Commonwealth Bank of Australia v J. Boumelhem - [2008] FMCA 800

FEDERAL MAGISTRATES COURT OF AUSTRALIA

COMMONWEALTH BANK OF AUSTRALIA v
J. BOUMELHEM

[2008] FMCA 800

BANKRUPTCY – Application for adjournment of petition – where petition has been previously adjourned for hearing of action in District Court – where appeal has been filed – where debtors have provided no evidence as to their financial position – where petition has only six months to run before expiry.

Bankruptcy Act 1966 (Cth), s.52(4)

Commonwealth Bank v Amin Boumelhem [2007] FMCA 730
State Bank v Chia [2000] NSWSC 552

Applicant:

COMMONWEALTH BANK OF AUSTRALIA

Respondent:

JAMAL BOUMELHEM

File Number:

SYG 3646 of 2006

Judgment of:

Raphael FM

Hearing date:

13 June 2008

Date of Last Submission:

13 June 2008

Delivered at:

Sydney

Delivered on:

13 June 2008

REPRESENTATION

Counsel for the Applicant:

Mr S. Aspinall

Solicitors for the Applicant:

Henry Davis York

Counsel for the Respondent:

Mr Horsley

Solicitors for the Respondent:

V.F. Stanizzo Lawyers

ORDERS

Petition adjourned for 28 days to 11 July 2008.
Costs of this application and any reserved costs to be paid by the respondent debtors to the applicant creditors to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 3646 of 2006

COMMONWEALTH BANK OF AUSTRALIA

Applicant

And

JAMAL BOUMELHEM

Respondent

REASONS FOR JUDGMENT

The application before me today is in bankruptcy proceedings between a bank and two debtors. The matter has some history. Shortly put, the debtors secured their obligations to the bank by the mortgage of a property. They were unable to meet their obligations and the bank sought to enforce its security by way of sale. The property was given over to a real estate agent to market and sell by public auction.
When the property was on the market it was inspected by Mr Nassar. After his inspection Mr Nassar made an offer. That offer was considerably above the valuations that the bank had received for the property. The bank gave some consideration to Mr Nassar's offer but did not refer it back to the real estate agent for negotiation and made a decision that the property should go to auction. This it did. Although there were three bidders (see the judgment of her Honour Gibson DCJ handed down on 14 April 2008 at [9]) at the auction Mr Nassar secured the property for a price of $260,000, compared with his earlier offer of $335,000.
The bank then commenced bankruptcy proceedings against the debtors on the basis that there was still a balance owing to it after the sale of its security. The debtors meanwhile had commenced proceedings in the District Court of New South Wales alleging that the bank had not acted in accordance with its duty of care towards them.
In April 2007 I heard an application by the debtors to adjourn the proceedings so that the District Court action could be determined. For the reasons given in Commonwealth Bank v Amin Boumelhem [2007] FMCA 730 I agreed to that course of action. The District Court case went ahead. It was heard on 13 and 14 April 2008. On 14 April 2008, Gibson DCJ gave a reasoned decision, a copy of which I have been provided with. Her Honour found in favour of the bank after considering at some length the relevant authorities. Both parties were represented by experienced counsel. There is no doubt from reading her Honour's judgment that the matter was properly argued.
Her Honour noted that the burden of proof was on the mortgagor seeking to impugn the sale to prove a breach of duty by the mortgagee. Her Honour considered the notion of unconscionability with reference to the authorities and whether the sale was at a significant undervalue. Her Honour considered the conduct of the bank. In this regard, I am advised that no bank officers were cross-examined. I understand that this was a forensic decision taken by the debtors who were then able to argue that the bank had offered no explanation as to why they had not referred Mr Nassar's offer to the real estate agents. It is an understandable decision to have made; but it may turn out to have been disadvantageous to the debtors.
Her Honour concluded that the bank's decision to proceed to auction could not amount to what Einstein J referred to in State Bank v Chia [2000] NSWSC 552 at 879 as:
“… some moral turpitude or dishonesty or improper motive on the part of the receiver and does not embrace mere negligence or inadvertence.”
Her Honour concluded that it was not the responsibility of the bank to obtain the best price then available if it had obtained the market value obtainable at auction. It is in this area that the debtors argue that her Honour was in error. The debtors also argue in their notice of appeal, a copy of which has been provided to me, that her Honour erred in failing to find that the bank, in not take taking any steps to follow up Mr Nassar's interest in buying the property for $335,000 and not informing its selling agent of the expression of interest, recklessly failed to consider the debtors' interests and recklessly satisfied its own interests and departed from accepted standards in seeking to obtain the best price available. By reason of those matters, it breached its duty to act in good faith towards the debtors and breached its common law duty of care to them when it exercised its power of sale.
In considering whether or not I should grant a further adjournment of the petition so that the applicants can obtain leave to appeal and then appeal the decision of Gibson DCJ, there are a number of factors that I should take into account. I will deal with these in turn but not necessarily in order of importance.
The first matter is that the petition was issued on 7 December 2006. Pursuant to s.52(4) of the Bankruptcy Act 1966 (Cth) the petition has a life of one year. Regrettably, when the matter came before me originally no extension of the petition was requested or made. This has now been remedied and the petition expires on 7 December 2008. There is thus less than six months left in which the appeal can be heard and determined if this petition is to be utilised to obtain a sequestration order against the debtors.
The second matter is that I have received at no time any evidence about the financial situation of the debtors. I do not know whether they have significant creditors waiting in the wings or whether this debt alone will bring about their bankruptcy. If they were otherwise solvent and could establish that fact then a decision as to whether or not to grant a further extension pending an appeal would be considerably easier to make.
The third matter to consider is whether or not it is likely that the appeal will be heard within the time left for the petition to run. In this regard I have an affidavit from Mr Badarne who says that he spoke to the registry of the Court of Appeal and asked the time frame within which the appeal could be heard. He states that Mr Rossiter, a court officer whose position I do not know, responded:
“There are a few available dates in August and September. If the parties are organised it is likely for the matter to be heard by December 2008.”
The next matter that I should take into account is whether or not it could be said that there are no reasonable prospects of success in the appeal. This is not an easy exercise. It is not for me to second guess the New South Wales Court of Appeal, nor for me to look with an eye closely attuned to detail to the decision of a District Court Judge for the purposes of attempting to find error.
Mr Horsley who appeared for the debtors in the case before Gibson DCJ argues that there are interesting matters to be considered by the Court and that it is by no means certain that her Honour's understanding of the authorities will be upheld. I am not prepared to say that there are no reasonable prospects of success in the appeal but I do note that in the first instance leave has to be granted because of the value of the claim.
The final matter which I should consider is the general interest of justice and the fairness of any decision. Mr Aspinall argues that his client has already been put through numerous court proceedings by debtors who appear to be insolvent and that the costs of all these proceedings, if added to the current debt, would be very significant. He argues that to allow a situation whereby the petition is likely to become stale is unfair both to his clients and to any of the unknown creditors who may be waiting in the wings.
As I have intimated earlier, I am disturbed by the failure to provide any evidence about the debtors' financial position. I give this failure considerable weight in the decision that I propose to make. In regard to the date of the hearing I have serious concerns as to whether this matter could be heard prior to December given the requirement to obtain transcript, obtain leave of the court and then obtain a hearing. Mr Horsley has confessed to the fact that no application for expedition was filed at the same time as the notice of appeal was filed. I regard the possibility of the petition becoming stale seriously, particularly where I have no evidence whatsoever as to the financial position of the debtors.
I have already explained that I take the view that I could not say that there are no prospects of success, although I would be inclined to the view that her Honour's well-reasoned decision is more likely than not to be upheld. Finally, I am sympathetic to the argument put by Mr Aspinall concerning his client and the position of other possible creditors if this matter is allowed to be adjourned further. I am of the view that on balance this is not a case where a further adjournment should be granted. However, I understand that others may have views which differ from mine and a more sophisticated insight into her Honour's judgment; so I will grant an adjournment for a further period of 28 days in order that the debtors may take what decision they wish as to my decision. If they wish to seek another opinion about it from a higher authority they may seek relief there without endangering their client's position.
I order that the costs of this application and any reserved costs are to be paid by the respondent debtors to the applicant creditors to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: 16 June 2008