Commercial Bank of Australia v Healey

[1999] FCA 243

FEDERAL COURT OF AUSTRALIA

Commercial Bank of Australia v Healey [1999] FCA 243

COMMERCIAL BANK OF AUSTRALIA v GREGORY HARRISON HEALEY

NG 7928 OF 1998

EMMETT J
10 MARCH 1999
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7928 OF 1998

BETWEEN:	COMMERCIAL BANK OF AUSTRALIA Applicant
AND:	GREGORY HARRISON HEALEY Respondent

JUDGE:	EMMETT J
DATE:	10 MARCH 1999
PLACE:	SYDNEY

EX TEMPORE REASONS FOR JUDGMENT

1. I have before me an application for the further adjournment of the hearing of a petition for the sequestration of the estate of Gregory Harrison Healey.  Mr Healey is a solicitor who has, at various times, been engaged in the conduct of legal practices that involve litigation for the recovery of damages for personal injury.

2. The petitioner is the Commonwealth Bank of Australia and the petition relies on an act of bankruptcy said to have been constituted by failure to comply with a bankruptcy notice.  The bankruptcy notice was based on a judgment of the Supreme Court of New South Wales.  A Registrar of this Court has already granted an adjournment of the hearing of the petition.  The basis of the Registrar’s decision, I have been informed, is that the debtor had sought special leave to appeal to the High Court from a decision of the Court of Appeal dismissing an appeal from the decision of Rolfe J in entering the judgment on which the bankruptcy notice was based.

3. I have been informed that an appointment has been made for the settling of the appeal index in the High Court at the end of this month.  At the time when the Registrar dealt with the matter, it was not known when such an appointment would be available.  The basis of the application for an adjournment is that there are prospects of success of the appeal and, if a sequestration order were made, that may well interfere with the debtor’s capacity to conduct the appeal and would certainly be of great detriment to him in relation to the continuation of his practice as a solicitor.

4. In Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137, the Full Court of this Court laid down the governing principle concerning an application for an adjournment of a bankruptcy petition in these circumstances. It is 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 (at 148).

5. I have before me the judgment of Rolfe J, the judgment of the Court of Appeal and the application papers before the High Court insofar as they are presently in existence.  The application papers consist of the application for special leave and the outlines of argument of the debtor and the petitioner.  An issue before the Court of Appeal was the extent to which it could be said that the petitioner was in default of some obligation to continue to negotiate with the debtor in good faith.  In the application for special leave, the proposition is stated as follows:

   “The Court of Appeal erred as a matter of law in holding that the appellant and respondent did not enter an agreement to negotiate in good faith in respect of which agreement the appellant was entitled to consequential relief to be determined by the trial judge as prayed for in the cross-claim.”

6. The proposition of law outlined in the debtor’s summary of argument is as follows:

   “Whether […] it is a matter of necessary implication in any situation in which parties enter into negotiations in a serious commercial context to resolve a dispute between them that they do negotiate in good faith.  […] [It is contended that] the obligation will flow inexorably from the objective facts that the applicant and the respondent [that is the debtor and the bank] did in fact commence to negotiate.”

7. In the reasons for the unanimous judgment of the Court of Appeal, dismissing the appeal from the decision of Rolfe J, an extract from the reasons of Rolfe J appears.  His Honour said:

   “It is quite clear […] that there was never any concluded agreement pursuant to which the bank agreed to discharge Mr Healey from his total indebtedness.  […]  The bank was prepared to allow Mr Healey to proceed to a work-out situation and then […] it would determine the amount of the residual debt it required him to pay and, if need be, the terms upon which payment would be made.

   […]

   As from at least 1991, and probably earlier, Mr Healey, Mr Morrisey and companies and entities associated with them, owed the bank […] substantial amounts, much of which was unsecured.  The banks were demanding repayment and numerous efforts were made to reach a basis upon which this would occur.  The banks accepted that the assets over which they held security would be insufficient to discharge the total indebtedness and accordingly they sought sales of the secured properties after which consideration was to be given to the amount of the “residual” debt which they would seek to recover and the way in which that was to occur.  Any agreement, of necessity, required the bank to forebear from suing for moneys which were owing and to accept a smaller amount than that to which the bank was legally entitled.  […]  There was a requirement for a written agreement before any concluded agreement was reached.  A written agreement was never prepared and there could be no suggestion on the evidence that any of the parties, including Mr Healey, were prepared to accept anything less.”

8. The Court of Appeal held that the mere fact that the parties entered upon negotiations cannot, without more, be translated into an agreement to negotiate in good faith.  That, of course, is a proposition with which the debtor takes exception.  The Court of Appeal said that the parties did not agree to negotiate in good faith as a matter of fact.  Their Honours also said that, in the circumstances, there could not have been any such agreement as a matter of law, since any agreement was subject to a formal deed.

9. Rolfe J found that there was no express agreement in this case and, indeed, none was contended for.  That is to say, there was no evidence of any statement of intention by the parties that they would negotiate or negotiate in good faith.  On the appeal the debtor’s argument came down to the submission that it should be inferred from the fact of a long course of negotiation that the parties had agreed to negotiate in good faith.  Rolfe J was correct, so the Court of Appeal held, in concluding that the parties had not reached any agreement to negotiate in good faith as a matter of fact.

10. The conclusion of the Court of Appeal was expressed in the following terms:

    “That Mr Healey and the bank were in negotiation did not give rise to an agreement to negotiate in good faith.  Were it otherwise, by entering upon negotiations, a party would commit himself to continue with the negotiations in good faith and inhibit action which might impinge upon the continuance of the negotiations, when the essence of negotiation is that the party is not bound until the negotiations arrive at a concluded agreement.”

11. That of course is the question which would be before the High Court if special leave is given.  However the Court of Appeal went further and observed that, even if there had been an agreement to negotiate in good faith, it is far from clear that the debtor would have been entitled to the relief he claimed.  The effect of such an agreement would have been that the petitioner bound itself not to withdraw from the negotiations so long as Mr Healey continued to negotiate in good faith.

12. However, at the beginning of 1995 Mr Healey found certain of the petitioner’s requirements unacceptable and the negotiations from then on were marked by his failure to adhere to them.  There were some further negotiations leading nowhere until, at the latest, mid-1995.  The petitioner brought the proceedings against the debtor at the beginning of November 1996.  The Court of Appeal considered, therefore, that it was difficult to see why the petitioner should not have been able to do so when the negotiations had long been at an end.

13. Thus, quite apart from the legal question which, I must say I find somewhat dubious, there is a second very significant difficulty for the debtor.  That is that there are no factual findings, either by Rolfe J, or by the Court of Appeal that, even if the proposition of law were right, there had been any breach of any obligation by the petitioner.  For Mr Healey to succeed in his appeal he will have to persuade the High Court to make findings of fact on those matters.  That is unlikely in the extreme.  The alternative is that he may persuade the High Court that the matter should be remitted to the Supreme Court for the purposes of making findings.

14. It is not for me to express a view as to the likely outcome of the application for special leave, nor of the likely outcome of any appeal if leave were granted.  It is only a question of whether or not it can be said that there are genuine and reasonable grounds for the appeal.  I am almost persuaded that there are not.  However, I am mindful of the fact that the debtor is a solicitor and has the benefit of legal advice in relation to the appeal.  I am also very mindful of the dire consequences for him of sequestration.

15. Accordingly, while I would not be prepared to adjourn the hearing of the petition unconditionally, I would be prepared to adjourn the hearing of the petition until after the hearing of the special leave application, on terms that the debtor does not oppose the making of an order under section 50 of the Bankruptcy Act 1966 for the appointment of a registered trustee to take control of the debtor’s property. The order I propose is to appoint Maxwell William Prentice, receiver and manager and controller, pursuant to section 50 of the Bankruptcy Act of the debtor’s property until the determination of the debtor’s application for special leave to appeal to the High Court in respect of the judgment debt on which the petition is based or the making of a sequestration order, whichever first occurs.

16. I would impose as a term that the debtor give the following undertakings to the Court and to the petitioner:

    (i)To inform the controller in writing of the location of debtor’s property on or before 5 pm on 12 March 1999.

    (ii)Not to deal with any item of the debtor’s property without the consent of the controller.

    (iii)To give to the controller unrestricted access to and possession, custody and control of the debtor’s property.

    (iv)To use best endeavours to procure that persons working in or in relation to any of the practices in the schedule, which is an annexure to the affidavit of Maxwell William Prentice of 10 March 1999, carry on the practices in the usual course and cooperate with the controller.

    (v)To afford to the controller, subject to relevant, professional and statutory restrictions on the right to practice as a solicitor, the full benefit to which the debtor is entitled, any assets, books, records and files of the practice in the schedule, including rights of access, possession and receipt.

    (vi)Not to oppose and not to seek to adjourn, stay, appeal, stay, appeal or otherwise interfere with the making of a sequestration order against the debtor in the event of non-compliance with any of these undertakings.

17. I will grant liberty to apply on 24 hours notice to the petitioner in the event of any difficulties perceived in connection with the performance by the controller of his duties as controller.

18. I note that the debtor does not oppose the order which I foreshadowed and I note that the undertakings foreshadowed have been given on behalf of the debtor.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:             10 March 1999

Counsel for the Applicant:	G.K. Burton
Solicitor for the Applicant:	Shaw McDonald
Counsel for the Respondent:	L.J.W. Aitken
Solicitor for the Respondent:	G H Healey & Co
Date of Hearing:	9-10 March 1999
Date of Judgment:	10 March 1999