Commonwealth Bank of Australia v Currey
[2016] FCCA 124
•27 January 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| COMMONWEALTH BANK OF AUSTRALIA v CURREY | [2016] FCCA 124 |
| Catchwords: BANKRUPTCY – Review of Registrar's sequestration order – whether Court should go behind debt – bankruptcy notice based upon judgment given against guarantors – whether guarantees incorporate cl.25.1 of the Code of banking Practice published by the Australian bankers Association – where clause incorporated – whether bank is a creditor. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.52(1), 104 |
| Commonwealth bank of Australia v Doggett & Ors [2014] VSC 423 Doggett v Commonwealth Bank of Australia [2015] VSCA 351 Wren v Mahoney (1972) 126 CLR 212 |
| Applicant: | COMMONWEALTH BANK OF AUSTRALIA (ABN 48 123 123 124) |
| Respondents: | GLENYS ANNE CURREY AND KEVYN GRANTLEY CURREY |
| File Number: | BRG 952 of 2014 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 2 March 2015 |
| Date of Last Submission: | 2 March 2015 |
| Delivered at: | Brisbane |
| Delivered on: | 27 January 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr Morris QC |
| Solicitors for the Applicant: | Noble Law |
| Counsel for the Respondent: | Mr Sheahan |
| Solicitors for the Respondent: | Henry Davis York |
ORDERS
The application for review of the Registrar’s decision of 23 December 2014 be dismissed and the sequestration order be confirmed.
Costs of the application be paid in accordance with s.109 of the Bankruptcy Act1966 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 952 of 2014
| COMMONWEALTH BANK OF AUSTRALIA ABN 48 123 123 124 |
Applicant
And
| GLENYS ANNE CURREY AND KEVIN GRANTLEY CURREY |
Respondents
REASONS FOR JUDGMENT
By this application, Mr and Mrs Currey seek orders that:
a)a sequestration order made by a Registrar on 10 December, 2014 be set aside;
b)the creditor’s petition be dismissed; or alternatively
c)the creditor’s petition be adjourned pending the determination of the hearing of an action against the respondent for unconscionable conduct in matter number 9397/2013.
The respondent bank opposes the application.
This proceeding is the current instalment of a long history of litigation between these parties.
The history commences with proceedings in the Supreme Court of Queensland that started on 4 October, 2013. The bank was the applicant and the Mr and Mrs Currey the defendants. They were sued in debt. The bank had lent money to the Curreys’ family company KGC Rural Pty Ltd. The Curreys had given personal guarantees to secure the funds advanced by the bank to KGC Rural Pty Ltd.
The Curreys counterclaimed against the bank and others. Both parties applied for summary judgment against the other. The bank prevailed and was given judgment against the Curreys for $1,652,334.77. Their application for summary judgment was dismissed.
The Curreys appealed. Soon after, the bank sought to enforce the judgment it had against the Curreys. In response, they sought to restrain enforcement by injunction but their application to the Supreme Court in that regard failed. They subsequently applied to have the enforcement warrant set aside. That application too, failed.
The Curreys did not prosecute their appeal in a timely way and so the bank (and the other parties to their counterclaim) applied to have the appeal dismissed for want of prosecution. That application succeeded. The appeal was dismissed on 15 May, 2014.
On 2 June 2014, Ms Currey filed an application in the Supreme Court proceedings for an injunction against the bank.
By this time the bank had secured the issue of a warrant for possession of certain land in which the Currey’s were interested. The Curreys applied to the Supreme Court to set aside the warrant of possession or alternatively, for a stay of enforcement of the warrant for possession. The bank filed a cross application seeking an order prohibiting the Curreys from filing any other application in the then pending Supreme Court proceeding or from starting similar proceedings in any other Court without leave of the Court.
The bank prevailed. The Currey’s applications were dismissed and orders were made that prohibit the Curreys, collectively or individually, from making a further application in relation to the Supreme Court proceeding without leave of that court, or starting similar proceedings in that court against the bank without leave of the Supreme Court. The Curreys were also prohibited from, collectively or individually, starting a similar proceeding in another court against the bank without leave of that other court.
In June 2014, receivers were appointed over certain property of a company associated with the Curreys or one of them, KGC Rural Pty Ltd, at Wongawallan. The Receivers took possession of the Wongawallan property in mid-June, 2014. The Receivers remain in possession of the Wongawallan property.
On 1 August 2014, the Receivers filed an application against the Curreys to determine the ownership of cattle located at the Wongawallan Property. Relevantly, at the hearing of that application the Curreys made an application for leave to file an application to "set aside" the summary judgment in the Supreme Court proceeding and the prohibition orders that had been made against them. The Receivers were successful in the proceedings. The Curreys were not.
On 19 August, 2014 the bank was awarded summary judgment against the Curreys (as guarantors) in the amount of $59,616.62. This judgment debt forms part of the amount specified in the creditor's petition before me.
The bank issued a bankruptcy notice against the Curreys based upon the judgment of the Supreme Court and of the Magistrates Court. The bankruptcy notice was served upon the Curreys on 3 October, 2014. They committed an act of bankruptcy in that they did not comply with the bankruptcy notice on or before 24 October, 2014.
The bank filed a creditor’s petition. The creditor’s petition was heard before a Registrar of this Court on 10 December, 2014. The debt the subject of the creditor’s petition comprised the judgment debt in the Supreme Court proceedings of $1,652,334.77 together with interest and the judgment debt in the Magistrates Court proceedings of $59,616.62 with interest. The petition included credit for some monies that had been recovered.
Again, the bank prevailed and the Curreys did not. A sequestration order against the estates of the Curreys and an order for costs were made.
This Application
On 5 December, 2014 the Curreys filed a notice stating their grounds of opposition to the banks’ creditor’s petition. In it, they said:
The Respondent Debtors:
1. are not insolvent;
2. dispute the debt owed as alleged by the applicant creditor;
3. say there are exceptional circumstances that require the court to go behind the judgment entered against the debtors namely that the applicant creditor has acted unconscionably in the lending of the funds and they have a triable defence raising allegations of equitable fraud in the lending of the funds;
4. say that the judgment the subject of this petition entered was a summary judgment;
5. the respondent's were improperly represented at the summary judgment hearing by an incompetent lay person who deceived the respondent's as to his ability to defend the action;
6. that person advised to appeal the summary judgment decision instead of applying to set aside the summary judgment and that appeal was dismissed in our absence.
7. say that had the respondents been competently represented, the summary judgment would have been set aside and the actual defence would have been properly pleaded. Judgment would not have been entered.
8. the respondent's then instructed Nick Stone of Stone Group lawyers who advised he could have the summary judgment set aside and could amend the defence. That lawyer attempted to run that argument in the wrong court and made fundamental errors of law. Stone's retainer was terminated for negligence and an set off is being claimed for damages against that negligent practitioner;
9. the respondents are applying to have the judgment debt the subject of the petition set aside and they have a viable defence with prospects of successfully setting aside the loan and guarantee the subject of the claim filed in the Supreme Court by the creditor such that the petition should be dismissed or adjourned pending the outcome of that hearing.
10. Say it is an abuse of process and a miscarriage of justice to allow the applicant creditor to obtain a sequestration order prior to the rehearing of the matter whereupon the debtors rights could be fully heard and to have an opportunity to file an amended defence. Such actions would defeat the debtors rights given the judgment was entered summarily.
Mrs Currey filed an affidavit deposed by her on the same day. For the purposes of this review she has filed a second affidavit on 2 February, 2015. I also have an affidavit by her solicitor Robyn Bourne filed by leave at the hearing before me.
The bank opposes the application on the grounds that:
a)the supporting material relied upon by the Curreys in support of the application for review does not establish any basis upon which the Court ought exercise its power of review under s.104 of the Bankruptcy Act 1966 (Cth);
b)the grounds to oppose the making of the sequestration order ventilated before the Registrar were devoid of merit and no additional substantive grounds have been brought forward by the Curreys; and
c)insofar as the Curreys rely upon the bringing of a prospective appeal against summary judgment granted by the Supreme Court of Queensland in favour of the bank, which founded part of the debt the subject of the sequestration order, the Curreys have failed to file any such appeal or any application in the Supreme Court of Queensland as foreshadowed in the Currey’s material relied upon before the Registrar.
Consideration
In Wren v Mahoney (1972) 126 CLR 212 Barwick CJ, with whom Windeyer and Owen JJ agreed, said (at p.225):
(T)he bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt, particularly where it resulted from a fully heard contest between parties but… it always had the power to go behind the judgment and if the case was a proper one, should do so. The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under general law, the prior existing debt has merged in a judgment. But the bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that Court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by decisions of the past that where reason is shown for questioning whether behind the judgment or… as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power… its discretion to look at what is behind the judgment: to what is its consideration. It is not the law, in my opinion, that whether in any case the Court of bankruptcy will consider whether there is satisfactory proof of the petitioning creditor’s debt is a mere matter of its own discretion…(r)ather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor’s debt. The Court’s discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.
The Curreys contend that they have demonstrated grounds which foreshadow some doubt about the correctness of the bank’s judgments against them. They contend that substantial reasons exist for questioning whether there was in truth and reality a debt due to the bank.
Two considerations arise, namely:
a)whether the judgment of the Supreme Court ought to be taken at face value or whether this Court should go behind it; and
b)if so, if it is a judgment which represents in truth and legality the existence of a debt due to the bank by the Currey's.
That a bankruptcy court can go behind a judgment where a judgment has been obtained by default or compromise or the judgment upon which the bankruptcy proceedings are based has been “obtained following an adjudication on the merits where both parties appeared, but where there are substantial reasons for questioning whether there is in substance a debt, including whether the judgment is tainted with fraud, collusion or a miscarriage of justice” is uncontroversial.
The focus of the submissions for the Curreys was the judgment entered against them in the Supreme Court. The Currey’s argue that they were very poorly served by those whom represented them in each of the proceedings in the Supreme Court, but in particular before Boddice J.
The Curreys’ defence in those proceedings was summarised by Boddice J as:
The Defence and counter-claim is a voluminous document. It contains many assertions, most of which are difficult to ascertain, particularly having regard to its structure. What is significant is that having regard to the contents of Ms Currey's affidavit, together with the other circumstances, it is apparent the first, second and third defendants do not dispute the facilities were entered into, and that moneys were advanced pursuant to those facilities. They also do not dispute those moneys have not been repaid.
What they dispute is whether the plaintiff, in truth, is in a creditor position, raising where the plaintiff may have obtained its money. Further, they dispute the money remained outstanding because the defendants provided to the bank what the defendants claim were promissory notes such that they constituted an offer for an agreement to repay the money in the future. It is contended the proffering of those promissory notes in circumstances where the plaintiff did not return them constituted an acceptance of that offer such that the monies are no longer are owing.
It is further contended the plaintiff has not produced the original facilities, and in those circumstances, is not in a position to be able to claim moneys said to have been paid pursuant to those facilities. There appears to be a claim of unconscionable conduct on the part of the bank in continuing to pursue recovery of the funds in circumstances where the promissory notes have been provided and there has been a refusal to show the original or wet ink documents.
The Currey’s argue that had their lawyers been competent they would have recognised that the Curreys had a defence to the claim. The defence is said to arise from the incorporation into the lending facility between the bank and KGC Rural Pty Ltd and into the guarantees upon which the Curreys were sued, or cl.25.1 of the Code of banking Practice published by the Australian bankers Association. By that clause:
25. Provision of credit
25.1 Before we offer or give you a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it.
The Curreys argue that cl.25.1 became part of the contract between them and the bank and KGC Rural and the bank. They argue that the evidence shows a strong case that the bank breached that term of the guarantee and consequential no debt can arise upon which they can now be sued. During argument, I wondered out loud whether all the Curreys had was a claim in damages for breach of that term, albeit a claim for damages that might have met the description of a counter‑claim, set‑off or cross demand for the purposes of the Bankruptcy Act1966 (Cth). Senior Counsel for the Curreys expressly disavowed that notion. He made it plain that their case was put solely on the basis that there was no debt. It was argued that if the Curreys can show that the bank was in breach of cl25.1 of the Code then the guarantees given by the Curreys “go”.
The point is not without authority. The argument was considered in Commonwealth Bank of Australia v Doggett & Ors [2014] VSC 423. In that case, the defendants were sued on personal guarantees given to secure the borrowings of a related company. The defendants alleged that the bank owed them a contractual obligation to exercise the care and skill of a diligent and prudent banker in assessing the loan application of the related company and in forming an opinion about the company’s ability to repay the loan. They contended that the obligation arose under cl.25.1 of the Code.
At first instance, Hargrave J found (at [101] – [125]) that cl.25.1 of the Code was incorporated into both the loan and facility documents between the bank and the corporate borrower as well as incorporated into the guarantees with the defendants. His Honour considered and rejected the bank’s argument that the words of cl.25.1 were inapt to assist the guarantors because on their face, the words related to the provision of credit to the principal borrower. His Honour’s decision was affirmed on appeal: Doggett v Commonwealth Bank of Australia [2015] VSCA 351 per Whelan JA at [1], McLeish JA at [100], [139] and Garde AJA at [218]. So too, his Honour’s construction of cl25.1 of the Code. His Honour found that the bank had breached cl25.1 of the Code and he assessed the guarantors’ loss as a result of that breach.
However, Doggett was a case where the guarantors were pursuing a counterclaim for damages for breach of contract against the bank. It does not appear from either the trial judgment or the judgment on appeal that the guarantors argued that because the bank breached the obligations cast on it by cl.2.1 of the Code, the guarantee was ineffective.
The outcome demonstrates that no such argument was advanced by the guarantors. At first instance, Hargraves J assessed the guarantors’ loss for the bank’s breach of contract starting with the amount of their indebtedness to the bank under the guarantees. His Honour held that those damages should be set-off against the bank’s claim under the guarantee and extinguish that claim (Doggett at [167]). On appeal, Whelan JA and Garde AJA thought that the approach of the trial judge as to the question of damages was correct (at [2], [26] and [219]). McLeish JA did not (at [188] – [193]).
The trial judge next had to consider argument an argument about the nature and effect of a purported letter of compromise wherein the guarantors, it was said by the bank, compromised their claims against the bank. The bank succeeded on that argument and its success was maintained on appeal.
Had it been the case that a breach of cl.25.1 of the Code meant that the guarantees were void or voidable, an assessment of damages was unnecessary and the counterclaim would not ultimately have failed.
The Curreys argument is that the bank is not a creditor. To succeed on their argument as put, it is insufficient to show that they have only a counterclaim for damages. They can only succeed on their argument if they demonstrate that the guarantees are void or voidable and they have acted to avoid the guarantees. That is so because they did not apply to have the bankruptcy notice, upon which the creditors’ petition is based, set aside on the basis that they had such a counterclaim or sett-off.
Even if I was persuaded that this was an appropriate case to go behind the Supreme Court judgment, I would decline to do so because it is apparent, given the way in which the Curreys put their case, that the bank is a creditor of each of them. To the extent that the Curreys have a counterclaim against the bank for the bank’s breach of contract, their trustee or trustees can still pursue those claims.
However, there is another reason why the Curreys’ opposition to the creditors’ petition must fail. The bankruptcy notice upon which the creditors’ petition is based relies upon two judgments – one of the Supreme Court and the other of the Magistrates Court.
It was not entirely clear whether the Curreys’ arguments concerning cl.25.1 of the Code were limited to their guarantees upon which judgment was given in the Supreme Court. That they were appears from the written outline of submission delivered for them. However, it was suggested in submissions in reply by Senior Counsel for the Curreys that the arguments applied equally to the judgment given in the Magistrates Court.
However, there are three reasons why that cannot be so.
First, for the reasons I have given above, the bank remains a creditor of the Curreys whether or not cl.25.1 of the Code applies to their guarantees upon which judgment was given in the Magistrates Court.
Secondly, whilst there is evidence that suggests that insofar as the Supreme Court judgment is concerned, cl.25.1 of the Code was incorporated into those guarantees, there is no such evidence concerning the Magistrates Court judgment. The Curreys were sued on different guarantees. The principal debtors in each case are different – KGC Rural Pty Ltd in the Supreme Court and Gregory Ian Harper and Kylie Anne Currey in the Magistrates Court proceedings. There is no evidence before me that would allow me to find that cl.25.1 was incorporated into the guarantees upon which the Curreys were sued in the Magistrates Court.
Thirdly, even if I am wrong about that and I should find or infer that the guarantees sued upon in the Magistrates Court contained cl.25.1 of the Code as one of their terms, there is no evidence of any breach of that term by the bank. Mrs Currey attempts to give evidence of the bank’s breach of cl.25.1 of the Code in paragraphs 61 – 85 of her affidavit filed on 5 December, 2014. But there is no evidence of a similar nature in respect of the Magistrates Court claims.
Conclusion
Even if the Curreys’ argument concerning the efficacy of the Supreme Court judgments are correct, it remains clear that the bank is a creditor of the Curreys by reason of the Magistrates Court judgment. That judgment was relied upon as one of the judgments used to found the issue of a bankruptcy notice with which the Curreys did not comply.
I am satisfied that the Curreys did not comply with a bankruptcy notice properly served upon them by the bank. They committed an act of bankruptcy on 24 October, 2014.
Mrs Currey has sought to establish that she and Mr Currey are solvent. As to this:
a)there is no evidence from Mr Currey at all;
b)Mrs Currey gives evidence that she and Mr Currey own certain real property and it is unencumbered. She claims it has a value of $800,000 (according to a market appraisal);
c)Mrs Currey gives no evidence of her liabilities or those of Mr Currey.
The onus to prove that they are not insolvent falls upon the Curreys. Their evidence is insufficient for that purpose. I am not satisfied on the balance of probabilities that the Curreys are able to pay their debts.
In my view the evidence does not establish that there is other sufficient cause for a sequestration order not to be made.
The formal requirements of s.52 (1) of the Bankruptcy Act (Cth) are met.
A sequestration order is appropriate.
Accordingly, the application for review must be dismissed with costs.
I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of Judge Jarrett
Associate:
Date: 27 January 2016
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