Cunningham v Westpac Banking Corporation
[2013] FMCA 146
•8 February 2013
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CUNNINGHAM v WESTPAC BANKING CORPORATION | [2013] FMCA 146 |
| BANKRUPTCY – Application to set aside bankruptcy notice – appeal from judgment entered in application to set aside consent judgment – no stay to enforce consent judgment – discretionary consideration. |
| Bankruptcy Act 1966 (Cth), s.41(6A) |
| Agrillo v Codisposto (unreported, Federal Court, Sackville J, 16 December 1994) Re Geard; Ex parte Reid (1994) 217 ALR 191 |
| Applicant: | PAUL BRENTON CUNNINGHAM |
| Respondent: | WESTPAC BANKING CORPORATION |
| File Number: | BRG 9 of 2013 |
| Judgment of: | Burnett FM |
| Hearing date: | 7 February 2013 |
| Date of Last Submission: | 7 February 2013 |
| Delivered at: | Brisbane |
| Delivered on: | 8 February 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr C. Coulsen |
| Solicitors for the Applicant: | Jeff Horsey Solicitor |
| Counsel for the Respondent: | Mr D. Quayle |
| Solicitors for the Respondent: | King & Wood Mallesons |
ORDERS
That the applicant’s application for an order extending time for compliance with Bankruptcy Notice No BN 8123 is refused.
That the applicant pay the respondents costs of and incidental to the application, assessed in accordance with the Federal Magistrates Court (Bankruptcy)Rules 2006
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 9 of 2013
| PAUL BRENTON CUNNINGHAM |
Applicant
And
| WESTPAC BANKING CORPORATION |
Respondent
REASONS FOR JUDGMENT
(Revised from Transcript)
On 17 December 2012 the applicant debtor was served with a bankruptcy notice which issued on 11 December 2012. He has made application within time for orders that the bankruptcy notice be set aside. The original application sought relief expressed in very broad terms. Subsequently, he filed an amended application seeking relief inter alia as follows:
“1. The Bankruptcy Notice BN 8123 issued 11 December 2012, which was served on me on 17 December 2012, be set aside on the basis that the judgment which is the sole debt upon with [sic] the Bankruptcy notice is based is subject to an appeal which will overturn the judgment …”
He seeks orders that the time for compliance be extended up to and including the determination of the appeal in Federal Court proceeding QUD598/2012. The judgment referred to is one entered against him by Reeves J following proceedings in that court.[1] I will come to that judgment in detail shortly.
[1] See generally Cunningham v Westpac Banking Corporation Ltd [2012] FCA 1088.
There the applicant debtor was unsuccessful in a claim against the creditor seeking to set aside a settlement deed made in compromise of proceedings which were in the third day of trial before Dowsett J in November 2012. That settlement included consent orders made by Dowsett J against the debtor, who was the second cross-respondent in the proceeding. His Honour directed that the debtor pay to the creditor a sum of $31,220,000.00, inclusive of costs and interest, pursuant to a mortgage provided by an entity entitled “Buranda Properties Pty Ltd ATF the Cunningham Property Trust,” and also in respect of his guarantee.
I infer that the loan provided and to which the guarantee related was supported by that security. The judgment of Dowsett J was relied upon for the issue of the bankruptcy notice. The debtor swore that following his entering into the settlement agreement and the making of consent orders, he discovered facts that led him to believe that he had been induced to enter into the settlement agreement and agree to the consent orders in the proceedings before Dowsett J because of misleading and deceptive representations made to him by, or on behalf of, the respondent creditor during the course of the settlement negotiations.
He said that as a result of making that discovery, he caused the Federal Court proceedings before Reeves J to be commenced. He was the applicant in those proceedings, and the creditor was the first respondent in those proceedings. He said that in those proceedings he sought orders, inter alia, that the consent orders made on 18 November 2010 before Dowsett J be set aside, and that the those proceedings be restored to the list for trial.
Following the hearing, Reeves J delivered judgment on 5 October 2012 dismissing the debtor’s application. On 26 October 2012, the debtor filed a notice of appeal with regard to the whole of the judgment given by Reeves J on 5 October 2012 and the setting aside of consent orders made by Doswett J.[2]
[2] Federal Court proceedings NSD1033/2010 Buranda Properties Pty Ltd v Westpac Banking Corporation Ltd.
He also sought orders that the proceedings previously before Dowsett J be restored to the list. There is no contest that the debtor has done all things necessary to prosecute the appeal. He has complied with the practice directions and all other procedural directions relevant to the appeal have been undertaken. The appeal is listed for hearing in the sittings running between 29 April and 24 May this year. There is no contest that it is likely that the matter will come on for hearing at that time, subject to any interlocutory application made by the creditor.
The creditor has sought to make application for security for costs of the appeal. This is likely to be heard on or about 15 March 2013 when that application is listed for hearing. It should also be noted that the debtor has not made any application for a stay of the orders of Dowsett J.
The parties are not in dispute concerning the appropriate approach in relation to the resolution of this application. It is acknowledged by both parties that the Court has a general discretion once the jurisdictional threshold has been met under s.41(6A) of the Bankruptcy Act 1966 (Cth) (“the Act”). In this instance, there is no issue about that matter. Further, it is agreed that “the creditor should not be routinely frustrated from enforcing the judgment by the device of the institution of an appeal”; see Conway v Jackson (2001) 107 FCR 201 at 210.
The factors agreed to be relevant to granting the extension include the following:
a)the debtor’s prospects in any appeal filed in relation to the order founding the bankruptcy order: see Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287, Byron v Southern Star Group Pty Ltd (1997) 37 ATR 141 and Obeid v Council of the City of Sydney [2012] FMCA 450;
b)Whether the debtor has sought or obtained a stay of the order supporting the bankruptcy notice: see Kakavas v Paradise Enterprises Ltd [2010] FCA 915 and Byron v Southern Star Group Pty Ltd (supra);
c)Whether the debtor is solvent: see Kakavas v Paradise Enterprises Ltd (supra): it is the Applicant’s responsibility to produce evidence in that regard: see De Angelis v Cusak [2007] FMCA 1884;
d)Evidence of any particular prejudice to the debtors: see Obeid v Council of the City of Sydney (supra);
e)That an act of bankruptcy does not affect the status of the debtor: see Liew v JNS Technologies (M) Sdn Bhd [1999] FCA 1428. It does not prevent a debtor from continuing the appellant proceedings: see Obeid v Council of the City of Sydney (supra) and its consequences are not as serious as a sequestration order: see Liew v JNS Technologies (supra) and Obeid v Council of the City of Sydney (supra). A subsequent court has the power to adjourn any creditor’s petition, based upon the act of bankruptcy: see Jenkins v National Australia Bank Ltd [1999] FCA 1758, and also Obeid v Council of the City of Sydney (supra);
f)The question of any prejudice to the creditor and other creditors: see Obeid v Council of the City of Sydney (supra);
g)The question of any delay by the debtor: see Obeid v Council of the City of Sydney (supra);
h)Whether the debtor has offered to pay into court or to secure all or any part of the judgment: see Obeid v Council of the City of Sydney (supra); and,
i)The length of the extension sought: see Liew v JNS Technologies (supra) and De Angelis v Cusak (supra).
In addition, it was not in dispute that where the court is concerned with an appeal from an order refusing to set aside a judgment, the court should be even slower to grant an extension of time: see in particular the observations in Agrillo v Codisposto (unreported, Federal Court, Sackville J, 16 December 1994), a case which has many similarities with the case before me today.
Further it is also not in dispute that the observations in Re Geard; Ex parte Reid (1994) 217 ALR 191, which are echoed in Liew v JNS Technologies (supra) and in Byron v Southern Star Group Pty Ltd (supra) are applicable. In Re Geard; Ex parte Reid (supra), Sheppard J states:
“…the fact that the debtor has not made any application for stay of proceedings pending the outcome of the appeal is an important matter. For the debtor, the principal contention was that the discretion should be exercised in his favour because of the pending appeal. He submitted this was particularly so in the present circumstances, because not only is the appeal shortly to be heard, but the applicant is prosecuting the appeal, on the evidence demonstrates that; that the appeal is arguable; that the respondent will hold security, that is, the property the subject of the dispute; and will suffer little prejudice by any extension of time. Further, that an act of bankruptcy will allow the respondent creditor to petition, and if successful, act to stop the appeal, and, of course, finally, there’s no evidence of prejudice if the relation back is extended.”
The matter of the appeal was, perhaps, the most significant point advanced by the debtor. That matter warrants some consideration of the decision of Reeves J. The case before his Honour was that the debtor entered into an agreement with the creditor to settle the action before Dowsett J, on terms that included the consent order. It was contended that this occurred on the basis of a misrepresentation which was alleged to have been made in a letter from the creditor’s solicitors, referred to in the proceedings before his Honour as the “MSJ letter.”
Relevant parts of that letter are extracted at [17] of his Honour’s judgment and I will not rehearse them all here. However, the most significant part of the letter provided the following:
“Since their appointment, the receivers and managers have appointed agents and conducted an extensive marketing campaign for the sale of the secured lots. As a result, we are pleased to advise that the receivers and managers have entered into an agreement to sell the secured lots at Logan Road and Deshon Street, Woolloongabba for a purchase price of $35M (exclusive of GST and adjustments) subject to various conditions. This offer is well in excess of the CBRE and JLL valuations for those lots. If the conditions of the sale by the receivers and managers are satisfied and the sale is settled, it is expected to clear your client’s debt to [Westpac] in full with the release of the Stanley Street and Maynard Street properties from [Westpac’s] securities for the benefit of your client. At this amount and on current estimates we expect that there will be a return to your client out of the sale proceeds.”
The letter also contained a proposal to compromise the proceedings, and incorporated this statement:
“In the event that the above sale of Logan Road and Deshon Street properties does not proceed at the end of the purchaser’s due diligence and option period being 4 months from the date of this letter or settlement of the sale and repayment of [Westpac] debt does not proceed within 8 months of the date of this letter (or such further periods agreed by [Westpac] in writing at its absolute discretion) for any reason, [Westpac] and the receivers and managers will be entitled to proceed to sell the mortgaged lots and otherwise enforce the securities at their absolute discretion without further reference to your clients.”
Before his Honour the debtor complained and sought relief on the basis that the statements were misleading and deceptive, causing him to enter into the settlement deed and agree to the consent with subsequent loss to him when the contracts fell over. It should be noted that at this point in time the properties have not been sold and the debt remains outstanding.
It was alleged that the statements were misleading and deceptive in two respects. His Honour, commencing at [34] of his reasons, detailed those matters. In particular, he recited them as:
“In truth and in fact the Representations were false and misleading or deceptive in that:
a. the [Receivers] had not entered into an agreement to sell the [Woolloongabba Land] for the sum of $35,000,000.00 but rather had only given an option to the prospective purchaser to enter into such agreement, or had only sought expressions of interest at best;
b. contracts for the purchase of the [Woolloongabba Land] had not been entered into with the prospective purchaser;”
His Honour continued at [35]:
“In essence, Mr Cunningham claims that the representations in the MSJ letter misleadingly described the Phoenix 8 Agreement as a final agreement for sale when, in fact, the Phoenix 8 Agreement was only an option, or “only sought expressions of interest at best” and, in fact, no agreement had been entered into to sell the Woolloongabba Land.”
At [38] of his Honour’s reasons he set out the objective test for the contention with respect to whether if in fact the representation was misleading and deceptive. His reasons subsequently examined the evidence against the test. At [39], his Honour concluded:
“Having identified the relevant circumstances surrounding the preparation and despatch of the MSJ letter, it is next necessary to examine that letter itself and to make an objective assessment as to whether the representations contained in it had a tendency to lead Buranda and the Cunninghams into error in relation to the sale described in it viz the Phoenix 8 Agreement. It is appropriate to begin with what the MSJ letter actually stated. Contrary to what Mr Cunningham alleges at para 13a of his further amended statement of claim, it did not simply describe the Phoenix 8 Agreement as an “agreement to sell the land.” Instead, it expressly stated that the agreement to sell was “subject to various conditions,” and was subject to a “purchaser’s due diligence and option period [of] 4 months from the date of this letter or settlement of the sale,” as per the representations pleaded in para 11A of Mr Cunningham’s further amended statement of claim. It obviously does not avail Mr Cunningham to misquote the representations in the MSJ letter and then to claim that this misquoted version of them is misleading and deceptive …”
His Honour continued in the subsequent paragraphs to conclude that in his view the words in the Phoenix 8 Agreement could not be characterised as misleading and deceptive in the sense that they had a tendency to lead Buranda Properties and the Cunninghams into error. At [49] his Honour concluded that, objectively, the representations in the “MSJ letter” accurately described the agreement and did not have a tendency to lead the debtor into error about the nature of the agreement.
The notice of appeal has one ground which includes five subparagraphs. Counsel for the creditor, however, characterised the ground as simply a complaint that his Honour erred in the factual question of whether or not the finding was objectively open. I accept his characterisation as accurate. Further, I accept, as the creditor’s counsel contended, that the point of appeal is narrow. As he noted in his submissions, ultimately the appeal will turn on a narrow inquiry as to the characterisation of the “MSJ letter.”
The notice of appeal does squarely confront just one thing, which is in fact his Honour’s characterisation of that letter and, in particular, that the agreement to which it referred was an agreement for the sale of land. It follows that, as the creditor’s counsel contends, the appeal itself will not provide other fertile ground for agitation, particularly given that his Honour’s findings were founded on uncontroversial facts which appear to be in agreement and distilled from a characterisation of that document.
In respect of other matters that might be raised on appeal, Mr Cunningham faces significant hurdles. Other possible arguments were submitted by counsel for the creditor, but it must be noted that these were more in anticipation of issues that might arise, rather than those already apparent on the appeal record.
Counsel for the creditor noted that to succeed at the trial in the proceeding before Reeves J the debtor had to show that Buranda would have achieved a greater benefit or suffered a lesser detriment had it not entered into the deed. He contended that this required the debtor to show that Buranda would have achieved a better outcome if it had not settled the first proceeding before Dowsett J. However, in the second proceeding the debtor led no evidence to make out that proposition. Accordingly, in the appeal court will be left with an evidentiary gap in the event that any other arguments were successful. That gap, of course, cannot be addressed on the appeal.
Secondly, counsel for the creditor contended that the debtor was the only applicant in the second proceeding before Reeves J, and that he had to show that he personally would have achieved a greater benefit or suffered a lesser detriment by not settling. He said that the difficulty there was that the loss the debtor contended for was his entitlement to participate as a beneficiary in the capital of the Cunningham property trust. However, that proposition overlooks the fact that Buranda had a first charge on the assets of the trust estate to meet its obligations to the creditor. Given that Buranda’s debt to the creditor, if the deed was set aside, would uncontroversially exceed $42 million, and the only evidence about the value of the land demonstrated it as being worth something less than $35 million, it would seem that the debtor’s interest in the trust estate was valueless. That was another matter which cannot be cured on appeal.
Accordingly, the creditor contends, putting aside the prospects on the live issue which can be agitated on appeal, even supplementary issues which may be enlivened by the debtor on appeal means the appeal has no real prospects. While it is not my role in this application to second-guess the prospects of the appeal, the general impression in respect of prospects is, however, still a matter that has some significance, particularly when on its face, objectively they appear to be poor.[3]
[3] See particularly the comments made on this matter in Byron v Southern Star Group Pty Ltd (supra) at page 270.
In response, the debtor relied upon the decision of this Court in Obeid v Council of the City of Sydney (supra) in support of a submission that, in any event, care should be taken when dealing with an application for extension founded on an appeal in placing too much weight on the creditor’s right to have an early act of bankruptcy because of the significance that matter might have in respect of the relation-back period.
That is a factor which would also interest the creditor here. The debtor’s counsel submitted that the ultimate outcome of the Obeid (supra) appeal demonstrated the risks in placing too much weight on the creditor’s rights when weighing them against the prospects of an appeal. In Obeid v Council of the City of Sydney (supra) the original judgment was overturned on appeal. In that instance the Court had refused an application to extend time for compliance. He contended that there should not be too great a willingness for an early act of bankruptcy in respect of a judgment that is ultimately open to be overturned on appeal because of that risk.
The risk was highlighted in Obeid (supra) expressly because Mr Obeid had been unsuccessful at first instance in obtaining a stay. However, the judge’s observations noted at [2] of the reasons in Obeid were that: “… there was nothing to suggest that there were not arguable grounds of appeal.”
I am mindful of those observations. However I do not intend to elevate this consideration beyond the broad observation that the evidence indicates that an appeal is on foot and it does not appear to have good prospects. For the purpose of comparison with Obeid this case is one where the relation-back period bears no particular significance. In Obeid the relation-back period had some significance because there was evidence of a background of Byzantine financial arrangements. Here there is no evidence of curious prior dealings.
However, the question of the strength or otherwise of the appeal is only one matter. Other discretionary factors which warrant consideration were also submitted on behalf of the creditor. Another, and perhaps more significant, issue in this case is the question of whether there has been an application for a stay of the judgment. This matter was particularly addressed by Kenny J in Liew v JNS Technologies (supra) where, commencing at [13], her Honour observed:
“[13] There have been differences in the cases about the principles which are to govern applications such as the present. In Re Baker; ex parte Baker v Staples (unreported, Federal Court, 4 September 1995), Keifel J held that an extension of time should ordinarily be granted where there is a “genuine and arguable” appeal being diligently prosecuted against a judgment founding a bankruptcy notice. A not dissimilar approach was adopted by Weinberg J in Benaharon and by Ryan J in Beckwith v Pedler [1999] FCA 1312. A different approach has been adopted in other cases. In Re Geard; ex parte Reid (unreported, Federal Court, 11 February 1999) Sheppard J refused an application to extend time, stating as follows:
“The critical question then is how the discretion should be exercised. As earlier stated, the parties have made, both orally and in writing, detailed submissions concerning the issues which will arise for determination on the appeal and have invited the Court in effect to express a view, provisional though it may be, on the likely outcome of the appeal. To a degree I have felt obliged to look at the matter for myself, but I think it most undesirable that a judge of this Court should in effect undertake some provisional review to determine the correctness or otherwise of a judgment of another court especially where that judgment is under appeal to the Court of Appeal which has jurisdiction to hear appeals in the normal course. I prefer to approach the matter in a different way.
The debtor has not made any application for a stay of proceedings pending the outcome of the appeal. Why he has not done so is not clear to me but the judgment which has been recovered against him is a final judgment and execution upon it has not been stayed. It would seem to me to require quite special circumstances before a court exercising jurisdiction in bankruptcy would, in effect, do what has not been done in the court in which the judgment has been obtained by extending the time for compliance with the bankruptcy notice when no application to stay the judgment has been made.
…
A further factor is that this is an application to extend time for compliance with a bankruptcy notice; it is not the hearing of a bankruptcy petition. The refusal of the application will not affect the status of the debtor but it will mean that he, in all probability, will commit an act of bankruptcy. That act of bankruptcy will be available to the petitioning creditors or to any other creditor upon which to base a bankruptcy petition at any time in the period of six months after the act of bankruptcy has been committed. Otherwise the debtor's position will remain unaffected by what the Court does.
If the appeal is ultimately dismissed and the judgment stands with the consequence that the bankruptcy proceedings go on, it may be quite important to the petitioning creditor, whoever he or she may be, to the general body of creditors and to the trustee in bankruptcy, that there be, for the purposes of the administration of the bankrupt estate, an act of bankruptcy committed at an earlier time than would be case if this application were acceded to.”
Sheppard J's approach has been followed in Re Smith (unreported, Federal Court, 4 May 1994), Agrillo v Codisposto (unreported, Federal Court, 16 December 1994), Bryett v Deputy Commissioner of Taxation (1997) 37 ATR 1411, and Wenkart v Abignano (unreported, Federal Court, 28 August 1998).
[14] In Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264, Lehane J made it clear, at 270-271, that whilst a failure to apply for a stay was a relevant factor to which weight would be attached, it was not necessarily conclusive on the question whether an extension of time should be granted. This point was emphasised in Warner v Frost [1999] FCA 830 in which Hely J said:
“For myself, I think with respect, that the view of Lehane J is to be preferred and I propose to follow it but the problem is that really the only matters which were relied upon in support of a stay were these: first, the existence of an arguable appeal. Second, the application for a stay was made but at least inferentially a reason for its refusal was the inability on the part of the applicant to put up security in sufficient sums. Thirdly, the impact of a change in status consequential upon the refusal of the stay. Fourthly, no showing of any prejudice to the respondent should an extension be granted and, finally, the appeal is likely to be heard and decided in a period of eight months or less.
In my view, these factors are insufficient to outweigh the proposition that the Court in which this judgment was obtained has declined to stay its execution and something more than an arguable appeal needs to be shown before the Bankruptcy Court would grant an extension of time for compliance with the bankruptcy notice, which would produce a similar effect to the granting of a stay. Really nothing has been shown in this case other than that there is an arguable appeal and that the consequence of refusing an extension will be the commission of an act of bankruptcy ...”
I have included her Honour’s lengthy remarks regarding the approach to consideration of the appeal because, as I have noted, she identified two approaches, the second of which appears to invest a greater degree of significance on the question of a stay. As I have noted, that is consistent with the approach of Lehane J in Byron v Southern Star Group Pty Ltd (supra) and Sheppard J in Re Geard: Ex parte Reid (supra); Kenny J preferred and followed those authorities. That approach, I think, is applicable in this case.
Here there has been no application for a stay. The debtor however contends that any application for a stay of the judgment of Reeves J would be inutile. The creditor says that, notwithstanding that matter, a stay could be applied for in respect of Dowsett J’s order. That is, in fact, the operative order. The operation of that order will be affected and clearly impacted by the appeal. There is no argument that if the agreement is contaminated by a s.52 contravention entitling rescission then that will infect the order of Dowsett J, warranting its rescission; see generally the judgment of Harvey & Phillips (1956) 95 CLR 235 at 243-245, cited with approval in Agrillo & Codisposto (supra). In my view, the failure to seek a stay tells against the debtor.
Other factors contended for by the creditor which I think militate in favour of the orders sought by the creditor include:
a)The debtor has not lead any evidence to demonstrate any particular prejudice that would follow a failure to extend time. The sequestration of the debtor’s estate will not necessarily follow upon this application being dismissed. Noncompliance with the notice is not as serious a consequence as a sequestration order being made and, of course, his appeal is a matter which may in turn be considered in the context of an application for sequestration;
b)There has been no attempt by the debtor to pay money to the Court to secure the debt owed; and
c)There would be a substantial extension of time required. Having regard to the practicalities of the appeal and the time likely for its consideration and determination by the Court, it would not be unreasonable to expect that the appeal would not be determined and the matter of this application resolved until some time later this year. In that context, it would seem that the terms of the timeframe in this case are very similar to those which were the subject of consideration in Liew v JNS Technologies (supra), where the application also was dismissed.
Having considered all of those matters, I conclude that the application ought be dismissed. I see no utility even in allowing a short extension to permit the debtor an opportunity to respond to the creditor’s application for security for costs in the appeal. I am conscious of that matter and also that in such an application the prospects of the appeal might receive greater attention than they do in this application but, notwithstanding that matter, the other factors which I have identified plainly demonstrate that the overwhelming balance of discretionary factors favours the creditor and, on that basis, the application is refused. I dismiss the application with costs.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of Burnett FM.
Date: 10 December 2013
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