CBA v Greyson
[2005] FMCA 852
•8 June 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CBA v GREYSON & ANOR | [2005] FMCA 852 |
| BANKRUPTCY – Creditors Petition – whether adjournment should be granted pending Appeal in Supreme Court – no appeal from judgment – appeal from decision to refuse stay of execution – statement of account not evidence of forgiveness of debt or compromise – writing off debt for accounting purposes not relevant. |
| Supreme Court Act (WA), s.7(1)(c) Bankruptcy Act1966, ss.52(1), 52(2)(b) |
| Wilson v Metaxas (1989) WAR 285 State Bank of Victoria v Parry (1989) WAR 240 Ling v Enrobook Pty Ltd (1997) 74 FCR 19 Re Schmidt; ex parte Anglewood Pty Ltd (1967) 13 FLR 111 Re Kostezky; ex parte Milder Elfman Szmerling Krycer Pty Ltd (1996) 67 FCR 101 Dowling v Colonial Mutual Life Assurance Society (1915) 20 CLR 509 Adamopoulos v Olympic Airways South Australia (1990) 95 ALR 525 |
| Applicant: | COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) |
| First Respondent: Second Respondent: | DONALD ALLAN GREYSON YVONNE FRANCES GREYSON |
| File Number: | PEG 64 of 2004 |
| Judgment of: | McInnis FM |
| Hearing date: | 8 June 2005 |
| Delivered at: | Melbourne |
| Delivered on: | 8 June 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr A. McLean (by Audio Link) |
| Solicitors for the Applicant: | Corrs Chambers Westgarth Solicitors |
| First Respondent in person and on behalf of the Second Respondent: | Mr D.A. Greyson (by Audio Link) |
ORDERS
A sequestration order be made against the estates of Donald Allan Greyson and Yvonne Frances Greyson, (“the Respondent Debtors”), of 9/2 Muriel Avenue, Woodlands, Western Australia.
Mr. Oren Zohar of Korda Mentha, Level 11, 37 St Georges Terrace, Perth, Western Australia be appointed as Trustee of the Estate of the Respondent Debtors.
The Applicant's costs of the petition be fixed in the sum of $4,610.50, be paid from the Estate of the Respondent Debtors in accordance with the Bankruptcy Act 1966.
The Court notes the date of the Act of Bankruptcy is 4 May 2004.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
PEG 64 of 2004
| COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) |
Applicant
And
| DONALD ALLAN GREYSON AND YVONNE FRANCES GREYSON |
Respondents
REASONS FOR JUDGMENT
(Revised from transcript)
This is a Creditors Petition filed by the Commonwealth Bank of Australia, the petitioning Creditor, against Donald Allan Greyson and Yvonne Frances Greyson, (“the Respondent Debtors”). The Creditors Petition relies upon what is asserted to be a debt owing to the Applicant Creditor in the amount of $731,249.99 for which the Applicant Creditor, it is claimed in the petition, had obtained judgment against the Respondent Debtors in the Supreme Court of Western Australia on 29 October 2002.
The Creditors Petition has had a somewhat lengthy history. The background to these proceedings has been set out in a Chronology provided by the Applicant Creditors to this Court and is also set out in the Outline of Submissions in support of the Creditors Petition.
I should indicate at the outset that the First-named Debtor appears on his own behalf and in the absence of any objection has sought to appear on behalf of the Second Respondent and I have permitted him to do so.
The Outline of Submissions and Chronology to which I have referred were filed with the Court on or about 7 June 2005 and I am told copies were forwarded by facsimile to the Respondent Debtors on 6 June 2005. However, the Respondent Debtor at the commencement of these proceedings indicated that he had not received a copy of either the Outline of Submissions or the Chronology. Hence, at the commencement of this hearing the matter was stood down so that a copy of the relevant Outline and Chronology could be given to the First‑named Debtor.
When the matter resumed the First-named Debtor indicated that he had not had sufficient time to consider some of the legal principles relied upon in the Applicant Creditor's Outline of Submissions and, as I understood it, sought further time to consider those matters, and although no formal application was made for an adjournment, I indicated at the commencement that I had formed the view that the matter should proceed. I formed that view based upon a proper reading of the Outline of Submissions where the Applicant Creditor addresses the Respondents' grounds of opposition to this petition and does so in paragraphs 15 to 29, which supply approximately one and a half pages of material and refer to a number of well-known and established authorities in relation to the issues relevant to this application. The material otherwise sets out a Chronology, both in the outline and in the separate document entitled Chronology, and the Outline of Submissions itself annexes transcript from proceedings in the Supreme Court of Western Australia in a number of hearings, all of which were matters where the First Debtor appeared. In those circumstances, having regard to the brevity of the outline and that the annexure was an annexure of a transcript of proceedings held in the presence of the First Debtor and otherwise the outline referred to authorities which are readily available to both represented and unrepresented parties before this Court, it was my view the matter should proceed.
I am strengthened in that view, having now heard the Respondent Debtor's Submissions, which I note are oral submissions in addition to submissions in writing filed by the Respondents on 27 April 2005 together with what is entitled as the “Respondents' Supplementary Submission” filed 31 May 2005. The submissions are to be read against the backdrop of affidavit material in support provided by the Respondents on the Court file. The combination of that material, and having heard the oral submissions from the First Debtor, has confirmed my view that it is appropriate the matter should proceed.
It is noteworthy that this petition has, as I have indicated, been the subject of a number of adjournments and has had a somewhat chequered history. It is appropriate that I recite the background to the proceedings, which does not seem to be in issue between the parties. As I indicated earlier, the judgment which forms the basis of the petition and of course was the basis of a bankruptcy notice was obtained on 29 October 2002 in the Supreme Court of Western Australia. The judgment was a default judgment pursuant to Order 62A Rule 4 of the Supreme Court Rules in proceedings CIV 2259 of 2002. A judgment was granted in the following terms:
a)that the Respondents pay the Applicant the sum of $1,294,983.79 and interest thereon at the rate of $472.15 per day from and including 30 October 2002;
b)the Respondents were to provide within 28 days vacant possession of various properties; and
c)the Respondents were to pay the Applicant's costs of the action on a solicitor and own client basis.
It does not appear to be disputed that the properties referred to in that judgment have been sold. What is in dispute as to whether or not there is a debt due and owing under the judgment in the sum of $746,802.86, although it should be noted that both before this Court and elsewhere the amount of that judgment debt, that is, the nonpayment of that judgment debt is not disputed.
On 25 August 2003 the Applicant Creditor issued a bankruptcy notice against the Respondent and that notice was served on 13 April 2004. On 11 May 2004 an application was made by the Debtors to the Federal Magistrates Court in proceedings number W88 of 2004 seeking to set aside the bankruptcy notice. That application was heard by a Registrar. On 28 May 2004 the Respondent Debtors filed an application in the Supreme Court of Western Australia to stay execution of the relevant judgment. A stay application was listed for
5 July 2004. The Respondent Debtors advised the Federal Magistrates Court of the stay application as evidence to support the application to set aside the bankruptcy notice. On 9 June 2004 a Registrar dismissed the application to set aside the bankruptcy notice on the basis that it was out of time, but also because there was no appeal brought in the Supreme Court of Western Australia in relation to the judgment or any basis established to stay the operation of the judgment.
As I indicated earlier, on 11 June 2004 the Applicant Creditor issued the Creditors Petition in this Court which had been originally listed for hearing on 19 July 2004. The original hearing date for the stay application in the Supreme Court of Western Australia of 5 July 2004 was vacated by the Respondent Debtors and the matter relisted to be heard on 6 September 2004. On the first return date of the Creditors Petition in this Court, the Respondent Debtors relied upon the outstanding stay application in the Supreme Court as being a reason to adjourn the petition. On that basis the petition was adjourned to 20 September 2004. On 6 September 2004 Master Newnes dismissed the stay application. A transcript of those proceedings has been provided as an Annexure to the Applicant Creditor's Outline of Submissions. It is relevant to note the following extracts which appear from that transcript to which the Court has been referred by counsel for the Applicant Creditor. At page 8 of the transcript the following appears:
“…
THE MASTER: But the bankruptcy notice is based upon the judgment.
MR GREYSON: It is.
THE MASTER: Yes, and the judgment hasn't been paid. Whatever accounting treatment the bank might have applied to the debt in its books of account, the judgment hasn't been paid. If it has been paid, I would have thought it's a matter for the Bankruptcy Court. You say that the amount has been discharged in some way, waived or whatever, and there's no process of execution in this court. I don't for a moment see how it's a matter for this court. We can't restrain proceedings in the Federal Court in its bankruptcy jurisdiction.
…”
Further in the transcript the following exchange appears:
“…
THE MASTER: The bank just wrote it off as a bad debt, didn't they?
MR GREYSON: They appropriated that – it is a credit to the account, master. They can term it whatever they like but they have appropriated a credit to the account and as I included in my documentation, in the case of the High Court of Brown v Bank of New South Wales it was stated very clearly that the bank cannot object to its own appropriations and the mortgage.
THE MASTER: What's it appropriating?
MR GREYSON: They have appropriated a credit to the bank account.
…”
Further in the same transcript the following appears at page 10:
“…
THE MASTER: Yes, thank you, Mr Greyson, it seems to me that there is no grounds established for a stay. There’s no appeal against the judgment. The basis of the contention that the sum owing is now zero is an accounting by the bank. The fact is the bank has a judgment in the order of almost $1.3 million. It's not suggested that it has received funds in that sum. The funds it has received are plainly, I think on your own case, some 6 or 7 hundred thousand dollars short of that amount, so the judgment has not been discharged.
There is nothing before me that would indicate that there is any basis upon which there should be a stay of execution to the extent there is execution. If you say that the account has been fully discharged by payments, that may well be a matter you want to raise in the bankruptcy proceedings on the basis that there is no debt now owing, but as I understand it, the only proceedings which are live at the moment in respect of the judgment are the bankruptcy proceedings in the Federal Court.
…”
On 14 September 2004 the Respondent Debtors lodged an appeal of the Master's dismissal of the stay application. A Creditors Petition in this Court was further adjourned on 20 September 2004 to 18 October 2004 pending determination of the application to strike out the appeal. I note that pursuant to s.7(1)(c) of the Supreme Court Act (WA) – an appeal from a decision of a Master proceeds to the Full Court upon the same basis as appeals from Judges. A notice of appeal sought to set aside the interlocutory decision of the Master dismissing the stay application. Leave is required under Order 63A of the Rules to be obtained to appeal from an interlocutory order. That process is similar throughout the various states in Australia. No application for leave to appeal was brought, and accordingly on 1 November 2004 the Master struck out the notice of appeal and the appeal was dismissed.
The Respondent Debtors by an application filed 2 November 2004 in the Supreme Court then sought an extension of time to appeal and leave to appeal. The Master, by reasons delivered on 28 February 2005, considered whether an extension of time should be allowed to make an application for leave to appeal and determined that leave should not be granted. The Respondent Debtors then sought orally leave to appeal that decision, which was then refused. Again, the transcript of the proceedings before the Master had been provided in relation to those proceedings which occurred on 28 February 2005. The Court's attention has been drawn to the following part of that transcript which appears at page 10 where the Master states as follows:
“…
Yes, I just stated a moment ago that in my view the appeal itself has no reasonable prospect of success, and on that basis I refuse the extension of time. You have made an oral application for leave to appeal against that dismissal and I have refused that application for leave to appeal, again on the basis that the proposed appeal has no reasonable prospect of success but, as I say, you can now go to the Court of Appeal and seek an extension of time.
…”
An application for leave to appeal to the Full Court of the Supreme Court of Western Australia was filed by the Respondent Debtors on 2 March 2005. It is useful at this point to set out the most recent information provided by the Respondent Debtor in relation to those proceedings. In the affidavit sworn by Donald Allan Greyson on 13 May 2005, after reciting the progress of the proceedings in the Supreme Court of Western Australia, he states the following in paragraph 4:
“…
“The actions currently in the Supreme Court of Western Australia numbered 2259 of 2002, FUL 134 of 2004, CIV 2408 of 2004 are currently under appeal to the Appeal Court of the Supreme Court of Western Australia, number CACV 9 of 2005. (All Annexured to the affidavit of Donald Greyson submitted with the Motion to Adjourn lodged on the 14th April 2005).
This appeal was subject to a directions hearing before Registrar Eldred of the Supreme Court of Western Australia on 20 April 2005.
The outcome of that hearing was that the parties agreed on the terms of the Appeal Book Index and it is to be completed by 30th June 2005, the Court will then set a hearing date for the Appeal.
…”
In his written submissions the First-named Respondent Debtor refers to what are described as the facts supporting the submission. It is useful to set out those facts as they appear in the document provided by the Respondent Debtors. The document states under the heading “Facts Supporting Submission”:
“(1)Donald and Yvonne Greyson are the only directors and shareholders of Greyson Nominees Pty Ltd as trustee for the Greyson Family Trust ACN 008 791 384 (The Company). In 1996 the company entered into a loan agreement with the Commonwealth Bank of Australia (The Bank) to fund their business expansion.
(2)In 1996 the Company entered into a Loan Contract with the Bank under the Bank's Usual Terms and conditions.
(3)In October 2001 the Bank placed the company into receivership as per the contracts usual terms and conditions clause 10 Default.
(4)During the period of receivership October 2001 to June 2003 the Bank transacted many debits and credits to the account opened as per clause 10.6 of the usual terms and conditions styled the "Bills Matured Account". On the 23 June 2003 the Bank closed the account with a balance of zero. The Contractual Indebtedness of the company then became zero.
(5)Clause 10.6(b) of the usual terms and conditions states clearly that any amount due under default will be debited to the Bills Matured Account.
(6)Clause 10.8 of the usual terms and conditions states clearly that the borrower is liable for the balance of the Bills Matured Account, the balance of that account is clearly identified on the bank statement for that account at 30th June 2003 as zero.
(7)As per advice from Registrar Stanley of the Federal Court of Australia Perth Registry, the Respondents began an action in the Supreme Court of Western Australia to permanently Stay the Execution of Order 1 of the Judgment and orders made in that Court on the 29 October 2002, that action and subsequent actions are currently the subject of an appeal to the Appeals Court of the Supreme Court of Western Australia.
(8)The action in the Supreme Court of Western Australia is under Order 46(6) Annexure 01.
(9)Clause 2.13 of the usual terms and conditions clearly states that all computations, determinations, accounts, financial statements, records and books of account must be kept in accordance with the Corporations Law and Accounting Standards under the Corporations Law.
(10)Section 286 of the Corporation Act states -
286 Obligations to keep financial records
(1)A company, registered scheme or disclosing entity must keep written financial records that:
(a) Correctly record and explain its transactions and financial position and performance; and
(b) Would enable true and fair financial statements to be prepared and audited.
The obligation to keep financial records of transactions extends to transactions undertaken as trustee.
(11)Under the Corporations Act s.286(1) the Bank must record all transactions in the Books of the Bank, the Nominated Account and Bills Matured Account as required under the loan Contract and usual terms and conditions have in the Books of the Bank a zero balance, in fact there are no accounts as they have been closed by the Bank. The Contractual Indebtedness of the company thus is zero.
(12)The Bank has no contractual right within the Loan Contract or usual terms and conditions to transact, charge or debit any amount to any account other than the Nominated Account or the Bills Matured Account.
(13)Federal Magistrate MCINNIS during the hearing to adjourn this matter on 18th May 2005 committed to hear our application to adjourn and carry over our affidavits of 13th April 2005 to the set down hearing date of 8th June 2005, we will refer to those documents during our submission.”
Under the heading “Summation”, the document goes on to state:
“Given the facts presented we seek orders of the application for a sequestration order against the defendants be adjourned until the matters before the Supreme Court of Western Australia are resolved”.
Those facts supporting the submission of the Respondent Debtor are consistent with the main thrust of the Respondents opposition to the petition which was filed 13 July 2004 and otherwise consistent with the affidavit material filed and served for and on behalf of the Respondent Debtors.
The Applicant Creditor has submitted in its outline that the first ground relied upon the pending appeal in the Supreme Court of the Master's refusal to grant an extension of time for leave to appeal his decision dismissing the stay application. It is submitted that in order for the Respondent Debtors to succeed in the Supreme Court it must be shown the decision in respect of which leave is sought was wrong or at least attended with sufficient doubt to justify the grant of leave and in addition a substantial injustice would be done by leaving the decision unreversed (see Wilson v Metaxas (1989) WAR 285 at 294 per Malcolm CJ).
It is argued on behalf of the Applicant Creditor that the appeal relates to the ambit of the power to stay execution in the context of mortgage securities and writs of possession and the law in that area is well settled. A judgment has been obtained. It was submitted in this case, on the face of it the Applicant Creditor is entitled to proceed to execution without delay (see State Bank of Victoria v Parry (1989) WAR 240 at 244). It is submitted and I accept that in this case the Master has already determined that the Supreme Court of Appeal does not raise any special point of importance in relation to staying execution outside the recognised categories. That much is clear from the transcript.
It was further found in the reasons delivered on 25 February that the appeal has no prospects of success. The Applicant argues that the Master correctly held that the Applicant held a judgment which was accepted by the Respondents as being valid and not subject to any application to set it aside and that the Court has no jurisdiction to then grant a stay. It is submitted that irrespective of any of the terms of the loan contracts referred to, the Applicant Creditors rights under the judgment exist as a separate legal obligation. It is further submitted that the act of writing off a debt for accounting purposes does not extinguish the liability of a company or the Respondents' liability to the Applicant. Under the guarantees the Applicant has an obligation when asked by a Guarantor to advise their debt. Hence, the practice of the Applicant is to maintain a record of legal debt which was provided to the Respondents. It was argued this is not misleading and deceptive, but simply standard accounting practice.
It is otherwise argued that in this case the Respondent Debtors' affidavit material does not show any basis upon which the appeal pending is likely to succeed in the Supreme Court of Western Australia. If the Court is satisfied on the material before it that there has been proper service of the petition and that the amount owing is still owing by the Debtors to the petitioning Creditor, then it is argued that pursuant to s.52(1) of the Bankruptcy Act1966 (“the Act”) the Court must make a sequestration order. It would only be where the Debtors are able to satisfy the Court that they are able to pay the debt or there is some other sufficient cause that a sequestration order should not be made that the Court has a discretion to dismiss the petition.
As a matter of law it is submitted, and I accept, that the Respondent Debtors must establish that they have good prospects of success (see Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 25) and that they have what is described as a real claim that is likely to succeed having sufficient validity to justify a dismissal or adjournment of the petition (see Re Schmidt; ex parte Anglewood Pty Ltd (1967) 13 FLR 111 at 116 and Re Kostezky; ex parte Milder Elfman Szmerling Krycer Pty Ltd (1996) 67 FCR 101 at 106).
It is argued for and on behalf of the Applicant that in this case the Respondent Debtors have not adduced evidence in relation to their financial position and accordingly, once the Court is satisfied that the Petitioning Creditor has complied with the matters required in s.52(1) of the Act, it will only be in exceptional circumstances that it will refuse a sequestration order under s.52(2)(b) (see Dowling v Colonial Mutual Life Assurance Society (1915) 20 CLR 509 at 521). In the circumstances it is submitted that as the appeal was held to have no prospects of success, it should not form the basis of any application for a stay and a sequestration order ought to be made.
Mr Greyson, who appeared on his own behalf and, as indicated, for and on behalf of the Second Respondent Debtor, has made the point quite clearly that in these proceedings the consequences of a sequestration order are significant. He has referred to well-known authorities which relate to the quasi-penal consequences of bankruptcy proceedings and in particular a sequestration order. Specifically he referred the Court to a decision of the Full Court in Adamopoulos v Olympic Airways South Australia (1990) 95 ALR 525 and in particular the following extract from the joint judgments of their Honours Burchett and Gummow JJ where they said at page 531 the following:
“An appeal against the very judgment, which founds the bankruptcy notice, is a matter of significance requiring advertence to the possibility that the appeal may be justified. Nor is it realistic to entertain any confidence, in other than a special case, that a trustee in bankruptcy will decide to pursue an appeal with merit. A much more likely consequence of a sequestration order is the abandonment of the appeal, whatever its merits, and its dismissal for non-prosecution”.
Mr Greyson also makes the point in his submissions that there is clear prejudice to him in the conduct of his business as the holder of a liquor licence and as the licensed manager of a tavern. I accept without reservation that a sequestration order in this case, as indeed in many other cases is a significant step. In my view, however, the material relied upon by the Respondent Debtors is misconceived. There is indeed no appeal pending in relation to the judgment which forms the basis of the bankruptcy notice. The application currently pending in the Supreme Court which arises from a failed attempt to obtain a stay of execution of the judgment does not of itself constitute an appeal from the judgment itself. The judgment debt remains due and owing.
The arguments advanced for and on behalf of the Respondent Debtors, in my view, are also misconceived. I am satisfied that the views expressed by the learned Master to which reference was made earlier in this judgment are accurate in terms of the prospects of success of the appeal pending in the Supreme Court of Western Australia. Obviously the ultimate outcome of those proceedings will be a matter for that Court, but it is relevant for this Court to at least analyse the material in a manner which would result in some assessment being made as to whether or not there are good prospects of success or whether there is a real claim that is likely to succeed, having sufficient validity to justify a dismissal or, in this case, adjournment of the petition in accordance with the authorities correctly cited by the Applicant Creditor in the written submissions before this Court.
The documents to which reference has been made by the Respondent Debtor which are set out in the Respondents' submissions in opposition are documents which, in my view, do no more than demonstrate that there has been what could be described as a ‘write-off’ of the debt. The arguments otherwise advanced for and on behalf of the Respondent Debtors are, as I have indicated, misconceived. Where the Applicant Creditor has for accounting purposes written off the debt, then that does not of itself provide any or any proper basis upon which this Court can conclude that the debt is no longer owing. It does not provide any or any proper basis of evidence of forgiveness of debt or other compromise, nor am I satisfied on the material before me that there are any contractual rights vesting in the Respondent Debtors which would otherwise satisfy this Court as a Court in bankruptcy that the amount of the judgment is not still owing. Leave as is further and more importantly that the Applicant Creditor is not entitled to pursue a sequestration order, relying as it does on the petition and the supporting affidavits. Those supporting affidavits I am satisfied include the more recent updated affidavits of continuing debt and search and earlier affidavits in relation to service, but otherwise I am satisfied the affidavit material relied upon by the Applicant Creditor complies with the requirements of the Act and in particular s.52 of that Act.
In my view, there is no basis upon which this Court should permit the proceedings to be further adjourned and accordingly it follows that as I am satisfied that the requirements of the Bankruptcy Act have been complied with for and on behalf of the Applicant Creditor and in particular that the debt is still due and owing, it follows that orders should be made of the kind sought by the Applicant Creditor. The Applicant Creditor has provided the Court with a draft sequestration order and I see no reason why that order, together with the costs fixed in the sum requested, should not be made.
I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate: Brooke Evans
Date: 8 June 2005
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