CBFC Ltd v Callen
[2004] FMCA 894
•22 November 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CBFC LTD v CALLEN | [2004] FMCA 894 |
| BANKRUPTCY – Sequestration Order – whether grounds to go behind judgment – whether sufficient grounds – Cross-claim or counterclaim against related corporation relevance of other proceedings stayed – whether conflict of interest of bank officer relevant. |
Bankruptcy Act 1966, ss.52, 52(2)(b)
St George Bank Ltd v Helfenbaum (1999) FCA 1337
Re Longo; Ex parte Longo (1995) 57 FCR 523
Corney v Brien (1951) 84 CLR 343
| Applicant: | CBFC LTD |
| Respondent: | IAN WAYNE CALLEN |
| File No: | MLG 1089 of 2004 |
| Delivered on: | 22 November 2004 |
| Delivered at: | Melbourne |
| Hearing Date: | 22 November 2004 |
| Judgment of: | McInnis FM |
REPRESENTATION
| Counsel for the Applicant: | Mr. M McNamara |
| Solicitors for the Applicant: | Alison Harewood |
| Respondent: | In person |
ORDERS
That a sequestration order be made against the estate of Ian Wayne Callen.
The applicant creditor's costs be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.
The Court notes that the date of the act of bankruptcy is 12 August 2004.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1089 of 2004
| CBFC LTD |
Applicant
And-
| IAN WAYNE CALLEN |
Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
This is a creditor's petition by CBFC Ltd, (the ‘creditor’), which was filed with the usual supporting documents in relation to search and proof of debt. Ian Wayne Callen (the debtor), by a notice of intention to oppose the petition filed on 17 September 2004 effectively refers to four grounds upon which the petition is opposed. I shall return to the grounds presently.
By way of background, it is not in dispute that in this matter the judgment debt, which was the subject of the relevant bankruptcy notice dated 11 March 2004, was obtained by the creditor against the debtor in proceedings in the Magistrates Court of Victoria at Melbourne on 29 January 2004. There is a certified extract of the order made by that court and it is noted that the order was made by consent. I further note that the order was made then against the respondent debtor and also a company of which at all material times he was a director, namely Callen Australia Pty Ltd (Callen Australia)
The certified extract of the judgment relied upon in the bankruptcy notice was further evidence of the judgment being obtained, as I indicate, by consent in proceedings which I accept concerned a claim by the creditor pursuant to a hire-purchase agreement entered into between the creditor and Callen Australia on or about 25 August 2000 in respect of certain equipment. The debtor was sued as guarantor in respect of that hire-purchase agreement. It is also not in dispute that on 29 January 2004 when the consent order was made in favour of the creditor against the debtor and Callen Australia that an inquiry was made as to whether or not the debtor could pay the judgment by instalments. A subsequent application was made to the court for that purpose and refused on 20 February 2004. There was a review of the refusal of the application for an instalment order and that was refused by a Magistrate on 13 April 2004 with a consequent order for costs with a stay of three months in relation to those costs.
In his notice of intention to oppose the petition the debtor, as I have indicated, raises a number of grounds. Grounds 1 and 4 are related. They provide:
“1That a Cross demand and Counterclaim exceeding the sum specified by the Applicant has been served on the Applicant.
…
4That the Respondent Debtor asks the honourable court to set aside the Applicants Petition until such time as the proceedings of cross claims and counterclaims are have been determined.”
There are two further grounds relied upon in the notice. They are grounds 2 and 3 as follows:
2That the Deponent John Patrick Doherty in these proceedings an employee of the Commonwealth Bank of Australia (CBA) acts in a conflict of interest situation being the manager of CBFC and CBA associated accounts of the Respondent and because of cross claims has and is able to prejudice proceedings.
3That the Respondent Debtor due to illness was unable to comply with the requirements of the Bankruptcy Notice VN 350 of 2004 by the due date and sincerely apologizes to the Court.
In support of his notice of opposition the debtor relies upon two affidavits, the first being an affidavit sworn by him on 17 September 2004 and the second a more substantial affidavit sworn by him on 29 October 2004. I also permitted the debtor to tender as exhibit R1 a copy letter dated 23 April 2003 addressed to Ebsworth and Ebsworth from John Doherty.
The creditor, apart from relying upon the usual affidavit material, in order to comply with the requirements of the Bankruptcy Act 1966 (the Act) and in particular the formal requirements of s.52 of the Act, has this day been granted leave to file and rely upon further affidavit material, namely an affidavit of John Patrick Doherty sworn
22 November 2004 being an affidavit of debt and an affidavit of Dean Kristian Groves sworn 22 November 2004 being an affidavit of search. Those affidavits are required to be filed by way of update of the earlier affidavits which have been filed and served in support of the petition.
I should indicate that on the basis of that affidavit material that the formal requirements of s.52, have been made out and it is not necessary for me to repeat those matters in this decision.
The substance, however, of the opposition seems to be, in my view, very much reliant upon those grounds numbered 1 and 4 as a combined ground 2 of the notice of intention to oppose. I can deal briefly with ground 3 relating to alleged illness on the basis that I am satisfied that on the material before me that there is no evidence which would support that contention and in the circumstance that ground fails.
Dealing with the issue of a counterclaim, it is noted that in fact proceedings are currently stayed both in the County Court and the Supreme Court. In the affidavit relied upon by the creditor sworn by Mr Doherty on 12 November 2004 he refers to the affidavits of the debtor and in particular the affidavit of 17 September 2004 and notes a reference to other proceedings, that is, the counterclaim relied upon by the debtor. In his affidavit Mr Doherty states:
“The counterclaim or cross-claim was dated 15 January 2004 and was purportedly brought by Mr Callen, Callen Cricket Bats Pty Ltd and Callen Australia against the Commonwealth Bank of Australia in consolidated Magistrates Court proceedings. Those proceedings were subsequently transferred to the Supreme Court in about early 2004 due to the quantum of the counterclaim and are now proceedings number 5521 of 2004 in the Supreme Court of Victoria at Melbourne (“the Supreme Court proceeding”). The counterclaim was later superseded by an amended counterclaim dated 11 June 2004 filed on 21 September 2004”.
The deponent further states:
“CBFC Ltd is not, and never has been, a party to the Supreme Court proceeding”.
It is common ground in this application that at all material times the creditor is a wholly owned subsidiary of the Commonwealth Bank of Australia. Mr Doherty in his affidavit continues, however, in relation to the Supreme Court proceedings and states:
“That on 10 November 2004 Master Evans made orders in the Supreme Court proceeding, inter alia, that the amended counterclaim filed 21 September 2004 be stayed”.
In addition, he states in his affidavit in relation to the counterclaim in the Supreme Court proceedings:
“Mr Callen by writ and statement of claim filed on 1 December 2003 commenced proceedings C103090023 against Commonwealth Bank of Australia and CBFC Ltd in the County Court of Victoria at Melbourne”.
The written statement of claim was served on the defendants in those proceedings on about 26 August 2004. On 4 November 2004 orders were made by his Honour Judge Robertson in the County Court proceedings upon the return of the defendant's summons filed 20 October 2004 that the proceedings between the debtor and Commonwealth Bank of Australia and CBFC be stayed until further order.
It is clear that in considering the issue of whether or not the debtor has provided grounds for refusal of a sequestration order that when determining if there is sufficient cause the court is able to take into account the existence of a set-off or cross-claim. I rely upon and apply the authority to which counsel for the creditor has referred, namely the decision of Sundberg J in the matter of St George Bank Ltd v Helfenbaum unreported decision (1999) FCA 1337 (24 September 1999) and in particular the follow extract:
“The existence of a cross-claim may be a "sufficient cause" within s 52(2)(b) for declining to make a sequestration order: Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 25. It is for the debtor to establish the existence of "sufficient cause": Cain v Whyte (1933) 48 CLR 639 at 645-646; Ling at 24. He must establish that he has a real claim against the creditor that is likely to succeed. If the Court is satisfied that there is such a claim, and that its quantum is likely to equal or exceed the creditor's claim, it will not make a sequestration order. If the claim is likely to be less than the creditor's claim, the Court will require the debtor, if he is to avoid a sequestration order, to pay the difference between the judgment debt and the amount he is likely to recover on his claim. … A debtor does not establish a real claim that is likely to succeed merely by producing a statement of claim in an action against the creditor: Re Rivett; Ex parte Edward Fay Ltd (1932) 5 ABC 182; Player at 282, or by pointing to the existence of current litigation against the creditor: cf Re Douglas Griggs Engineering Ltd [1963] 1 Ch 19 at 23. While the Court does not try the cross-claim in advance, the debtor must adduce sufficient evidence to show that it is a real claim which is likely to succeed: cf Vogwell v Vogwell (1939) 11 ABC 83 at 88; Player at 282”.
Applying the relevant law it is not enough for a debtor to simply produce, as in this case, proceedings which have been filed in another court. It is not enough to simply assert that there is a counterclaim or cross-claim in existence. It is particularly relevant to note that in any event in both of those matters a stay order has been made in one of the matters. It is difficult to see, in my view, how any claim against the Commonwealth Bank of Australia could now be used as a basis upon which this court could hold there is sufficient cause within the meaning of s.52(2)(b) of the Act to resist the petition, that is, to support the notice of opposition that has been filed in relation to a petition by this particular applicant creditor. Nevertheless, I apply and take into account the law referred to by Sundberg J in St George Bank Ltd.
It seemed clear to me on a proper reading of all the affidavit material that there has been a long history of the relationship between the debtor, Commonwealth Bank of Australia and the creditor. There is no doubt in my mind that the debtor feels genuinely aggrieved by what he sees as a lack of consultation and perhaps a grievance in relation to what might be described as a lack of general support for the business venture that he was engaged in through his companies which I have no doubt he still firmly believes ought to have been given the chance of success.
Upon a creditor's petition, however, it is important to note that the court's powers in dealing with matters of this kind are limited. First, they are limited in relation to the law which applies when it comes to assessing the issue of whether or not there are grounds for refusal of a sequestration order, that is, whether there is sufficient cause based upon the existence of a cross-claim or counterclaim.
I infer from the grounds relied upon by the debtor that there is a suggestion that this court should consider going behind the consent judgment which, as I have indicated, was the subject of a certified extract and which was entered on 29 January 2004. In considering whether or not to go behind a judgment of that kind I accept and apply the authority of the court in the matter of Re Longo; Ex parte Longo (1995) 57 FCR 523 at page 529 as follows:
“The circumstances he deposes to do not come within the exception to the general rule noted by Fullagar J in Corney v Brien. The judgment obtained in Ex parte Banner; Re Blythe was one obtained dishonestly in what amounted to blackmail and as the observations of the Lord Justices show, the circumstances of that case stand in stark contrast to the ones in the instant case. Before a court will look behind a judgment based on a compromise there must be shown in the circumstances of the compromise “such suspicion of unfairness or impropriety as to justify [the] Court in looking behind the judgment to inquire into the consideration for the debt or the propriety of the compromise” (per Astbury J with whom Clauson J concurred in Re A Debtor [1929] 1 Ch 125 at 127)”.
I note though it is sufficient for the present purposes to recite what appears in the headnote of that decision where the court having applied what the High Court had decided in the matter of Corney v Brien (1951) 84 CLR 343 the following:
“A court will not look behind a judgment based on a compromise, except in exceptional circumstances. There must be shown in the circumstances of the compromise such suspicion of unfairness or impropriety as to justify the court inquiring into the consideration for the debt or the propriety of the compromise. Here there are no exceptional circumstances”.
In the present case, likewise, I cannot find exceptional circumstances. I can understand and appreciate the apprehension and perhaps concern of the debtor in relation to what he perceives as being the conflict of interest relied upon as his second ground in the notice arising from Mr Doherty's role in an organisation as large as the Commonwealth Bank and an organisation which at all times was the owner of a subsidiary, namely CBFC Ltd. I can understand through the course of lengthy and protracted negotiations, financing and other matters, which are clearly outlined in the correspondence which has been relied upon by the debtor, that he has concerns about that matter; that is, about the potential for conflict which might arise in the exercise of the duties as performed by Mr Doherty.
However, a perception of a conflict, albeit genuinely held, does not of itself, in my view, in the absence of any other evidence to the contrary provide a basis upon which the court could find that there is a conflict of a kind which would at least attract the operation of the relevant authorities or at least encourage this court to find that there is indeed in the present circumstances sufficient material upon which this court can rely to go behind the judgment entered by consent before the State Magistrates Court.
In my view, applying the authorities to which I have referred in considering the affidavit material relied upon by the parties, I am satisfied that there is no proper basis upon which this court should conclude that in this instance there is what could be described as proper grounds for refusing the sequestration order or that the debtor has established that there is sufficient cause in circumstances where he relies upon the grounds that I have recited. I am otherwise satisfied in this application that a petitioning creditor has complied with the appropriate proofs of evidence as required by the legislation, and in particular s.52, as indicated, of the Bankruptcy Act. It follows, therefore, for the reasons given that the appropriate orders of the court will be as follows.
That a sequestration order be made against the estate of Ian Wayne Callen.
The applicant creditor's costs be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.
The Court notes that the date of the act of bankruptcy is 12 August 2004.
I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of McInnis FM
Deputy Associate:
Date: 26 November 2004
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