watts v Adelaide Bank Limited [2009] FCA 420). His Honour followed Foster J’s analysis of most of Mr and Mrs Watts’ contentions, which had largely repeated their contentions made in the earlier litigation. He found no grounds for going behind the judgment debt, nor reason for setting it aside as an abuse of process. It is unnecessary for me to extract any parts of his Honour’s judgment.
When delivering judgment on 29 April 2009, his Honour made an order which was subsequently entered in the following terms:
1.The application to set aside bankruptcy notice No NN 4517/08 is dismissed with costs.
2.Time to comply with the bankruptcy notice is extended to 8 May 2009.
The extension of time ordered by Jagot J
On 8 May 2009, Jagot J made an order in the following terms:
1.Pending further or other order:
(a)Extend the time to comply with Bankruptcy Notice NN4517/08 until 19 May 2009 and, if a notice of appeal against the decision in Watts v Adelaide Bank Ltd [2009] FCA 420 is filed on or before that date, extend the time for compliance with the said bankruptcy notice until the first return date of the notice of appeal at which time a further application for an extension of time may be made;
(b)Otherwise, if a notice of appeal is not filed on or before 19 May 2009, extend the time to comply with the said Bankruptcy Notice until 26 May 2009.
2.Direct the applicant to give notice of the making of these orders to the respondent by 5.00 pm on 11 May 2009.
3.Grant liberty to both parties to restore the application on 24 hours notice.
4.Leave to enter these orders forthwith.
The circumstances in which her Honour made that order are not explained in the evidence before me, and unfortunately the court file in the first instance matter is not available today. I am informed from the bar table, and it appears to be common ground, that the order was made ex parte by Jagot J on the application of Mr and Mrs Watts. Noting the date on which it was made, it is reasonable to assume that it was made in circumstances of urgency, in which Mr and Mrs Watts were at that time seeking to avoid committing an act of bankruptcy while they brought an appeal from the judgment of Buchanan J. As is apparent from her Honour’s order, she specified alternative dates for a further extension of time for compliance with the bankruptcy notice, dependent upon whether a notice of appeal was filed from the judgment of Buchanan J.
In the event, a notice of appeal was filed on 13 May 2009. The effect of her Honour’s order was therefore to “extend the time for compliance with the said bankruptcy notice until the first return date of the notice of appeal at which time a further application for an extension of time may be made”. The correct identification of that date in the light of subsequent events is now in issue.
Mr and Mrs Watts’ first contention in opposition to the petition is that the date specified by Jagot J first occurred on 10 June 2009, which was the date when a Registrar of the Federal Court held a conference to settle the appeal index. If so identified, it is common ground that the petition was filed outside the six month period under s.44(1)(c) of the Bankruptcy Act, and was therefore incompetent.
However, the Bank contends that the date specified by Jagot J occurred on 29 July 2009, which was the date of the call‑over of the appeal held before Moore J. If that contention is correct, then the petition was brought within the necessary six month period, and is competent.
I shall explain my conclusions in relation to this issue below, after completing my account of the history of the matter.
The Registrar’s appeal index conference
The notice of appeal filed by Mr and Mrs Watts followed Form 55 of the Federal Court forms, being a notice of appeal to a Full Bench from a single justice. It set out the grounds of appeal and orders sought, and then said:
TAKE NOTICE:
(a)Before taking any step in the proceeding, you must enter an appearance in the Registry, unless you have already entered an appearance under Order 52, Rule 7.
*(b)The papers in the appeal will be settled before the Registrar at
on9.30 am, 10 June 2009. (handwritten)
Place:
Federal Court of Australia,
Law Courts Building, Queen’s SquareSydney. (stamped)
Obviously, that date had been inserted by the Registry upon the filing of the notice of appeal. I note that Form 55 offers an alternative *(b) to paragraph *(b) above, which is that the appeal will be listed for a directions hearing before a judge at a time and place inserted by the Registry, but the notes to the form indicate that this procedure is only to be used for appeals from a judgment of the Federal Magistrates Court.
Neither the Federal Court Rules, nor Practice Note No. 1 of the Federal Court made on 3 January 2008 in relation to appeals to a Full Court, refer to a “first return date” for a notice of appeal. Nor do they greatly assist an understanding of what type of listing was intended by Jagot J to be specified in her order. The Rules contain provision, which I shall set out below, for a Registrar’s conference to settle appeal papers. The Practice Note also refers to a call‑over procedure before a Judge, leading to a hearing date:
A – Listings for Full Court sittings
The District Registrar will prepare a list of all appeals and other matters pending for hearing before a Full Court.
The District Registrar will forward a notice of call‑over to the solicitors on the record and to any unrepresented parties. The notice will state the date of the next call‑over.
The list will be called over before a Judge or a Registrar. At the call‑over the parties must be in a position to advise the Court:
·of the nature of the matter and the essential issues and how they arise;
·of the nature of any cross appeal filed or to be filed in the near future;
·of the nature of any notice of contention filed or to be filed in the near future;
·whether there are any motions still to be dealt with;
·whether the matter is ready to be listed for hearing;
·whether the appeal index has been settled;
·whether the appeal books have been prepared;
·whether any consideration has been given to conducting the appeal electronically;
·whether there is any degree of urgency in listing the matter;
·the parties’ agreed estimated duration of the hearing and whether that estimate is based on counsels’ advice;
·of the names of counsel briefed to appear;
·whether counsel is briefed to appear in any other matters that may be listed in the same Full Court sittings including matters to be heard elsewhere in Australia;
·of dates in the proposed sittings when the parties or their representatives are not available for hearing and the reasons for non‑availability.
The parties must also be in a position to provide details of any other matters that may affect the listing of the matter. Such other matters may include:
·identification of other pending cases involving similar legal issues;
·whether any party intends to argue that a previous Full Court decision should not be followed;
·whether leave to appeal or leave to extend time for the filing and service of the notice of appeal is required;
·whether any party seeks expedition of the hearing of the appeal;
·whether any Judge of the Court, other than the primary Judge, has made adverse findings as to the credit of any party, or the principals of any party, to the appeal;
·whether the appeal is said to raise a particularly important issue of law and, if so, what issue is raised.
The hearing date will be fixed by the Chief Justice after the completion of all call‑overs nationally within the range of dates published for the Full Court sittings. If the circumstances so require, a hearing date may be fixed outside the published range of dates. Those appeals not fixed for hearing may be adjourned to the following call‑over of Full Court appeals or other directions may be made.
After the hearing dates have been fixed by the Chief Justice, the District Registrar will publish a list of those matters that have been included in the sittings. Notice of the hearing date for each appeal will be sent to all solicitors on the record and to any unrepresented parties. An appeal that has been fixed for hearing may be removed from the list only on the direction of a Judge. …
A letter dated 21 May 2009 from the Federal Court of Australia Registry addressed to Mr Watts and the solicitors for the Bank, informed them:
Appeal Index Conference
Pursuant to Order 52 r 28A of the Federal Court Rules this matter has been scheduled for an Index Conference before a Registrar of the NSW District Registry to settle the Appeal Papers. We confirm that the details of the Appeal Index Conference are as follows:
DATE: 10 June 2009
TIME: 9.30 am
PLACE: Level 17, Law Courts Building, Queens Square, Sydney
BEFORE: A Registrar
The following is important information for the Index Conference. Please read it carefully and contact the NSW Appeals Unit of the Registry on the phone number listed below if you have any questions.
The purpose of the Index Conference is for the Registrar presiding at the index appointment to settle the indexes to the appeal papers in accordance with O 52 r 28A of the Federal Court Rules. The Registrar will canvass with the parties the relevance of documents to specific grounds of appeal and explore whether there is any prospect of narrowing the issues of law or fact the subject of the appeal.
Please note that the Registrar will expect the parties to be in a position to address him/her on these issues. Any party who is unprepared for this purpose may, without reasonable excuse, be refused an opportunity for more time to prepare or to seek further instructions.
The Registrar will settle Part A of the appeal papers in accordance with O 52 r 26 of the Federal Court Rules. Parts B and C will include only those documents or parts of documents which are strictly necessary for the orderly resolution by the Full Court of the actual issues on appeal: see Purvis v Dairy Board (No.2) [2006] FCAFC 388 (paras 6‑14) & Cultivaust Pty Limited v Grain Pool Pty Limited [2005] FCAFC 223 (paras 72‑76). Parties are expected to carefully consider the documents to be included in the appeal papers and to cooperate with the Court in reducing the volume of material for inclusion in the appeal books.
At the conclusion of the index appointment the Registrar will make any appropriate directions. …
It was submitted by counsel for Mr and Mrs Watts that the last paragraph of the above letter suggested to the parties that the Registrar would have power at an appeal index conference to make substantive interim orders, including an extension of time under the Bankruptcy Act in an appeal such as the present, and would be willing to entertain applications for such orders.
However, I do not read that paragraph as suggesting this. In my view, when read in the context of the preceding paragraphs, the reference to “will make any appropriate directions” is to making directions in relation to the preparation of the appeal papers only. Such a reading, in my opinion, is made clear when reference is made to O.52 r.28A of the Federal Court Rules (Cth):
Order 52
28ASettlement of appeal papers
(1)At the appointment to settle the appeal papers the Registrar must:
(a) settle the appeal papers in accordance with subrule (2); or
(b) refer the appeal papers to the Court or a Judge for settling.
(2)If paragraph (1) (a) applies, the Registrar must:
(a) determine the documents and matters to be included in the appeal papers; and
(b) determine:
(i)the order of inclusion of the appeal papers; and
(ii)any other matters about the preparation of copies of the appeal papers that he or she considers to be appropriate; and
(c) settle the indexes in accordance with rules 26 and 28B; and
(d) determine the number of copies of the appeal papers required; and
(e) obtain an estimate of the duration of the hearing from each party; and
(f) if practicable:
(i)fix a date for a hearing; or
(ii)list the appeal for hearing in appellate sittings of the Court.
Neither counsel took me to any particular provisions of the Federal Court Rules, or other legislation, or practice directions, showing that a Registrar at an appointment to settle an appeal index would have any power to make interim orders of the sort made by Jagot J.
Registrars under the Federal Court (Bankruptcy) Rules 2005 (Cth) do have power in first instance applications to set aside bankruptcy notices to extend time for compliance (see r.2.02 and Sch.2 to those Rules). However, it is a nice question, which was not explored in submissions before me, whether Federal Court Registrars would have that power in the course of settling an index in an appeal. A related issue, which also was not explored in submissions, is the source of the Federal Court’s interim powers on an appeal from the dismissal of an application to set aside a bankruptcy notice. Absent such submissions, I am left unsure whether this is found in s.41(6A) of the Bankruptcy Act, so as perhaps to be within the delegation to the Registrars, or in the Federal Court’s general interlocutory powers on appeal. These are sourced in s.23 of the Federal Court of Australia Act 1976 (Cth), and are exercisable by a single Judge under s.25(2B)(ab) and not by a Registrar.
However, I do not feel it necessary to explore these questions further. This is because I consider that the context given to Jagot J’s order by the usual practices followed in appeals in the Federal Court shows that there could have been no expectation that a Registrar would entertain an application to extend time under the bankruptcy notice in the course of the appeal index conference. In my opinion, the practice note in relation to appeals, the notice to practitioners in relation to the appointment noted on the appeal notice, and the events that happened in the present case, point clearly against any expectation in practice in the Federal Court that a Registrar would make further interim orders of the sort envisaged by Jagot J in her order of 8 May 2009. To the extent that hindsight can be availed of to construe its meaning and intent, I do not consider that the circumstances of the index conference point in favour of the construction submitted by Mr and Mrs Watts.
There is no evidence whether or not the question of extending the bankruptcy notice was raised by any person at the Registrar’s appeal index conference.
Moore J’s direction for a case management conference
It appears that at the index conference, a Registrar suggested that it would be appropriate to hold a case management conference under Federal Court O.10 r.1(2)(h) and (i). These rules permit the Court to:
1 Directions hearing — general
…
(2)Without prejudice to the generality of subrule (1) or (1A) the Court may:
…
(h) order that the parties attend before a Registrar for a conference with a view to satisfying the Registrar that all reasonable steps to achieve a negotiated outcome of the proceedings have been taken, or otherwise clarifying the real issues in dispute so that appropriate directions may be made for the disposition of the matter, or otherwise to shorten the time taken in preparation for and at the trial;
(i) in a case in which the Court considers it appropriate, direct the parties to attend a case management conference with a Judge or Registrar to consider the most economic and efficient means of bringing the proceedings to trial and of conducting the trial, at which conference the Judge or Registrar may give further directions; …
Accordingly, an email was sent by an officer in the Registry to the solicitors for the parties on 11 June 2009 stating:
I refer to the Index Conference held on 10 June 2009 for the above matters. As discussed, please find attached Consent Orders that the parties be referred to a conference pursuant to O 10 r 1(2)(h) and O 10 r 1(2)(i) of the Federal Court Rules.
Both parties then signed the minutes forwarded to them, and returned them to the Registry. The file for the appeal matter, which is available to the parties in court today, shows that signed minutes were returned. Moore J then made an order on 17 June 2009, apparently in chambers without a listing in court, which stated:
(1)The parties be referred to a Registrar for a conference pursuant to O 10 r 1(2)(h) and O 10 r 1(2)(i) of the Federal Court Rules.
It is not contended by Mr and Mrs Watts that these events could be regarded as providing an alternative “first return date of the notice of appeal” as specified by Jagot J’s order. The events tend to confirm that practice of the Federal Court anticipated that only limited powers would be exercised by a Registrar at an appointment to settle appeal indexes.
The call‑over before Moore J
The next event shown in the reports of listings on the file of the appeal proceedings, was a listing of the matter at call‑over before Moore J on 29 July 2009. On that occasion, Mr Watts appeared in person and a solicitor for the Bank appeared, Ms Van Ravels. A transcript is found on the Federal Court file. It notes that an appeal from the above judgment of Foster J was also in the call‑over list, and that the parties had agreed that the appeals should be heard together. The transcript notes this agreement, and Moore J then said:
HIS HONOUR: Well, what I will do is direct that the two appeals be heard together and that one appeal book be prepared in relation to both appeals and direct that the two appeals be listed for hearing in the November sittings and I make the usual direction in relation to submissions. Is there something else, Mr Watts?
MR WATTS: No, that’s fine, thank you.
HIS HONOUR: Thank you.
The orders made by his Honour as subsequently entered were:
1.The parties prepare the appeal in accordance with the procedures set out in Part B of Practice Note No 1.
2.The appeal be set down for hearing in the sittings commencing 2 November 2009.
3.That the appeals in matters NSD419 of 2009 and NSD421 of 2009 be heard together and that one appeal book be prepared in relation to both appeals.
It is common ground that neither on that occasion, nor subsequently, was any order extending time for compliance with the bankruptcy notice sought by either of the parties. It is also common ground that the time for compliance with the bankruptcy notice expired on that day, if it had not already expired. As I have noted, the petition relies upon that date as the date of the act of bankruptcy, upon the second construction of Jagot J’s order which I have noted above. I shall return to consider that issue later.
The Full Court judgment
Continuing the history of the matter, the Full Court heard both appeals on 16 November 2009, and reserved their judgment. On 3 December 2009 they dismissed both appeals (see Watts v Adelaide Bank Limited [2009] FCAFC 169). Their Honours dealt with numerous grounds of appeal challenging the findings and reasoning of both Judges at first instance. It is necessary in the present proceedings only to extract their reasons concerning the claim that the Drummoyne property had been sold at an undervalue:
38Another claim by BMG is that Foster J erred in rejecting the submission that the Bank sold the property at less than its true value. According to this submission the Bank “played foul” in respect of the three valuations it obtained before the sale. The submission identifies no basis for the allegation. No such basis is apparent. The valuations are identified in the reasons for judgment at [34]. BMG called no expert evidence to the contrary (see the reasons at [35]). The primary judge properly rejected the unsupported allegations about a sale at less than true value at [88]‑[90]. Insofar as these claims referred to the valuation of the property in the amount of $1,250,000 at the time of purchase which the primary judge is said to have ignored, the valuation relates to the date 4 December 2003. The three valuations the Bank obtained before exercising its power of sale relate to the value of the property at July 2006, November 2006 and January 2007. The contract for sale is dated 2 April 2007. In these circumstances the relevance of the valuation from 2003 for the purpose of the loans is not apparent. We cannot see any error in his Honour’s analysis at [88]‑[90] about the value issue merely because there is no reference to the 2003 valuation.
39Contrary to BMG’s submissions Foster J did not err by failing to understand the allegation that the Bank acted unethically and unconscionably by selling the property to the same purchaser as proposed by BMG. As Foster J recorded at [33], the buyer was prepared to pay a maximum of $1,000,000 at the date of sale. Before that the property was passed in at auction on 1 July 2006 (at [22]). BMG also did not manage to achieve an unconditional contract for sale of the property for $1,075,000 (see the reasons for judgment at [25]). This is so despite the fact that BMG had the period between the date of the alleged offer by the purchaser recorded in [24] (being November 2006) and the date nominated by the Bank of 19 March 2007 in which to achieve the sale (at [31]). BMG did not manage to arrange an unconditional sale in this period. The sale at $1,000,000 was above the highest value provided to the Bank by three valuers. From this it followed that BMG’s claims of unethical and unconscionable conduct have no proper evidentiary foundation. The primary judge, moreover, did not misstate the law with respect to a mortgagee’s power of sale in [86]‑[87] of the reasons for judgment. The statements in those paragraphs are orthodox.
Their Honours agreed generally with the legal principles which had been articulated by Foster and Buchanan JJ in relation to assessing the prima facie merits of a projected defence or counter‑claim to a default judgment, in applications either to set aside a statutory demand served on a corporation or a bankruptcy notice served on a natural person. They regarded the tests as being equivalent, and as requiring consideration whether the debtor has shown a ‘genuine dispute’ existing between the parties (see [24] of the Full Court judgment). Their Honours concluded:
72As to grounds 4 to 6, Buchanan J was correct to conclude that there was no counter‑claim, set‑off or cross‑demand. As the Bank submitted, the evidence did not rise above a mere assertion of a proposal to initiate separate claims for alleged losses. The proposed claims remained unformed and unarticulated.
Their Honours also upheld conclusions of Buchanan J that the circumstances of the service of the bankruptcy notice could not be characterised as involving any abuse of process.
Mr and Mrs Watts have sought to appeal to the High Court. The evidence shows that an application for reinstatement of a special leave application in relation to the Full Court’s judgment was refused by Heydon J on 22 March 2010: see Watts & Anor v Adelaide Bank Limited [2010] HCATrans 70. An application to appeal from Heydon J was filed on 19 April 2010, but the evidence does not show its outcome. In my assessment, the prospects of success appear remote.
The creditor’s petition
The Bank filed the present creditor’s petition on 20 January 2010. The petition was adjourned several times in the Registrar’s list, after the filing of an appearance and grounds of opposition by Mr and Mrs Watts. The following grounds of opposition are pleaded:
1.The creditor’s petition dated 20 January 2010 was presented outside the time prescribed by section 44(1)(c) of the Bankruptcy Act 1966.
2.For other sufficient cause a sequestration order ought not be made.
The “other sufficient cause” alleged under paragraph 2 has never been particularised until very recently, when some material was filed in support of the submission made by counsel for Mr and Mrs Watts:
Other Sufficient Cause – Ground 2
17.Pursuant to section 52(2)(b) of the Act, the Court may in its discretion dismiss a creditor’s petition if it is satisfied by the respondent that “for other sufficient cause a sequestration order ought not be made”.
18.The debt that gave rise to the Bankruptcy Notices resulted from the respondents’ failure to satisfy guarantees that were called on by the applicant after a mortgagor (known as BMG Poseidon Corp Pty Limited) defaulted on a loan of approximately $1,000,000. Through proceedings in the Supreme Court of New South Wales, the applicant obtained an order for sale and subsequently sold the property for $1,000,000.
19.That mortgagor and Mr and Mrs Watts, have commenced proceedings in the Supreme Court of New South Wales by statement of claim alleging the applicant (Bank) breached section 420A of the Corporations Act 2001 as well as its duty of good faith for failing to sell the subject property for its true market value when it sold it for $1,000,000. The mortgagor and Mr and Mrs Watts are claiming those breaches caused the respondents and the mortgagor to suffer damages in excess of $75,000 as well as legal costs and fees which the applicant alleges BMG and Mr and Mrs Watts are liable for.
20.In support of Mr and Mrs Watts’ claim for breach of section 420A of the Corporations Act 2001 they rely on the expert report of Malcolm Garder, property valuer, annexed to his affidavit sworn on 30 July 2010. Mr Garder has been practising as a valuer for over 30 years. He is of the opinion that the market value of the property at the time the applicant sold it to be $1,075,000.
21.In Re James & Anor; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No2) (1994) 51 FCR 14 Olney J said at 19: (quotation omitted).
22.In determining whether the respondents have a cross claim or cross demand that warrants dismissing the petition for other sufficient cause, the Court must be satisfied that it is probable that the respondents have a claim against the applicant that is likely to succeed. In Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 the Court held at 116: (quotation omitted).
23.It is submitted that in circumstances where the respondents have filed and served a statement of claim in the Supreme Court against the applicant, and that statement of claim is certified by a legal practitioner as having reasonable prospects of success along with uncontradicted expert evidence in support of the claim which is equal to or greater than the judgment debt which is the subject of the petition, the Court can be satisfied that there is cross claim against the applicant that there is some other sufficient cause to dismiss the petition and refrain from making the sequestration order.
(footnotes omitted)
The evidence filed in support of these contentions consists of an affidavit attaching a valuer’s report by Mr Malcolm Geoffrey Garder dated 6 July 2010. In his report, he gives a valuation of the Drummoyne property based on an “external inspection” conducted “6 July 2010” and in relation to “Date of Valuation April 2007”. Mr Garder also appears to have been given additional documents referable to the earlier time, and he has also attempted to find comparable sales. However, his conclusions show that he has substantially relied upon a false assumption:
REMARKS
…
In 2006 the property was marketed as a historic listed house having potential for redevelopment as a large prestige dual occupancy on Drummoyne ark.
The property was sold by Burridge Real Estate Agents on 2nd November 2006 for $1,075,000 however the bank did not allow the matter to proceed to contract.
…
SALES EVIDENCE
The best evidence of value is the unconditional sale of the property by Burridge Real Estate Agents on 2nd November 2006 for $1,075,000.
I have investigated the market at that time and have been able to support the figure with the sale shown under Comparable Sales.
VALUATION
I consider the market value of the property with vacant possession for Federal Court proceedings at the date of Valuation April 2007 to be one million and seventy five thousand dollars ($1,075,000).
It is common ground that the valuer’s reference to an “unconditional sale” in November 2006 was, in fact, to events which did not evidence any sale of the property to a purchaser willing to contract at that price. Rather, the real estate agents reported the existence of negotiations for a possible sale at that price. However, the evidence before Foster J showed that the prospective purchaser, Mr Campbell, never became willing to execute an agreement to purchase the property at that price, in circumstances which are set out in the judgment of Foster J from [23]‑[33]. Counsel for the Bank also pointed out that there was a caveat on the title at the time of Mr and Mrs Watts’ negotiations with Mr Campbell, which it appears neither Mr Watts nor the Bank was able or willing to remove to allow the proposed contract to be attractive to Mr Campbell at that time. In the events recounted by Foster J, based on the same evidence as is before me now, Mr Campbell only became a willing purchaser when the Bank took over the negotiations, and reduced the price so as to effect a sale to him on 2 April 2007 for $1 million.
It is therefore difficult to see how the new valuation evidence materially advances the merits of Mr and Mrs Watts’ claims against the Bank for an alleged mortgagee sale at an undervalue, so as to make their prospects any better than the assessments made by Foster and Buchannan JJ and the Full Court.
The other additional evidence before me which was not before Foster J and other previous Judges, is a statement of claim filed in the Supreme Court of New South Wales on or about 3 May 2010. The statement of claim names BMG as first plaintiff and Mr and Ms Watts as second and third plaintiffs. The Bank is named as sole defendant. Damages are sought by all plaintiffs for loss and damages upon causes of action which are pleaded as follows:
17Pursuant to section 420A of the Corporations Act 2001 (‘Act’), the defendant owed the first, second and third plaintiffs a duty to take all reasonable care to sell the Property for:
a)if, it has a market value – not less than that market value; or
b)otherwise, the best price that is reasonably obtainable, having regard to the circumstances when the Property is sold.
18The defendant also owed the first, second and third plaintiffs a duty to act in good faith by doing all things necessary to achieve the best possible sale price when selling the Property.
19On or about 24 May 2007, in breach of its duty under section 420A of the Act and its duty of good faith, the defendant sold the Property to Glenn Campbell for the sum of $1,000,000.
Particulars
a)The defendant failed to sell the Property for its true value.
b)The defendant failed to proceed with the development application already lodged by the first, second and third plaintiffs with Canada Bay Council.
c)Had the defendant obtained the development consent already applied for by the first, second and third plaintiffs the Property could have been sold for somewhere between $2,300,000 to $2,500,000.
d)In about December 2006, the Property was valued at $1,200,000 (without the development consent) by the Commonwealth Bank.
e)The defendant failed to sell the Property to Glenn Campbell for the original sale price of $1,075,000.
20As a result of the defendant’s breach of section 420A of the Act and its duty to act in good faith, the first, second and third plaintiffs have suffered loss and damage.
Particulars
a)The first plaintiff has lost the benefit of the post development approval sale price.
b)In the alternative, the first defendant has lost the benefit of the original sale to Glenn Campbell.
c)The second and third plaintiffs have jointly and severally become liable under the Guarantee for the residual amount of $122,570.
d)The second and third plaintiffs’ costs of Federal Magistrates Court of Australia Proceedings No. SYG 101/2010.
The evidence shows that that statement of claim was stamped and listed before the Supreme Court on 31 May 2010. There is no evidence as to what has happened in the proceedings, although I infer that the Bank has not yet filed a defence, nor moved to strike out the statement of claim. I am informed, and it appears to be common ground, that BMG was placed into liquidation on 27 May 2010. It is also common ground that no application for leave to proceed by that company has been sought from the Supreme Court.
Conclusions on the s.44(1)(c) issue
I have explained this issue above, and set out the relevant evidence. The simple issue is the effect of the order made by Jagot J in the light of subsequent events in the appeal proceedings from Buchanan J, in so far as her Honour fixed a time for compliance with the bankruptcy notice in the following terms: “until the first return date of the notice of appeal at which time a further application for an extension of time may be made”.
The principle governing the construction of court judgments, at least where they are made on a final basis, is:
… when a judgment is clear as to its terms, not even the pleadings nor the history of the action may be utilised to construe the judgment contrary to its clear meaning … Where, however, the judgment or order is ambiguous, it may be permissible to resort to extrinsic material, including the reasons for judgment, to resolve the ambiguity … (see Beaumont J in Repatriation Commission v Nation (1995) 57 FCR 25 at 33, also Universal Music Australia Pty Ltd v Sharman Networks Ltd (2006) 150 FCR 110 at [21]).
A less rigorous application of this principle may be necessary in relation to orders made in the course of proceedings, either by way of procedural direction or interlocutory order. Such orders might be framed upon assumptions that they will be understood by reference to the stage or nature of the proceedings or other extrinsic circumstances. In the present case, where no reasons for judgment nor transcript of proceedings before Jagot J are available, and where the file itself has been lost, it may be appropriate to consider the intended effect of her order by reference to the general rules and practices of the Federal Court relevant to the appeal proceedings in which the order was made. The subsequent events in the proceedings might also provide some assistance, at least as illustrations of those practices.
I have therefore considered the submissions of both counsel which assumed that some reference should be made to Federal Court practices in relation to appeals to the Full Court from a single Judge and to any relevant rules. I have also considered their submissions which sought the assistance in support of their respective arguments from later events in the appeal from Buchannan J.
However, in my opinion, the language of Jagot J’s order is clear, when understood in the context in which it was made. The context was an urgent application by a debtor after the delivery of an adverse judgment at first instance refusing to set aside a bankruptcy notice, where the first instance Judge had allowed only a very short extension to allow consideration of an appeal.
In this context, the words used by Jagot J to qualify her reference to “the first return date of the notice of appeal” acquire significance. The qualifying words describe such a listing as one “at which time a further application for an extension of time may be made”. In my opinion, it is clear from these words that her Honour envisaged that the “first return date” identified by her would be an event when the parties were first appearing before a judicial officer with power, time, and inclination to entertain an application for an order extending the time for compliance with the bankruptcy notice.
Jagot J referred to that event as a “first return date” in circumstances where that phrase had no technical meaning, whether in practice or under the Federal Court Rules or other legislation. This perhaps explains why she added the additional qualifying words, to explain the type of listing which she had in mind. Moreover, in common parlance in legal circles, a “first return date” is a reference to a listing before a judicial officer, rather than some administrative appointment with a Registrar or other court official.
Both wings of the description of the extended date for compliance specified in her order therefore point against the interpretation contended by Mr and Mrs Watts.
Moreover, the Federal Court Rules and practices which I have discussed above in relation to appeal index conferences, in my opinion, do not meet the usual description of a “first return date” in common legal parlance, nor a date at which “a further application for an extension of time may be made”.
If there were doubts about the effect of Jagot J’s order, of which I entertain few, the orders should be construed in favour of the debtors, by adopting a construction which gave them the longest extension of time. This is because at the time it was made the order was manifestly obtained by Mr and Mrs Watts for the purpose, and was intended to give them the benefit, of an extension of time to bring an appeal and have it listed before a Judge with power to extend time for a further period, so as to avoid the necessity for them to elect between paying the debt or incurring an act of bankruptcy during the pendency of their appeal.
For all these reasons, in my opinion, the construction relied upon by the Bank should be accepted, and the contention that the date identified by her Honour occurred when the Registrar held the index settlement conference should not be accepted.
On the evidence before me, in my opinion, the first time when the appeal proceeding was listed on an occasion when “a further application for an extension of time may be made”, was at the call‑over before Moore J on 29 July 2009. In my opinion, that was an occasion at which Mr Watts could have applied to Moore J for an extension of time, and perhaps this possibility was obliquely raised by Moore J with Mr Watts. For whatever reasons, Mr Watts did not apply for a further extension of time at any time, and in my opinion an act of bankruptcy occurred at the end of that day.
I am therefore satisfied that the act of bankruptcy relied upon by the petition occurred on the date asserted in the petition, and that it occurred within the time period required by s.44(1)(c) of the Bankruptcy Act. The petition was therefore not incompetent under that section.
Conclusions on the s.52(2)(b) issues
Section 52(2) of the Bankruptcy Act provides:
52Proceedings and order on creditor’s petition
…
(2)If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
The principles upon which the existence of an “other sufficient cause” have been addressed in many authorities. I often gain assistance from the judgment of Allsop J in Totev v Sfar [2006] FCA 470, (2006) 230 ALR 23, where from [37]‑[45] his Honour very usefully, with respect, extracts relevant passages from the authorities and elucidates them further with his own discussion. His Honour commenced by citing authority for the proposition that:
37On proof of the matters in s 52(1) of the Act, the Court will generally proceed to make an order for sequestration. It is for the debtor to persuade the Court that the public interest in the dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations.
(citation omitted)
His Honour also cited Cain v Whyte (1933) 48 CLR 639, which suggests that there is a “prima facie” right in a creditor to expect the making of a sequestration order upon proof of an act of bankruptcy and a state of indebtedness.
In relation to the onus on a debtor to show other sufficient cause, his Honour referred to authorities holding that “a claim sounding in money by the debtor against the petitioning creditor may amount to such other sufficient cause”. His Honour cited passages from Ling v Enrobook Pty Ltd (1997) 74 FCR 19, which itself quoted a passage from Gibbs J’s judgment in Re Schmidt (supra) which counsel for Mr and Mrs Watts relied upon in his written submissions. Those authorities establish that a claim sounding in money against the creditor will only provide a ‘sufficient cause’ for dismissing a petition if it is “probable that the debtor has against the petitioning creditor a claim which is likely to succeed”. Ling v Enrobook also suggests that the court needs to be satisfied that “the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts”.
If satisfaction as to a likely prospect of success is not reached, the authorities point to the possibility of adjourning the petition to allow “a real claim” to be litigated while the petition is pending.
The authorities cited by Allsop J point to the general considerations of public interests, and the need to address all the circumstances of the claimed right to recover money from the creditor. Allsop J summarised his own view of the authorities at [44]:
44It may be that the fourth sentence of the above passage in St George Bank Ltd v Helfenbaum is open to debate as to whether it states the matter slightly too unequivocally in the light of what was said in Ling v Enrobook. Nevertheless, what is clear is that the fact that there has been an act of bankruptcy does not make the claim by the debtor against the petitioning creditor irrelevant. It should be examined to assess whether it can be said that there is sufficient evidence to show that it is a real claim which is likely to succeed. Also relevant is the stage of the litigation, the length of time for its vindication and any other relevant matters. It goes without saying that solvency is a relevant consideration. In some circumstances, it may be difficult to assess the likelihood of success of the debtor’s claim. All the authorities show that central to the showing of “other sufficient cause” for the purposes of s 52(2)(b) is the question of the prospects of success. The case is not tried in the bankruptcy court, but the material is examined for the purpose alluded to by Gibbs J in Re Schmidt. As Olney J identified in Re James, if a likelihood of success can be demonstrated, that may justify a refusal of a sequestration order. Alternatively, the circumstances may reveal a claim of a character and nature in which likelihood of success cannot be predicted with accuracy but in the circumstances the petition should be dismissed or an adjournment of the petition should be granted: see the approach of Sundberg J in Ling v Commonwealth (1996) 68 FCR 180 at 195‑196, with which Wilcox J and Whitlam J agreed. If the claim is one in which credit of witnesses will be involved, and a debtor sets out the nature and detail of the case and all his or her evidence the debtor may only be able to persuade the bankruptcy court that, if relevant criteria are believed, he or she has good prospects of success. What should be proved, or what is sufficient to be proved, in any given case will depend upon the circumstances. The context in which the issue arises is also important. The discretion involved in s 52(2)(b) is a broad one, and, importantly, it is informed by public interest considerations concerned with the dealing with insolvents. It is to be distinguished from the task involved in deciding whether a claim exists that satisfied s 40(1)(g) of the Act. There, the task, prior to the commission of an act of bankruptcy, is the identification of a bona fide or genuine claim: Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346; Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135; Vogwell v Vogwell (1939) 11 ABC 83. Lindgren J summarised the position in relation to s 40(1)(g) in Glew v Harrowell (2003) 198 ALR 331 at [9]-[12] as follows: (quotation omitted).
In the present case, Mr and Mrs Watts start with the difficulty that several Judges of the Federal Court have concluded, and I would respectfully agree on the same evidence as was before them, that Mr and Mrs Watts were unable to point to even a ‘genuine’ or reasonably triable claim, on tests less demanding than one of “likely to succeed”. They attempted to overcome this problem by tendering the additional evidence which I have described above.
I have considered the additional evidence and all the arguments of counsel for Mr and Mrs Watts, but I am not satisfied that the new material satisfies the higher test in relation to s.52(2)(b) referred to by Allsop J. Indeed, I am not satisfied that it materially advances the merits of the prospective claims against the Bank higher than the characterisation given to them by Foster J and the Full Court.
I have pointed above to reasons for doubting whether the new valuation report provides a valuation opinion which could be expected to be given much weight. Moreover, in my opinion it clearly does not provide evidence holding any prospect of persuading a Judge on trial that the Bank, acting upon the valuation evidence it had at the time it took its actions, did not act according to the established duties of a mortgagee exercising a power of sale. I am of the opinion that the alleged claim against the Bank is not supported by valuation evidence showing any prospect of success at a factual level.
Nor do I consider that the fact that Mr and Mrs Watts’ claims have now been formulated in a statement of claim filed in the Supreme Court adds any substantial weight to their merits or prospects of success.
It was submitted that the pleading carries evidentiary weight, due to the attached affidavit verifying the facts, and the presence of what was argued to be a certificate under s.347 of the Legal Profession Act 2004 (NSW) that there were “reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success”. However, such an opinion would fall short of an opinion that the claim is “likely to succeed”, and in the present pleading there is also ambiguity whether the solicitor’s signature in fact adopted that opinion.
The affidavit verifying the pleading is signed by an accountant who deposes to being a director of the first plaintiff, that is, BMG. Putting aside the implications of BMG going into liquidation, there is doubt whether such an affidavit can substantially assist the establishment of the ground referred to in s.52(2)(b), in the absence of any additional evidence allowing the bankruptcy court itself to assess the factual and legal foundations for projecting a success in the matter (see Davidova v Murphy [2009] FCA 601 at 74). In the present case, I do not consider that it does.
A further difficulty in being satisfied that the present proceedings can satisfy the tests in Ling v Enrobook, arises from the belated nature of the litigation recently commenced in the Supreme Court. It is clear from the judgments cited by Allsop J and his own judgment, that the public interests in allowing a debtor to continue a claim commenced against a creditor should be considered in the light of the circumstances in which his litigation was commenced, and the stage of the litigation at the time that the bankruptcy court considered. So much also appears from the reference in Ling v Enrobook to the consideration whether the litigation is “well advanced”. These considerations reflect upon the genuineness of the pending claim, as well as assisting an assessment of its prospects. In the present case, the new litigation was commenced only after the bankruptcy proceedings were well advanced, and after Mr and Mrs Watts have failed in protracted litigation, reaching the High Court on two occasions, to make out any merit in their present claims and many other claims against the Bank.
I consider that the merits and prospects of the statement of claim in the Supreme Court must be regarded with considerable scepticism, both from its timing and the previous findings of Judges which I have set out above, albeit on evidence which is slightly less extensive than the evidence now before me. Certainly in my opinion, the timing and state of preparation in the matter points against, rather than towards, a public interest in allowing Mr and Mrs Watts to pursue the Bank in the Supreme Court. I note that there seems little prospect that the matter could be resolved in favour of Mr and Mrs Watts during the life of the petition which is now due to expire in January next year.
My above assessment of the pending Supreme Court matter has not given substantial weight to several additional points made by counsel for the Bank, suggesting that the Bank has several legal defences to the statement of claim which are likely to succeed, and may even support a strikeout application. However, I accept that such defences appear well arguable. They include the absence of leave to proceed in relation to BMG, and a series of legal defences. Counsel submitted that there was a weight of authority against s.420A of the Corporations Act 2001 (Cth) providing a cause of action in damages for the benefit of either the mortgagor or a guarantor, and also authorities suggesting that the duties on a mortgagee exercising its power of sale were enforceable only in equity by way of opposition to actions of a mortgagee rather than by way of a cause of action in damages (citing Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540). Counsel for Mr and Mrs Watts challenged some of these submissions, but I do not find it necessary to examine these potential defences further. It is enough for me to indicate that I have concluded that there is a stronger likelihood that the Bank will be able successfully to have the new Supreme Court proceedings summarily dismissed, than that Mr and Mrs Watts would be able to obtain a verdict exceeding their indebtedness to the Bank.
Considering all the evidence and the submissions before me, I do not consider that Mr and Mrs Watts have established a claim against the Bank providing a sufficient cause for declining to make a sequestration order on the current petition.
Counsel for Mr and Mrs Watts in the course of his submissions appeared to raise further contentions of discretionary matters providing other sufficient cause, which had not been foreshadowed in the notice of opposition, nor their evidence, nor his written submissions.
As I understood him, he pointed towards the ambiguity in Jagot J’s order, giving rise to uncertainty about the date for compliance with the bankruptcy notice extended by her order, and to previous invalid bankruptcy notices having been served, as providing sufficient cause within s.52(2)(b). I had some difficulty understanding these contentions.
The contention that the previous history of invalid bankruptcy notices should activate a discretion to set aside the later valid notice was rejected by Buchanan J in his earlier judgment, and his judgment was upheld by the Full Court. It is difficult to see how the contention gains more strength, in relation to a petition based upon the valid notice. I respectfully share Buchanan J’s opinion that the previous history of bankruptcy notices is irrelevant to the present proceedings.
I also cannot see that possible ambiguity in Jagot J’s order provides a reason for dismissing the petition. There is no evidence before me from Mr or Mrs Watts as to when they thought the bankruptcy notice would expire, and I would not make any assumptions as to their thinking, nor that of their legal and other advisors in that respect. It is possible that all parties did not address that aspect at the time. There is no suggestion that any action of the Bank or any other person misled Mr or Mrs Watts or provided any other reason for regarding the Bank’s reliance upon the bankruptcy notice as unjust. I am unable to identify in the circumstances in which the act of bankruptcy occurred a sufficient reason for treating that act of bankruptcy as not having occurred, nor as otherwise providing grounds for declining to make a sequestration order based upon it.
Other submissions were made, for example, suggesting that there was a public interest in allowing Mr and Mrs Watts’ claims to be further explored and supported by further evidence not yet available. However, in my opinion, that contention does not provide an independent foundation for the submissions which I have addressed, and rejected above, in relation to the merits and prospects of the new Supreme Court proceedings.
Although they were not dwelt upon, I have also taken into account the likelihood that Mr and Mrs Watts may encounter hardships from being placed in bankruptcy, and that they are likely to feel a sense of disappointment and grievance that their long history of litigation to dispute the Bank’s actions may be brought to an end by a sequestration order made today, at least, if they are unable to persuade their trustee to continue the litigation.
However, in my opinion, there are countervailing clear reasons for making a sequestration order today. I consider that Mr and Mrs Watts have had more than ample opportunities to present all their arguments, and to present all their evidence in support of their claims against the Bank. The long history of the litigation in the matter, in my opinion, underlines rather than otherwise, the Bank’s prima facie right now to have a sequestration order made. I consider that there is now a public interest in favour of allowing the future of the matter in the Supreme Court to pass into the hands of a trustee, to consider what is best in the interests of all the creditors of Mr and Mrs Watts and how this relates to the public interest in finality of litigation.
I note that Mr and Mrs Watts have presented no evidence of solvency, and no evidence as to their other creditors and financial position whatsoever. In my opinion, the general interests of creditors points towards an immediate sequestration order.
For the above reasons, I am satisfied as to the debt relied upon in the petition, the act of bankruptcy occurring within six months, and the other requirements of the Bankruptcy Act and Rules. I am not satisfied that there is other sufficient reason for dismissing the petition, nor for adjourning the petition further for any reason.
I therefore propose to make a sequestration order today.
I certify that the preceding ninety (90) paragraphs are a true copy of the reasons for judgment of Smith FM
Date: 2 September 2010
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