CBA v Booth - [2001] FMCA 80

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CBA v BOOTH [2001] FMCA 80

BANKRUPTCY – petition – application to set aside – debt founded on guarantee to Bank – allegations of negligence by bank in relation to its own prudential standards – lack of evidence – previous applications to set aside judgment failed – application dismissed – sequestration order made.

Bankruptcy Act 1966 (Cth) s.52

Bank of Victoria Limited v Mueller (1925) VLR 642 considered.

Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 considered.

Vadasz v Pioneer Concrete (SA) Pty Limited (1994) 62 SASR 150 considered.

Prudential Assurance Co Limited v Annuity and Retirement Planning Agencies Pty Limited (unreported), Vic Supreme Court, Hansen J, 14 March 1996 considered.

Applicant:

COMMONWEALTH BANK OF AUSTRALIA ABN 48 123 123 124

Respondent:

MICHAEL BOOTH

File No:

SZ 301 of 2001

Delivered on:

11 September 2001

Delivered at:

Sydney

Hearing Date:

11 September 2001

Judgment of:

Raphael FM

REPRESENTATION

Solicitors for the Applicant:	Mr P T Sweney of Minter Ellison
For the Respondent:	Mr Michael Booth in person

ORDERS

Debtor’s notice of contention dismissed.
Sequestration Order made.
Scott Darren Pascoe to be Trustee of the estate of the debtor.
Costs of the application including any reserved costs and costs of the petition to be paid from the estate of the debtor in accordance with the Bankruptcy Act and Rules of the Federal Magistrates Court.
Noted: Act of bankruptcy occurred on 11 April 2001.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

SZ 301 of 2001

COMMONWEALTH BANK OF AUSTRALIA
ABN 48 123 123 124

Applicant

And

MICHAEL BOOTH

Respondent

REASONS FOR JUDGMENT

In this matter a creditor’s petition has been brought by the Commonwealth Bank of Australia against MICHAEL BOOTH relying on an act of bankruptcy committed by reason of the failure of Mr Booth to comply with the bankruptcy notice served on 21 October 2000 but extended to 10 April 2001. The original judgment was in the name of the State Bank of New South Wales. It is notorious that that bank was taken over by the current applicant and I have been provided with a copy of a certificate evidencing the operation of the Financial Sector (Transfers of Business) Act1999 signed by Mr K D Chapman of the Australian Prudential Regulation Authority. This certificate contains a schedule being a s.20 statement dealing with the transfer of business between the two banks. I am satisfied that the current applicant has standing to bring this petition.
At the commencement of the hearing Mr Booth provided me with a document entitled “cross-claim”. He also provided with me a document headed “Affidavit in support of Exhibit DCA” being a photocopy of an “application for lease and a settlement checklist”.
I was informed by the debtor that the judgment of 8 October 1999 upon which the bankruptcy notice was based in the sum of $151,616.84 arose out of a series of lease transactions financed by the creditor and guaranteed by the debtor. The debtor informed me that equipment which was purchased and financed by the leases was purchased by a company in which he had an interest from another company in which he had an interest.
The matter has a long history. The Statement of Claim was originally filed on 28 April 1998 and was eventually concluded by way of summary judgment on 15 April 1999 after a number of interlocutory orders and failures to comply by the debtor. The summary judgment of April 1999 resulted in a bankruptcy notice which the debtor applied to set aside and which was dismissed by consent on 19 October 1999. After a motion was heard by Judge Sinclair in the District Court on 8 October 1999 the original summary judgment was set aside and the judgment to which I previously referred was substituted. On 13 November 2000 Mr Booth made an application to the Federal Court to set aside the bankruptcy notice which was adjourned on several occasions whilst he brought proceedings in the District Court. On 23 February 2001 Judge Gibb dismissed the debtor’s application to set aside judgment but stayed execution whilst Mr Booth obtained legal advice concerning a possible cross-claim. On 23 March 2001 the stay of execution lapsed and on 10 April 2001 at the adjourned hearing of the application to set aside the bankruptcy notice the learned Registrar ordered that the application be dismissed and made a costs order against the debtor.
An act of bankruptcy was committed on 11 April 2001.
The creditor’s petition was issued on 12 June 2001 and served on 24 June. The debtor filed a notice of intention to oppose on 20 July and on 23 July filed a notice of motion in the District Court seeking to set aside the judgment ordered on 8 October 1999. That application canvassed matters contained in the notice of intention to oppose. On 7 September 2001 Acting Judge Boyd Bolan dismissed the application to set aside the judgment.
When the matter came before me Mr Booth informed me that he did not wish to proceed with the allegations concerning the breaches of the Crimes Act which he had made in the notice of intention to oppose and the document entitled “cross-claim” was utilised as his submissions. To the extent that the document raised new issues they were dealt with by Mr Sweney.
In essence, the argument raised by Mr Booth was that the State Bank had a policy which did not allow it to finance purchases between two related companies. He had told his finance broker that the vendor of the goods which the lessee was asking the bank to purchase was associated with the lessee. He believed (but he had no evidence to prove) that the broker told a junior officer of the bank. Notwithstanding this knowledge the bank went ahead with the leasing arrangements. If the bank had acted in accordance with its own guidelines it would not have done so, the lease would not have taken place and he would not have owed this money to the bank by way of guarantee. Mr Booth says that the actions of the bank constituted negligent misstatement by not advising him of the existence of the policy. He relies heavily on the document known as Exhibit “BCA” and in particular the settlement check list. He says that this shows that there was an exception allowed, namely that a credit reference check on the guarantor companies and a company extract of both companies was not provided. He says that if a company extract of both companies was provided it would have revealed the association between himself and the vendor company.
The document “BCA” has a section for general comments which states in part:
“This application is for Blue Book Directories Pty Limited which was incorporated in 11/95 and is now a parent company for Direct Services (Central Coast) and (Newcastle). They are continuing their expansion program … The guarantee of existing companies (i.e. Directory Services (Central Coast) and (Newcastle) are offered.”
The difficulty which Mr Booth has with this proposition is that although the name of the vendor company does appear as supplier in the application form it is much more likely from the extract in the general comments that I have set out that the reference to “the two companies” is not a reference to the supplier at all but a reference to Directory Services (Central Coast) and Directory Services (Newcastle). A check on these companies would not have revealed any connection between the supplier and the lessor.
It is not difficult to understand why a bank might be wary of financing by way of lease, purchases between two associated companies. There is plenty of room in such arrangements for uncommercial transactions. I posed this question to Mr Booth and he informed me that the transactions were not uncommercial and were perfectly above board. As Mr Booth’s argument for setting aside the guarantee revolved around the bank’s failure to advise him of the risks involved in such a transaction it would seem to me that he would be hard put to maintain such a case in the face of his own acceptance of the commerciality of those transactions.
More relevantly, however, Mr Booth was unable to produce any evidence that the finance broker had told the bank of the association between the two companies so he was not able to argue that the bank had deliberately turned a blind eye to an association that was known and which was not usually countenanced. The best he could say was that the bank was in some way negligent in not making very thorough investigations, not only of the leasing companies but also of the vendor of the equipment. He relies on some duty of care, between the bank and himself as a guarantor, to have conducted those investigations in support of his claim.
Mr Booth has a further evidential difficulty in connection with this submission. He has not established that it was bank policy not to provide finance in circumstances where the vendor of goods and the proposed lessee are related. But even assuming he is right and he is able to establish that the bank was negligent in not making the appropriate searches he still has to convince the court that the bank owed a duty of care to an incoming guarantor not to be negligent in respect of its own prudential activities. In the short time available to me I have found no authority to support this. However, I will go further and note that it is well established that the right to set aside a guarantee is an equitable remedy which allows the court considerable discretion as to the type of relief which is sought – Bank of Victoria Limited v Mueller (1925) VLR 642, Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447, Vadasz v Pioneer Concrete (SA) Pty Limited (1994) 62 SASR 150 and Prudential Assurance Co Limited v Annuity and Retirement Planning Agencies Pty Limited (unreported), Vic Supreme Court, Hansen J, 14 March 1996. In this case a Court of Equity would take note of the fact that the beneficiary of the arrangement was the vendor company in which the debtor had an interest. In my view and consistent with the authorities a court would be highly unlikely to grant relief in these circumstances even if the duty of care, the causation and the loss were all established.
In considering these matters in the light of s.52 of the Bankruptcy Act, I am strongly influenced by the fact that this debtor has made three attempts to set aside the judgment in the District Court and none of them have been successful. The most recent attempt was based upon the very arguments which have been advanced before me. The debtor says that he was not allowed to produce evidence because he had subpoenaed it but the subpoenas were not answered. He threatens an appeal but none has been made.
I think it is now time to draw a veil over the proceedings between the bank and Mr Booth. He has run hard and in many directions in attempts to convince judicial authorities that this money is not owed. To my mind the possibility of his success in any further such claim is negligible. I would not dismiss an otherwise valid petition on any of the grounds advanced before me today.
I am satisfied of the matters required by s.52(1) of the Bankruptcy Act and I make a sequestration order against the estate of the debtor Michael Booth. I note that Scott Darren Pascoe of Sims Lockwood, Level 24, Australia Square, 264 George Street, Sydney, NSW, 2000 has consented to act as Trustee and I so appoint him. I order that the costs of the application including any reserved costs together with the costs of the petition be paid out of the estate of the debtor in accordance with the Bankruptcy Act and Rules of the Federal Magistrates Court.

I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: 11 September 2001