Commonwealth Bank of Australia v Martinek

[2013] FCCA 2321

FEDERAL CIRCUIT COURT OF AUSTRALIA

COMMONWEALTH BANK OF AUSTRALIA v MARTINEK & ANOR [2013] FCCA 2321

Catchwords:
BANKRUPTCY – Sequestration order – whether the judgment upon which the petitioning creditor relies was a final judgment – counterclaim filed in the Supreme Court of New South Wales – whether the Supreme Court of New South Wales proceeding was a fresh one for the purposes of s.40(1)(g) Bankruptcy Act 1966 (Cth) – sequestration order made – application dismissed – costs awarded.

Legislation:  

Bankruptcy Act 1966 (Cth), s.40(1)(g)

Trade Practices Act 1974 (Cth), ss.51AC, 52

Wren v Mahony (1972) 126 CLR 212

Applicant: COMMONWEALTH BANK OF AUSTRALIA

Respondents: JAMES BARRY MARTINEK AND PATRICIA MAREE MARTINEK

File Number: BRG 982 of 2013

Judgment of: Judge Burnett

Hearing date: 4 December 2013

Date of Last Submission: 4 December 2013

Delivered at: Brisbane

Delivered on: 10 December 2013

REPRESENTATION

Counsel for the Applicant: Mr L. Copley

Solicitors for the Applicant: Ashurst Australia

The respondent appeared on his own behalf at the hearing of this matter.

Solicitors for the Respondent: Hall Partners

ORDERS

1. A sequestration order be made against the estate of the respondent debtors, JAMES BARRY MARTINEK and PATRICIA MAREE MARTINEK.

2. The applicant creditor's costs, including reserved costs, be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtors in accordance with the Bankruptcy Act 1966 (Cth).

THE COURT NOTES that the date of the act of bankruptcy is 17 OCTOBER 2013.

FEDERAL CIRCUIT COURT OF AUSTRALIA

AT BRISBANE

BRG 982 of 2013

COMMONWEALTH BANK OF AUSTRALIA

Applicant

And

JAMES BARRY MARTINEK AND PATRICIA MAREE MARTINEK

Respondents

REASONS FOR JUDGMENT

(Ex tempore)

1. The applicant creditor applies for sequestration orders against the debtors.  This application is premised upon an act of bankruptcy following their failure to comply with bankruptcy notices issued in respect of a judgment entered against them by Mullins J on 11 February 2013 in the sum referred to in the notices. Her Honour’s orders followed the creditor’s successful application for summary judgment. The material relied upon by the creditor proves the matters stated in and service of the petition. It shows that the debt is still owed. Prima facie the creditor is entitled to the relief it seeks.  However, the debtors oppose the application and seek to establish that there is other sufficient cause as to why a sequestration order ought not be made.

2. The debtors contend that other sufficient cause is established by reason of the matters identified in their Notice Stating Grounds of Opposition to the application. In their notice they seek interim orders that the proceedings be transferred to the Sydney Registry for further hearing and determination.  The grounds of opposition are as follows:

   1.   The judgment upon which the petitioning creditor relies was entered against the judgment debtor on 11 February 2013 and was not a final judgment on the merits entered after a fully adjudicated hearing;

   2.   The judgment was entered pursuant to a judgment in the Supreme Court of Queensland (BS 7916 of 2011). The respondents were not present in the jurisdiction at the time of those proceedings;

   3.   On 9 July 2013 the respondents, together with Mr Trevor Eriksson, filed a Statement of Claim in the Supreme Court of New South Wales in which they applied for orders, the effect of which if granted would make nugatory the Queensland judgment;

   4. The proceedings commenced on 9 July 2013 are fresh proceedings within s.40(1)(g) of the Bankruptcy Act 1966 (Cth) in that the fresh proceedings raise a counter claim equal to or exceeding the amount of the judgment debt or sum payable under the final order of the Queensland judgment; a counter claim that could not have been set up in the action in which the judgment or order was obtained; and

   5.   The respondents intend to prosecute the fresh proceedings. 

3. In summary, they contend that the judgment of Mullins J is not in effect a proper judgment giving rise to indebtedness supporting the petition and that even if they are wrong they have good prospects in a claim against the creditor.  Success in that claim, they argue, will extinguish any indebtedness and leave the debtors in a net solvent position.

4. Dealing then with the supporting judgment. It is well settled that a court of bankruptcy may go behind the judgment to determine if there is indeed a good debt behind the judgment.  In Wren v Mahony (1972) 126 CLR 212 at page 224, Barwick CJ stated:

   “[In Re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD, Lord Esher] was pointing out that the 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 that 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 the 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 the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, 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, or if you will, 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. Nothing in Corney v Brien (1951) 84 CLR 343 lends support for such a view. Rather 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.”

5. It seems clear that the duty of this Court is now to examine the debt behind the judgment and determine whether or not it is truly and justly owing. The matters relevant to the judgment were set out in the affidavits of Ms Hagenson filed on 27 November 2013 and 3 December 2013. Ms Hagenson attached to her affidavit of 27 November 2013 at pages 6 to 29 the pleadings in the Supreme Court proceedings the subject of the supporting judgment. In summary, the creditor claimed against the debtors for a sum of approximately $6.8 million, being moneys owing pursuant to a guarantee given by the debtors. The guarantees were granted in support of facilities provided by the creditor to a company, Martinek Holdings Pty Ltd as trustee for the JB and PM Martinek Family Trust (“the company”).

6. Moneys were advanced pursuant to the facilities on terms agreed.  The company defaulted and the creditor made demands of the debtors pursuant to the guarantees.  In defence of the proceedings against the debtors they did not admit any of the allegations in the Statement of Claim directed to the former matters, such as: the principal loan made between the creditor and the company; the facility agreement or its terms; the guarantees provided by the debtors; or the company’s default. Non-admissions were on the basis that the debtors did not know and, despite further inquiries, could not admit those matters. This was a surprising plea given that they were also directors of the company and no doubt had some personal knowledge of these matters, particularly of the guarantees which they had signed themselves.

7. They denied the letters of variation of the facilities because they said that they did not sign them and had them returned to the creditor, a fact which was put in issue by their pleading in the Defence and Counterclaim, which I shall address shortly. In addition, the debtors pleaded contravention of s.51AC of the Trade Practices Act 1974 (Cth), alleging unconscionable conduct on the part of the creditor “and a breach of mortgage law that prohibits unconscionable conduct in business matters and a breach of mortgage law where the mortgagee cannot successfully sacrifice the interests of a mortgagor.  So a mortgagee cannot successfully sacrifice the interests of the mortgagor to enhance its own interest.”[1] 

   [1] See clause 7(a) of the Defence and Counterclaim filed in the Supreme Court of Queensland application.

8. They made similar claims of unconscionable conduct in respect of paragraphs 19, 24, 25, 26, 27, 28, 31 and 32 of the Statement of Claim. These pleas appear to be in response to allegations of indebtedness and the pleading of the sale of the security in exercise of the creditor’s powers of sale. The pleadings lack sufficient specificity to permit an understanding of how the debtors’ contend contraventions of s.51AC can be maintained, and to that extent are embarrassing. The debtors otherwise plead contravention of s.52, alleging that the creditor engaged in misleading and deceptive conduct; see paragraphs 20, 21 and 29 of the Statement of Claim. Those paragraphs in the Statement of Claim simply plead the overdrawn state of the company’s facility account. Again, the pleading in response to those allegations is deficient and embarrassing.

9. In summary, no substantial defence appears to have been pleaded to the creditor’s claim. However, the debtors proceeded then to counter-claim against the creditor.  In short, the debtors’ complaints are:

   1.   Bankwest was taken over by the Commonwealth Bank of Australia which subsequently imposed its own lending criteria and, consequently, would not extend a facility to the debtors upon the expiration of the Bankwest facility; and

   2.   It followed that the security, including the stock of developed units, was sold by the creditor at an undervalue. 

10. The matter came on before Mullins J on 11 February 2013 for hearing of an application for summary relief.  The debtors did not appear at that hearing. The application before her Honour was for summary judgment or, alternatively, to strike out parts of the defence. In the result her Honour entered judgment. 

11. As I have noted, the debtors did not attend the hearing although now they raise that point as a matter justifying the setting aside of the judgment which was then entered.  In an affidavit filed by Mr Martinek on 2 December 2013 he addressed the entry of judgment. He contended that he understood that the judgment was obtained against him and entered on that date.  He says that by reference to the affidavit of Ms Hagenson which was filed in these proceedings on 27 November 2013 he came to be aware of a transcript of the proceedings before the Supreme Court on 11 February 2013.  He then, at paragraph 14 of his affidavit, identified the following exchange:

    Mullins J:

    “So, does the material show that Mr and Mrs Martinek were served?” 

    Mr Trim:

    “Yes, your Honour, the – with the application and the initial affidavits, that’s in Ms Hagenson’s second affidavit. It’s the affidavit sworn 10 September 2012 which shows service of the application and affidavit.”

    Mullins J:

    “And then they got an email notice of this hearing.”

    Mr Trim:

    “Yes, your Honour. They had solicitors acting up until last week and those solicitors have confirmed – were notified on the 15th of January of this hearing and confirmed they were aware of it and there’s some correspondence I can take you to-----.”

    Mullins J:

    “So they’re overseas, are they?”

    Mr Trim:

    “Apparently so, your Honour, yes. Well, it appears Mr Martinek is still overseas, I think, on the most recent e-mail received on Friday. We’re not clear about whether Ms Martinek is overseas or back in Australia at present.”

12. He proceeds then in paragraph 16 to refer to the text of an email which was sent by him to Ms Hagenson on 6 February 2013 at 14:00 hours.  The email states:

    “I enclose a draft amended defence and counterclaim and will have a hard copy couriered to the court for filing this afternoon but I suspect it will not get there till Monday,  I have no means to scan any documents at this stage.  I also enclose a copy of my return flight back to Australia on the 16 th Feb 2013. 

    To fill in the gaps for you and your client, I moved to Singapore 12 mths ago to work back in an area that I left 10 years ago because of the actions of your client. Unfortunately it has not worked out and my family has moved back to Australia last week. 

    I am still in Singapore packing up the house till I return on the 16 th Feb when I will be getting ready for another court case in the Victorian courts on another matter.  This is to be held on the 21st in Shepperton Victoria.  I am quite comfortable to commit to our direction hearing in the 1 week period from the 24 th Feb and would like to get underway. 

    I will certainly not be attending court next week on the 11th as it just is not possible and I feel that if your client pushes for this and summary judgment then it will just be stayed for another point in time after I work out how to apply for this.  I do understand that this is open to a judge’s discretion but would hope that this is not required and we can have an undertaking to have the direction hearing in the week of 24 th Feb.

    I am aware that I am certainly against most odds to conduct a successful defence and counterclaim as I have no legal background but it is my right and quite honestly the only option left to me. 

    Regards

    Jim Martinek.”

    [Errors as per original]

13. The debtor complains that the creditor’s solicitor and counsel misled the Court in four respects:

    1.   By not addressing the Court or not advising the Court that the debtor wanted the matter stood over until later in February; 

    2.   By stating that it was not clear that Mrs Martinek was back in Australia; 

    3.   That the debtors’ solicitors, Platinum Lawyers, had withdrawn ‘last week’ when in fact they withdrew on 31 January 2013; and

    4.   Mr Martinek and Ms Hagenson had communicated on the Friday prior to the hearing. 

    He complains that these matters only came to his attention days before the return of the creditor’s petition, which therefore occasioned the delay in raising this issue. 

14. There is no doubt that in the circumstances of an ex parte hearing there is a duty to inform the Court of all matters material to the application.  However, this was not an ex parte application. The creditor’s application was one made on notice.  The debtors were served but chose not to appear or cause an appearance to be made for them. Secondly, in any event, nothing said by counsel for the creditor was materially incorrect.  The transcript demonstrates that the situation as explained to the Court was open on the material.  At T1-3, lines 9 to 13, Mr Trim addressed the Court, advising that the debtors were on notice of the application from at least 15 January 2013 and appeared to refer the Court to correspondence.

15. The Court did not appear to be too concerned to examine the detail but, had her Honour thought it necessary, she would have seen at page 87 of the affidavit of Ms Hagenson filed in that application an email of 31 January 2013 in which the debtor asked for an extension of two weeks beyond 11 February 2013. In my view, the Court was not misled by not being taken to that correspondence in the absence of the debtors.  At T1-3, lines 15 to 20, the Court dealt with Mrs Martinek’s absence.  As I have earlier noted from that part of the debtor’s affidavit, the following exchange occurred:

    Mullins J:

    “So they’re overseas, are they?”

    Mr Trim:

    “Apparently so, your Honour, yes. Well, it appears Mr Martinek is still overseas, I think, on the most recent e-mail received on Friday. We’re not clear about whether Ms Martinek is overseas or back in Australia at present.”

16. The best available information for the creditor was an email of 6 February 2013 where the statement “my family has moved back to Australia” was made. It is not specific as to whether the term “family” included Mrs Martinek or just the children. Plainly, the statement that the creditor was “not clear about whether Ms Martinek is overseas or back in Australia” was not inaccurate.  Concerning the third point, while it might be correct that the debtors terminated instructions to Platinum Lawyers on 31 January 2013, the fact remains that the creditor’s lawyers continued to communicate with that firm until they formally withdrew as solicitors on the record.  It is not clear when that occurred, although correspondence from the creditor’s solicitors confirmed that they continued to copy Platinum Lawyers in on correspondence to the debtors up until at least 4 February 2013. 

17. Finally, there was evidence of communication between the creditor’s lawyers and the debtors on the Friday prior to the application. That matter appears to be settled by the email of that date. Ultimately, it is my view that there was nothing incorrect about any statement made by the creditor’s lawyers at the hearing. However, more significantly, none of this was material to her Honour’s determination of the matter, as her reasons reveal. Her reasons are short so I will recite them in full.  Mullins J noted:

    “This is an application for a summary Judgment by the plaintiff against the guarantors, Mr and Mrs Martinek, in respect of facilities that were granted by the bank to Martinek Holdings Pty Ltd which has defaulted under the facilities for significant sums. 

    Although the summary Judgment application was filed some time ago, the matter has not resolved because the defendants have endeavoured to plead a defence and consulted solicitors to assist them. At the request of the defendants the application for summary Judgment has been adjourned on a couple of occasions. 

    I’m satisfied, on the material, that notice of the hearing today has been given to the defendants. They have been abandoned, effectively, by solicitors who were acting for them and although it appears that the first defendant wishes to agitate his unhappiness about the bank’s conduct and, in particular, his allegation that the bank represented that it would continue to rollover the facilities, it seems, on the material, that the bank has relied on the powers under its securities in order to demand the amounts that have been claimed under the facilities and then under the guarantee against the guarantors. 

    Although there are large sums involved in this proceeding, the steps taken to date on behalf of the defendants have been for the purpose of, it appears, delaying the proceeding.  There is nothing in the material which suggests that there is any true defence that justifies this matter proceeding to a trial.

    I’m satisfied that the defendants have no real prospect of successfully defending the plaintiff’s claim and that there is no need for a trial of the claim as a result. 

    I therefore make an order in terms of the amended draft, initialled by me and placed with the file.”

18. Most significantly for the purpose of this application, no appeal has been lodged against her Honour’s judgment.  Nor has an application been made or foreshadowed for a stay, despite the debtors having been on notice of the matters of recent complaint since at least 27 November 2013. I share her Honour’s views concerning both the defence by the debtors and the creditor’s entitlement to judgment.  In my view, the debtors are truly and justly indebted to the creditor for the amount of the judgment sum. There is no justification for an adjournment of the creditor’s petition to permit the debtors to further agitate these matters in the Supreme Court of Queensland. The debtor has no real prospects in either an application for a stay or on appeal.

1. The second ground concerns other proceedings now on foot in the Supreme Court of New South Wales.  The circumstances of that claim are detailed, at their highest, in an outline prepared by the debtors for this hearing.  They state:

   “In proceedings 2013/208304, [Martinek] seeks to agitate claims together with 2 other Plaintiffs, the effect of which is as follows:- 

   a)that [Martinek] was a party to facilities in place with Bankwest prior to 15 December 2008; 

   b)that the CBA acquired Bankwest on about this date; 

   c)that Bankwest carried out a review of its customers who had commercial facilities, where the securities supporting those facilities were predominantly commercial and property situated across the Eastern Seaboard of Australia; 

   d)that at the time the facilities were the subject of the review, the customers’ facilities had been performing facilities of performing loan customers; 

   e)that notwithstanding, those facilities were made the subject of Review Practices; 

   f)that the Review Practices included:-

   ·the Bank reviewing customers’ facility agreements with a view to finding fault with the customers’ obligations under their agreements and placing them into credit asset management, where the facilities were then called in and determined;

   ·the Bank resiling from representations as to future funding and the manner in which customers’ facility agreements would be dealt with or determined, and then resiling from those arrangements and coaxing its customers to enter into deeds with the Bank concerning their facility agreements with unrealistic payment demands or requirements, and that the Bank would then seek to rely upon these requirements to determine the facilities;

   ·the Bank through various methods including security re-valuation(s) would trigger facility defaults, the effect of which led to the imposition of penalty interest rates and ultimately payment defaults concerning the facility agreements that enabled those facility agreements to be determined;

   ·the Bank exercised a general degree of unwillingness to work through arrangements with customers concerning their facility agreements and determined those facilities where other arrangements may have provided a more commercial advantageous outcome.

   ·whilst one may speculate as to the Bank’s motives in this regard, the emphasis in such proceedings as [Martinek] seeks to bring focuses on the Bank’s conduct and how it treated its customers who entered into the relevant facility agreements. The primary issue is that of underlying conduct.”

2. In oral argument the debtor supplemented these claims with a claim that the creditor unreasonably foreclosed upon the company because of a revaluation of securities which led to the company being in breach of its loan to valuation ratios (“LVR”) provided for in the facility agreement.  It particularly relied upon a letter of 1 April 2009 which was directed to the company by the creditor, alleging such a breach.  Aside from that, the debtors’ complaint largely relates to the creditor’s refusal to roll over the facility when its term expired, thereby causing it to suffer loss on the sale of property being developed and other securities held with the support of refinance afforded by the facility.

3. I should note in relation to the complaint about the LVR that, notwithstanding that complaint, it cannot be made out because the evidence demonstrates that an indulgence was granted by the Bank between the date of the alleged breach and the final expiration of the facility agreements. However, the remainder of the complaint requires consideration. It is my view that generally the debtors’ complaints cannot be made out. As was pleaded at paragraph 3 in the Statement of Claim in the Queensland Supreme Court proceedings and admitted in the Defence and Counterclaim, the facility offer was made on 5 May 2008.  That bears some importance because it informs a deed of forbearance dated 30 August 2010.

4. A deed of forbearance was entered into between the debtors and the creditor on 30 August 2010. Its form is annexed to Mr Martinek’s affidavit filed on 2 December 2013. The date of 5 May is picked up in the recitals of the deed which sets out the relevant background. They provide:

   “a)    Bankwest holds the Security granted by the Security Provider as security for the liability of the Debtor.

   b)In consideration of Bankwest agreeing to enter into this Deed at the request of the Debtor (which requests are acknowledged by the parties’ execution of this Deed) the parties have agreed to deal with Bankwest in the manner set out in the Deed.

   c)By letter of offer dated 5 May 2008, Bankwest agreed to provide the Debtor with 2 Commercial Advance Facilities to refinance existing debts associated with the purchase of vacant land located in Mackay, in the State of Queensland and to refinance existing debts associated with a completed unit development in Mackay as well as consolidation of other existing facilities. 

   d)Letters of variation have been issued dated 16 June 2008, 28 July 2008, 13 May 2009, 11 June 2009, 9 July 2009, 10 August 2009, 29 September 2009, 13 November 2009, 24 December 2009, 29 December 2009, 9 February 2010, 17 March 2010 and 12 May 2010.

   e)Additionally by letter of offer date [sic] 8 May 2007, Bankwest agreed to provide a Business Edge Loan, Business Bonus Overdraft Facility and a further Business Bonus Overdraft Facility to the Debtor.

   f)To secure the Debtor’s obligations under the Bankwest Facilities, Bankwest took the following securities:

   …

   g)The Bankwest Facilities expired on 31 July 2010.”

5. The deed was executed by both Mr and Mrs Martinek. It should be noted that the debtors did not admit to having executed this deed when pleaded against them in the Supreme Court proceeding. In their Defence and Counterclaim they pleaded a non-admission on the basis that they did not know and could not admit the allegation. I particularly note that no allegation has been made in those proceedings or at any other time that the deed of forbearance was not executed by them or that they were misled or subject to some unconscionable conduct in respect of its entry, or otherwise had to sign the deed under duress.

6. For present purposes, the most significant matter is that the deed alleges that the facility would have expired on 31 July 2010 and that the deed itself provided a three-month moratorium on its enforcement “to allow the Debtor a period of 3 months from the date of this Deed to put forward a proposal satisfactory to Bankwest for repayment of the Bankwest Facility.”[2] Further, clause 2.2 permitted the debtor an additional two months if it continued to pay interest and came up with a satisfactory refinance proposal in the initial three months. 

   [2] Clause 2.1.

7. Against that background, the debtors commenced proceedings on 3 May 2013 in the Supreme Court of New South Wales’ Equity Division claiming: 

   “1.    The Defendant [being the creditor] being a Corporation carrying on business in the State of New South Wales is restrained until further order from taking any step to enforce a judgement obtained by it against the Plaintiffs in the Supreme Court of Queensland at Brisbane,  that is numbered BS7916 of 2011 before that Court.

   2.      The Plaintiffs together with any other persons with whom the Plaintiffs may seek to file a Statement of Claim against the Defendant, is directed to do so within 28 days or such other time as the Court directs. 

   …”

8. A Statement of Claim was filed and the matter is proceeding. The debtors have also contended that the claim is identical to a claim maintained by another disenchanted customer of Bankwest, Trevor Eriksson, and ultimately they have sought to prosecute their claim with Mr Eriksson in proceedings commenced by him.  The claims that Mr Eriksson agitates, and which effectively are agitated by the debtors in this application, are set out at paragraph XXV in submissions that were placed before this Court in its Sydney registry. He is resisting a sequestration application brought against him by the creditor in this application, and which, as I understand it, has not yet been resolved.

9. In broad terms it was contended that it was sought to agitate the claim on the following basis: 

   “a)    That Eriksson [and, in this instance, the debtors] was a party to facilities in place with Bankwest prior to 15 December 2008;

   b)     That the CBA acquired Bankwest on or about this date;

   c)That Bankwest carried out a review of its customers who had commercial facilities, where the securities supporting those facilities were predominantly commercial and property situated across the eastern seaboard of Australia;

   d)That at the time the facilities were the subject of the review, the customers’ facilities had been performing facilities of performing loan customers;

   e)That notwithstanding, those facilities were made the subject of Review Practices;

   f)That the Review Practices included: 

   ·The bank reviewing customers’ facility agreements with a view to finding fault with the customers’ obligations under their agreements and placing them into credit asset management, where the facilities were then called in and determined;

   ·The bank resiling from representation as to future funding and the manner in which customers’ facility agreements would be dealt with or determined, and then resiling from those arrangements and coaxing its customers to enter into deeds with the bank concerning their facility agreements with unrealistic payment demands or requirements, and that the bank would then seek to rely upon that these requirements to determine the facilities;

   ·The bank through various methods including security re-valuation(s) would trigger facility defaults, the effect of which led to the imposition of penalty interest rates and ultimately payment defaults concerning the facility agreements that enabled those facility agreements to be determined;

   ·The bank exercised a general degree of unwillingness to work through arrangements with customers concerning their facility agreements and determined those facilities where other arrangements may have provided a more commercially advantageous outcome;

   ·Whilst one may speculate as to the bank’s motives in this regard, the emphasis in such proceedings as Eriksson seeks to bring focuses on the bank’s conduct and how it treated its customers who entered into the relevant facility agreements. The primary issue is that of underlying conduct.”

10. It can be seen that there is a high degree of consistency between the Eriksson claim and that which I earlier alluded to as being prosecuted by the debtors in this case. 

11. The difficulty the debtors have in running that case, in my view, is identified by the deed of forbearance.  That is, the term of the facilities simply expired.  It is not alleged, for instance, that by reason of any conduct on the part of the creditor the debtor did nothing about seeking alternative sources of finance and thus was caught short.  Unfortunately, the debtors were caught in a game of financial musical chairs, where the liquidity music ceased and they could find no funding seat to fall upon at that critical moment in time. 

12. As Mullins J observed in debate between herself and counsel for the creditor in the summary judgment application, the debtors were simply a casualty of the global financial crisis, and that matter is no defence to a failure to satisfy a contractual obligation to repay a facility upon the due date. The claim proposed by the debtor is, in my view, a weak claim. If there is something in the claim, it is a matter that the debtors’ trustee in bankruptcy can consider in the administration of their estates.

13. I note their concerns, given that the trustee is being appointed upon the creditor’s application, that what the trustee would be required to do is prosecute a claim against the party which sought their appointment.  However, the trustee stands independent of the creditors and acts on the Court’s appointment. The trustee’s duty is to act in the best interests of all creditors and not just the petitioning creditor. If the debtor does have a right of action which could prove fruitful, then the trustee might decide to prosecute it but, ultimately, that will be a matter for the trustee.

14. In any event, for present purposes I do not think that the debtors’ claim against the creditor is such as to be likely to give rise to the prospect of fruitful litigation, and its outcome is unlikely to see the debtors’ solvency established or preserved even if an outcome could be quickly obtained (a matter I seriously doubt). It is apparent from Mr Martinek’s affidavit that he has no money. Indeed, he is investigating the prospect of tapping his superannuation fund to fund any litigation. To date, he has only been occasionally represented.  His proceedings have not been well run and there are now cost orders outstanding against him. 

15. The proposed proceeding is complex and the conduct to date would not imbue any reasonable person with confidence that the action could be prosecuted to a successful conclusion. In my view, it has not been demonstrated that there is other sufficient cause as to why a sequestration order ought not be made.

16. By reason of my conclusion on the creditor’s application, it is, in my view, unnecessary to determine the debtor’s application for a change of venue.  It follows that in the circumstances I am satisfied it is appropriate that a sequestration order be made and I will make a sequestration order in the usual terms, including as to costs. 

I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Judge Burnett

Associate: 

Date: 17 January 2014