Bendigo and Adelaide Bank Ltd v Jaeger
[2018] FCCA 3031
•30 October 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BENDIGO AND ADELAIDE BANK LTD v JAEGER | [2018] FCCA 3031 |
| Catchwords: PRACTICE AND PROCEDURE – Application for an adjournment to await Supreme Court of New South Wales Court of Appeal decision – whether arguable case – adjournment granted. |
| Legislation: Supreme Court Rules 1970 (NSW), pt.14, r.2(1)(a) |
| Cases cited: Bendigo and Adelaide Bank Limited & ABL Nominees Pty Ltd v Jaeger (unreported, District Court of New South Wales, Gibb DJC, 1 December 2017) Jaeger v Bendigo and Adelaide Bank Ltd [2018] NSWCA 116 |
| Applicant: | BENDIGO AND ADELAIDE BANK LIMITED (ABN 11 068 049 178) |
| Respondent: | MICHAEL KARL JAEGER |
| File Number: | SYG 1619 of 2018 |
| Judgment of: | Judge Nicholls |
| Hearing date: | 5 October 2018 |
| Date of Last Submission: | 5 October 2018 |
| Delivered at: | Sydney |
| Delivered on: | 30 October 2018 |
REPRESENTATION
| Solicitors for the Applicant: | R Maiorana of Turks Legal |
| Counsel for the Respondent: | N J Olsen |
| Solicitors for the Respondent: | Mercantile Legal |
ORDERS
The proceedings are adjourned until judgment is handed down in the matter with the proceedings number 2018/00227044 in the Supreme Court of New South Wales, Court of Appeal.
The parties are to notify the Court within three days of the delivery of judgment.
The parties have liberty to apply for directions on three clear days’ notice.
The applicant (in the substantive proceedings) pay Mr Jaeger’s costs for the application for an adjournment and the hearing of that application as agreed or assessed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1619 of 2018
| BENDIGO AND ADELAIDE BANK LIMITED (ABN 11 068 049 178) |
Applicant
And
| MICHAEL KARL JAEGER |
Respondent
REASONS FOR JUDGMENT
I have before me an application made by Mr Jaeger (the respondent debtor in the substantive proceedings) for an adjournment of proceedings brought under the Bankruptcy Act 1966 (Cth) (“the Act”) by Bendigo and Adelaide Bank Limited (“the Bank”) which seek to sequestrate the estate of Mr Jaeger.
The adjournment is requested to await Mr Jaeger’s appeal to the Supreme Court of New South Wales, Court of Appeal of a judgment in the District Court of New South Wales regarding the validity of the judgment (also in the District Court) underlying the creditor’s petition.
Mr Jaeger’s pending appeal is made on the basis that the judgment given by the District Court of New South Wales (which gives rise to the debt on which the creditor’s petition is based) is void due to a lack of jurisdiction.
Background
On 1 December 2017, judgment was delivered in favour of the Bank and a judgment debt in the amount of $670,036.37 (“the judgment debt”) was awarded by Gibb DCJ in the District Court of New South Wales (“the first District Court judgment”).
The judgment debt arose out of seven loans Mr Jaegar had made and was later in default. One of those loans was made with Great Southern Finance Pty Ltd. The remaining six loans were made with ABL Nominees Pty Ltd. One of the issues decided at first instance was the Bank’s assertion that those six loans had been assigned to Adelaide Bank Ltd, and following a scheme of arrangement whereby Adelaide Bank Ltd merged with Bendigo Bank, had subsequently vested in it. The primary judge found that the six loans had been assigned to Adelaide Bank (see Bendigo and Adelaide Bank Limited & ABL Nominees Pty Ltd v Jaeger (unreported, District Court of New South Wales, Gibb DJC, 1 December 2017)).
A Bankruptcy Notice was served on Mr Jaeger on 19 December 2017.
Mr Jaeger subsequently appealed the first District Court judgment on the ground that there was “no evidence that the purported assignments of those loans were signed by [the lender] as required by s 205(1) of the Civil Law (Property) Act 2006 (ACT)” to support the finding that those loans had been assigned to the Bank (Jaeger v Bendigo and Adelaide Bank Ltd [2018] NSWCA 116 (“Jaeger v Bendigo and Adelaide Bank Ltd”) (“the first appeal”) at [3]).
One of the submissions made by Mr Jaegar on appeal was that in relation to several of the loans, the consideration paid by Adelaide Bank Pty Ltd did not “conform to the relevant Sale Notices”. This submission “fell outside of the notice of appeal” and was not made before the primary Judge (see Jaeger v Bendigo and Adelaide Bank Ltd at [28]). On 31 May 2018, the appeal was dismissed.
On 8 June 2018, the Bank filed a Creditor’s Petition in this Court seeking a sequestration against Mr Jaeger’s estate after his failure to pay the judgment debt.
Meanwhile, Mr Jaeger filed a Notice of Motion in the District Court to set aside the first District Court judgment under r.36.15 of the Uniform Civil Procedure Rules 2005 (NSW) (“the UCPR”) on the basis that the judgment was “irregularly entered”. Mr Jaeger asserted that the District Court did not have jurisdiction to determine the matter.
On 23 July 2018, Taylor DCJ dismissed that application (see Bendigo and Adelaide Bank v Jaeger [2018] NSWDC 244) (“the jurisdiction decision”).
On 28 August 2018, Mr Jaeger filed a Notice of Appeal in the Supreme Court of New South Wales, Court of Appeal from the jurisdiction decision (“the appeal” or “the second appeal”).
Consideration
The matter was referred to a Judge by a Registrar of the Court, and the parties appeared before the Court for directions on 29 August 2018. Mr Jaeger indicated that he would be requesting an adjournment. The hearing of the adjournment application was held on 5 October 2018. The basis for the adjournment application was to allow for the hearing of the substantive matter pending the resolution of the appeal to the Supreme Court of New South Wales, Court of Appeal of the jurisdiction decision (which concerns the first District Court judgment, underpinning the Bank’s creditor’s petition).
During this hearing, Mr Jaeger proposed that a Court should not, as a general rule, sequestrate the estate of a debtor where an appeal is pending against the judgment relied on for the bankruptcy proceedings, where the appeal is made in good faith and has arguable grounds (Ahern v Deputy Commissioner of Taxation (QLD) [1987] FCA 312 (1987) 76 ALR 137 (“Ahern”) at 148).
In the substantive proceedings, with reference to its Creditor’s Petition, the Bank seeks the sequestration of Mr Jaeger’s estate.
The power to grant the adjournment sought by Mr Jaeger is found in s.33(1) of the Act. Mr Jaeger seeks that the Court exercise the discretion to adjourn pending the resolution of his current application before the Supreme Court of New South Wales, Court of Appeal. The Bank did not challenge the Court’s power to adjourn, rather, it argued that in the current circumstances, it should not be exercised in favour of Mr Jaeger.
There was no dispute between the parties that, as a general proposition, a Bankruptcy Court should not order the sequestration of a debtor’s estate where an appeal is pending concerning the judgment which is relied upon by the creditor. Of course, this is provided that the appeal is made in good faith and concerns “genuine and arguable grounds” (Ahern at 148):
“…It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: Re Rhodes; Ex parte Heyworth (1884) 14 QBD 49 Bayne v Baillieu (1907) 5 CLR 64 and Re Verma; Ex parte DCT (1985) 4 FCR 181.
These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences...”
Although they emphasised different elements, both parties also appeared to agree that the matter is one for the proper exercise of the Court’s discretion.
Mr Jaeger emphasised that the discretion to adjourn involves the principle that a Bankruptcy Court must be satisfied that the debt giving rise to the creditor’s petition is actually due. That is, as in this case, if any genuine dispute exists as to the debtor’s liability, the dispute ought to be investigated. In the current case, that “dispute” is effectively before the Supreme Court of New South Wales, Court of Appeal.
The Bank emphasised that the general principle (referred to at [17] above) is not one that is not subject to variation. Plainly, that submission is consistent with the overriding proposition that the power to be exercised pursuant to s.33(1) of the Act is at the Court’s discretion.
In that light, the Bank pointed to authority of this Court where the Court did proceed to make a sequestration order while a relevant appeal decision was pending (Commonwealth Bank of Australia v Qureshi [2009] FMCA 1111 at [6]):
“What the court has to do in these instances is to balance the public interest in proceedings with the bankruptcy of an otherwise insolvent person with that person’s right to challenge the debt in respect of which the petition has been issued…”
Mr Jaeger pressed essentially, two propositions in his submissions. One, that a serious injustice would be caused to Mr Jaeger if the adjournment was not granted. Two, that the appeal has an arguable basis.
The parties referred to a number of relevant authorities, and as the relevant principles were “summarised” in Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8; (2017) 343 ALR 632 (at [36] – [39]).
In my respectful view, the exercise of the discretion in the current case is helpfully informed by what was said by His Honour Allsop CJ in Hutchings v Australia Securities and Investments Commission [2017] FCA 858 (at [25]):
“The long and the short of it is that where a refusal of an adjournment would result in a serious injustice to the party requesting the adjournment, the adjournment should only be refused if that is the only way that justice can be done to the other party and, secondly, that although the granting or refusal of an adjournment is a matter of discretion, if an appellate court is satisfied that the discretion has been exercised in such a way as would result in an injustice to one of the parties, such appellate court has both the power and a duty to review the exercise of the discretion.”
Mr Jaeger’s argument was that a “serious injustice” would arise for a number of reasons.
First, that if Mr Jaeger is correct in his argument in the appeal (that the first District Court judgment was made in the absence of jurisdiction to give such judgment) then the decision on which the Creditor’s Petition is based is void. It follows therefore, that there cannot be a “judgment debt” and therefore, no relevant act of bankruptcy.
In those circumstances, the refusal of the adjournment to Mr Jaeger would constitute a “serious injustice”. This is also said to be the case because the question as to the continuation of the appeal (which on Mr Jaeger’s submissions had at least an arguable case) would become a matter for the trustee in bankruptcy, rather than one for Mr Jaeger.
There is strength in this argument particularly, and additionally, given the extra costs that would be incurred if the adjournment is refused and the matter proceeded to a hearing of the Creditor’s Petition, and Mr Jaeger’s objection to it, prior to any determination of the appeal.
Further, if Mr Jaeger was successful in the appeal (in circumstances where his trustee elected to continue with the proceedings), any costs incurred in this Court could be seen as having been unreasonably incurred.
Second, this directs immediate attention to the matter of Mr Jaeger’s appeal and whether an arguable case exists.
It is trite, but necessary so as to inform what follows, to say that the immediate consideration is not concerned with the question of this Court going behind the first District Court judgment (which would most probably be the relevant consideration if the adjournment is refused). Rather, the immediate consideration is whether the argument raised by Mr Jaeger in the appeal has some reasonable, or arguable, basis.
For current purposes, the Bank’s submissions on the question of “going behind the judgment” are relevant to this consideration, but within a specific scope. That is, what may be relevantly drawn as bearing upon the question of the arguable case.
Mr Jaeger’s submissions on this question were comprehensive. The following is pertinent to the current consideration. The proceedings before the District Court (relevant to the first District Court judgment) concerned the Bank’s assertion that Mr Jaeger owed a debt as a result of certain investments arranged through a finance company, which subsequently purported to assign the debt to the Bank.
In the District Court at first instance, the matter was described as being “on its face, a simple claim for debt recovery” by the Bank against Mr Jaeger (see Bendigo and Adelaide Bank Limited & ABL Nominees Pty Ltd v Jaeger (unreported, District Court of New South Wales, Gibb DJC, 1 December 2017)).
The issue in the “first” appeal (per Leeming J) was as set out in Jaeger v Bendigo and Adelaide Bank Ltd (at [3]):
“There were many more issues agitated at trial than on appeal. The sole ground of appeal was a challenge to the finding by the primary judge that Great Southern Finance and ABL Nominees had assigned the first, third, fourth, fifth, sixth and seventh loans to Adelaide Bank “because there was no evidence that the purported assignments of those loans were signed by [the lender] as required by s 205(1) of the Civil Law (Property) Act 2006 (ACT)”. That section is in substance the Australian Capital Territory equivalent of s 25(6) of the Judicature Act 1873 (UK), found in s 12 of the Conveyancing Act 1919 (NSW), permitting the legal assignment of choses in action…”
The “first” Court of Appeal judgment dismissed the appeal of the first District Court judgment on the basis that Mr Jaeger’s submissions before that Court were outside of the matters raised by the Notice of Appeal, and were not raise before the District Court at first instance.
Mr Jaeger then raised, for the first time in the “second” District Court proceedings (the jurisdiction proceedings), the argument that the judgment made in the “first” District Court proceedings (from which the judgment debt which provides the foundation for the Creditor’s Petition in this Court flowed) should be set aside because the District Court had “no jurisdiction” to make the relevant order.
The “second” District Court rejected that argument. That is now the basis for the “second” appeal.
Mr Jaeger now argues that his “second” appeal does raise, at least, a reasonable argument.
The elements, relevantly, of that argument are as follows. One, the District Court proceedings arose out of “commercial transactions”. Mr Jaeger relied on a number of recent authorities to argue that the District Court had no statutory jurisdiction to consider such a matter (Sapphire Suite Pty Ltd v Bellini Lounge Pty Ltd [2018] NSWSC 1366 (“Sapphire Suite”), Nova 96.9 Pty Ltd v Natvia Pty Ltd [2018] NSWSC 1288 and The NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194; (2017) 324 FLR 261 (“The NTF Group”) at [41]-[46]).
Two, the District Court has jurisdiction only by statute (Flo Rida v Mothership Music Pty Ltd [2013] NSWCA 268 at [17] and Falls Creek Ski Lifts Pty Ltd v Yee (1995) 37 NSWLR 344 at 345-349 per Gleeson CJ (as his Honour was then), Rolfe AJA agreeing).
Three, and further, the District Court had no statutory jurisdiction to consider a matter involving an “equitable assignment” (in short, the assignment of loan deeds by sale notices) from the finance company to, in effect, the Bank. That is, the Bank sought the execution of a trust concerning more than $20,000 which means the District Court had no statutory jurisdiction (see s.134 of the District Court Act 1973 (NSW) (“the District Court Act”) and Mcdonough v Owners Strata Plan No 57504 [2014] NSWSC 1708; (2014) 17 BPR 33,573 at [10]).
In all therefore, and in the absence of any other power to give the judgment it did, the first District Court judgment was beyond jurisdiction. In these circumstances, it is a nullity (Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571 at 590).
In its submissions, the Bank sought to distinguish the circumstances of this case, as they relate to the matter of the jurisdiction of the District Court, and therefore relevant to the “second” appeal.
The Bank acknowledged that these recent judgments relied on by Mr Jaeger “determined that the grant of jurisdiction under s 44 of the DCA does not allow the District Court to determine matters arising out of commercial transactions” ([42] of the Bank’s written submissions and Sapphire Suite and The NTF Group).
The Bank argued that Sapphire Suite was concerned with guarantors in a lease transaction, and that The NFT Group was concerned with “outstanding rental and interest with a cross claim alleging unconscionable conduct” ([43] – [44] of the Bank’s written submissions).
That is, in both cases, and as specifically noted in The NFT Group, the proceedings “arose out of commercial transactions”. However, the Bank submitted in the current case, there were “no ongoing commercial dealings between the parties.” This is said to be because the proceedings “simply related to the recovery of monies following a loan default” (see also [45] of the Bank’s written submissions and the reference to Gibbs DCJ at [1] in Bendigo and Adelaide Bank Limited & ABL Nominees Pty Ltd v Jaeger (unreported, District Court of New South Wales, Gibb DJC, 1 December 2017) “on its face this is a simple claim for debt recovery”).
Before the Court now, both parties made reference to the phrase “arising out of commercial transactions” (as it appeared in the Supreme Court Rules 1970 (NSW), Part 14, r.2(1)(a)). Plainly, that phrase, as I respectfully understand it, sits at the heart of the reasoning in The NFT Group to find that the District Court did not have jurisdiction in that case (see The NFT Group at [45] and [46]).
The Bank sought to distinguish the facts and circumstances in The NFT Group to the facts of the current case with reference to what Gibbs DCJ said in the first District Court judgment (see above at [47]). However, in my view, it is at least arguable that what was also said in The NFT Group (at [45]), “the claim was a simple contractual claim in debt”, applies also to the current circumstances.
In my view, a strength in Mr Jaeger’s situation in the current case, at present, is that for current purposes, he does not need to make out the assertion that the District Court had no jurisdiction to make the order it did. Rather, he must show he has a reasonably arguable case in the “second” appeal, and that the denial of an adjournment of the current proceedings would therefore give rise to a serious injustice.
Further, even if the specific facts and circumstances of the two authorities on which Mr Jaeger relied are different to the current circumstances (about which I make no finding), it does not necessarily follow that the conclusion, that is, the proposition, reached in The NFT Group (at [46]) is not available to him in the circumstances of this case.
Even if the current circumstances were to be described as “a simple claim for debt recovery”, there is sufficient in the circumstances of this case (as generally set out in the various earlier proceedings involving Mr Jaeger and the Bank) to find that the argument, (“arising out of commercial transaction”), is at least reasonably arguable.
As explained in oral submissions before the Court, one, if not the, central complaint raised by the Bank now against the granting of the adjournment, is that Mr Jaeger has already had “ample opportunity” to raise the jurisdictional matter he now raises in the “second” appeal and with legal representation, failed to do so earlier.
In short, the Bank’s argument was that the principle of the finality of litigation should weigh heavily against the granting of the adjournment, particularly in circumstances where a full and final hearing of the merits of the relevant issues was conducted by the District Court.
The “first” District Court did not consider, or finally determine, the issue of its jurisdiction. The “second” District Court did. That the District Court (on the first occasion) conducted a full and final hearing on the merits of all issues, misses the very point which Mr Jaeger seeks to raise now. That is, it should not have done so given that it did not have jurisdiction to have conducted that full and final hearing in the first place. That the “second” District Court did consider the jurisdiction question does not provide any argument that Mr Jaeger cannot test this on appeal to the Supreme Court of New South Wales, Court of Appeal.
The Bank relied on “Anshun estoppel” to argue that Mr Jaeger was legally represented before the District Court (on the “first occasion”) and did not raise the jurisdictional issue. That latter proposition is plainly the case.
Before the Court, the Bank described Mr Jaeger’s attempt before the Supreme Court now as “trying his luck” for a third time to challenge the first District Court judgment.
The hearing (relevant to the first District Court judgment) before the District Court occurred on 30 and 31 October 2017. Judgments in Sapphire Suite and The NFT Group NTF were handed down on 5 September 2018 and 7 September 2017 respectively.
However, I accept Mr Jaeger’s argument now that the question of the jurisdiction of the District Court would not have been reasonably anticipated prior to the handing down of the two judgments on which he now relies.
I respectfully note that this is supported by what Parker J said in The NFT Group at [46]:
“Accordingly, the District Court would not have had jurisdiction. This is (as it seems to me) a surprising and unwelcome result. But I see no alternative to it given the decision in Forsyth and the wording of the rules at the relevant time.”
And as further noted by Harrison J in Sapphire Suite (at [13]):
“As Parker J said in The NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194 at [46], so in this case, a conclusion that the District Court does not have jurisdiction is both a surprising and unwelcome result’. Regrettably, however, it seems to me to follow as a simple matter of statutory construction, uninfluenced by what the primary judge perhaps somewhat wistfully described as ‘judicial memory.’ I would have come to a different view if my experience of appearing in claims against guarantors were thought to be a permissible indicator of the outcome.”
Conclusion
In all therefore, Mr Jaeger should be given the opportunity to pursue the argument he raised (for the first time before the “second”
District Court) before the Supreme Court of New South Wales, Court of Appeal. To do otherwise by refusing the application for the adjournment would lead to the possibility of a sequestration order being made, which I accept could lead to a serious injustice for Mr Jaeger. I will make the appropriate order.
I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of Judge Nicholls
Associate:
Date: 30 October 2018
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