Edmonds v Barrington Winstanley Group Pty Ltd
[2023] FedCFamC2G 785
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Edmonds v Barrington Winstanley Group Pty Ltd [2023] FedCFamC2G 785
File number(s): BRG 273 of 2022 Judgment of: JUDGE LAING Date of judgment: 30 August 2023 Catchwords: BANKRUPTCY - application seeking review of a decision of a Registrar dismissing an application to set aside a Bankruptcy Notice – whether the applicants have a counter-claim, set-off or cross demand within the meaning of s 40(1)(g) of the Bankruptcy Act 1966 (Cth) that is equal to or exceeds the amount of the judgment debt – whether any such claim(s) could not have been set up in the proceeding in which the judgment or order was obtained – whether the Court should go behind the judgment – application dismissed Legislation: Bankruptcy Act 1966 (Cth)
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)
Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW)
Felons (Civil Proceedings) Act 1981 (NSW)
Cases cited: Barrington Winstanley Group Pty Ltd v Edmonds [2022] NSWSC 531
Boensch v Pascoe [2019] HCA 49; (2019) 268 CLR 593
Naumovic v District Council of Coober Pedy [2023] FedCFamC2G 125
Palaniappan v Westpac Banking Corporation [2017] FCAFC 121; (2017) 252 FCR 486
Toyne v Stokes [2021] FedCFamC2G 148
Zhang v Yan [2021] FCA 905
Division: Division 2 General Federal Law Number of paragraphs: 78 Date of last submission/s: 23 August 2023 Date of hearing: 21 August 2023 Place: Sydney Solicitor for the Applicants: Mr L Smits of Murray Laws Pty Limited Counsel for the Respondent: Mr M Pesman SC Solicitor for the Respondent: Ark Legal ORDERS
BRG 273 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: SANDRA HENRI EDMONDS
First Applicant
DAVID JAMES EDMONDS
Second Applicant
AND: BARRINGTON WINSTANLEY GROUP PTY LTD
Respondent
order made by:
JUDGE LAING
DATE OF ORDER:
30 AUGUST 2023
THE COURT ORDERS THAT:
1.The application filed on 4 November 2022 for review of the decision made on 30 August 2022 by a Registrar be dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE LAING:
Before the Court is an application seeking review of a decision of a Registrar of this Court dismissing an application to set aside a Bankruptcy Notice.
For the following reasons, the application will be dismissed.
BACKGROUND
On 20 May 2022, orders were made by the Supreme Court of New South Wales (NSW) in proceedings 2021/00112414 (Supreme Court Proceedings) including that judgment be entered for the respondent in these proceedings against the applicants in the sum of $801,116.89 (including interest) (Judgment Debt). Those orders followed judgment being handed down by Darke J on 4 May 2022 in Barrington Winstanley Group Pty Ltd v Edmonds [2022] NSWSC 531 (SC Judgment).
The Supreme Court Proceedings arose out of two agreements involving the applicants, a company associated with the applicants, and the respondent. The first was an Exclusive Mandate and Fee Agreement entered into on 3 November 2017 (Agreement). The second was a Deed of Acknowledgment of Debt entered into on 27 April 2018 (Deed) by which the applicants acknowledged the existence of a debt in the sum of $240,520 and undertook to pay it to the respondent. The respondent’s claim under the Deed for judgment in the sum of $240,520 was upheld in the Supreme Court Proceedings, which together with interest resulted in the Judgment Debt. The balance of the respondent’s claims, including under the Agreement, were dismissed.
On 3 June 2022, a Bankruptcy Notice was issued to the applicants in respect of the Judgment Debt. Service was not contested in these proceedings.
On 30 June 2022, the applicants filed an application with this Court seeking to set aside the Bankruptcy Notice.
On 30 August 2022, the following orders were made by Registrar Morgan:
1. The application to set aside Bankruptcy Notice BN256386 issued on 3 June 2022 be dismissed.
2. The Applicants pay the Respondent’s costs of and incidental to the application fixed in the amount of $25,856.86.
On 3 September 2022, the respondent in these proceedings filed a creditor’s petition in proceedings MLG2012/2022 seeking sequestration of the applicants’ estates. Those proceedings are ongoing.
On 4 November 2022, the applicants filed an application seeking an extension of time in which to seek review of Registrar Morgan’s decision.
The first court date in this matter was listed on 16 December 2022. On that occasion, the matter was listed for hearing and timetabling orders were made. However, in January 2023, the Court was asked to make, by consent, orders adjourning the hearing of this matter until determination of NSW Supreme Court of Appeal No. 2022/00305853 (Appeal Proceedings). Orders to this effect were made on 17 January 2023.
On 24 July 2023, judgment was handed down in the Appeal Proceedings dismissing the applicants’ appeal from the SC Judgment (Appeal Judgment). On 31 July 2023, orders were made setting this matter down for hearing and providing timetabling for any further evidence and submissions. At the hearing of this matter on 21 August 2023, an extension of time was granted without objection.
RELEVANT LAW
A review of a decision made by a Registrar is conducted by way of a hearing de novo: r 21.04(1) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
Section 40(1)(g) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) provides:
BANKRUPTCY ACT 1966 - SECT 40
Acts of bankruptcy
(1) A debtor commits an act of bankruptcy in each of the following cases:…
(g)if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i)where the notice was served in Australia--within the time fixed for compliance with the notice; or
(ii)where the notice was served elsewhere--within the time specified by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained…
The requirements for setting aside a bankruptcy notice on the ground that there is a counter-claim, set-off or cross demand as contemplated under s 40(1)(g) of the Bankruptcy Act were summarised by Judge Riley in Toyne v Stokes [2021] FedCFamC2G 148 at [7]-[8]:
7.In Singh v Fobupu Pty Ltd [2021] FCAFC 14, the Full Court of the Federal Court explained the requirements for a counter-claim, set-off or cross demand, for the purposes of s.40(1)(g) of the Act, as follows:
35. ... s 40(1)(g) of the Bankruptcy Act provides that, once served with a bankruptcy notice, the debtor has the onus of satisfying the court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under a final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.
36. There are two components to that obligation. The first component is that the debtor has to establish the existence of what he or she claims can amount to a cause of action or right to found the counter-claim, set‑off or cross demand. That is, the debtor has to satisfy the Court that he or she has a prima facie case of a counter-claim, set-off or cross demand even if the debtor does not adduce admissible evidence to support its existence. But, it is not enough for the debtor to make a mere assertion that such a case exists, as Dixon CJ, McTiernan and Windeyer JJ held in Ebert v The Union Trustee Company of Australia Limited [1960] HCA 50, (1960) 104 CLR 346 at 350. The debtor must show sufficiently that he or she has a claim that has reasonable probability of success to enliven the Court’s power to allow that claim to be litigated in separate proceedings, so that the Court will not require compliance with the bankruptcy notice. That does not involve, necessarily, proving as at a trial that the creditor has the claimed liability. But, it does mean that the Court must be satisfied that the debtor has some form of legal claim of sufficient substance to warrant the Court not requiring the bankruptcy notice to be enforced, until that contestable issue is resolved in another proceeding on a final basis. ...
37. The second component of s 40(1)(g) is that the debtor must satisfy the Court that the relevant counter-claim, set‑off or cross demand could not have been set up in the proceeding in which the judgment or order was obtained. ...
8.That is, for the purposes of setting aside the bankruptcy notice on the ground relied on by Ms Toyne:
(a) the onus is on Ms Toyne;
(b) Ms Toyne must satisfy the court that she has a prima facie case of the counter-claim, set-off or cross demand;
(c) the counter-claim, set-off or cross demand must exceed the amount of the judgments in the Supreme Court proceeding;
(d) the counter-claim, set-off or cross demand must have a reasonable probability of success; and
(e) the counter-claim, set-off or cross demand could not have been set up in the Supreme Court proceeding.
At [9], her Honour considered the requirement that “the counter-claim, set-off or cross demand could not have been set up in the proceeding in which the judgment or order was obtained”. This was by reference what was said by Gilmour J, with whom McKerracher J agreed, in Palaniappan v Westpac Banking Corporation [2017] FCAFC 121; (2017) 252 FCR 486 (Palaniappan) at [32]-[33] as follows:
32.The principles applicable to the proper construction of s 40(1)(g) of the Act, which the parties accept, correctly, are relatively well settled. They are relevantly:
(1) The question of whether or not a counterclaim or cross-demand ‘could not have been set up’ is a question to be determined with reference to legal inability, not practical or personal considerations; Re Brink at 434, 437.
(2) ‘...[A] counterclaim-claim, set-off or cross demand which could not be set up [is] one which, from point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained. ... Mere failure to take advantage of the opportunity can hardly be said to be inability’: Re Stokvis at 57.
(3) The debtor bears the onus of satisfying the Court that he/she was legally incapable of setting up his/her counterclaim in the proceedings in which the judgment was obtained: Re Ling; Ex parte Ling v Commonwealth [1995] FCA 1410; (1995) 58 FCR 129 at 130 and 137.
33. Therefore, for present purposes, as Hill J noted in Re James; Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd (1993) 46 FCR 183 at 189:
As the law presently stands it would seem that the mere fact that for practical reasons a debtor is unable to bring a cross-action etc will not entitle the debtor to argue that he or she had a cross-action etc which could not have been brought in the original proceedings.
The requirement of mutuality was recently considered by Judge Lucev in Naumovic v District Council of Coober Pedy [2023] FedCFamC2G 125 (Naumovic) at [75]-[78]:
75.A counterclaim, set-off or cross demand under s 40(1)(g) of the Bankruptcy Act must be mutual and due in the same right, see Stec at [24] per Beaumont, Branson and Sundberg JJ as set out at [28(d)] above.
76.The passage referred to from Stec has since been regularly applied by the Federal Court and this Court’s statutory predecessors: see, for example, Henderson, in the matter of Henderson v McCafferty [2000] FCA 1511 at [9] per Drummond J; Gelonesi v G Abignano (Investment) Pty Limited [2020] FCA 898 (“Gelonesi”) at [77] per Perry J; Dimitrov v Bendigo and Adelaide Bank Limited & Ors [2020] FCCA 3149 at [8] and [19] per Judge Altobelli; Swarbrick v Burge & Ors [2009] FMCA 985; (2009) 236 FLR 311 at [65] per Lucev FM.
77.In Re Wedd; Ex parte Parker [1962] WAR 42; (1962) 19 ABC 36; [1962] ALR 60 (“Wedd”) (cited in Stec) the judgment creditor had sued on the judgment debt in a personal capacity and the Supreme Court of Western Australia held that a cross-demand against a partnership in which the judgment creditor was a partner was not in the same right. In so doing it relied on an earlier judgment of the Supreme Court of New South Wales, Re Brown (1923) 40 WN (NSW) 73 (“Brown”). In Brown, on an application to set aside a bankruptcy notice on the ground that the debtor had a cross-demand in excess of the judgment debt against the judgment creditor and his wife, it was held that the cross-demand, to come within the meaning of s 4(1)(g) of the Bankruptcy Act 1898 (NSW), had to be a cross demand against the judgment creditor solely, Street CJ in Eq observing at 74 that:
I do not think it was ever contemplated by the legislature that a judgment creditor should be compelled to hold his hand while his debtor prosecutes a claim which he has against him and some other person jointly.
78.In Maxwell v Moorabool Developments Pty Ltd [2004] FMCA 92 at [17] per Hartnett FM the Federal Magistrates Court observed that:
The current view of the proper construction of s.40(1)(g) of the Act is as set out in the decisions of Re Brown (1923) 40 WN (NSW) 73 and in Re Wedd; Ex parte Parker [1962] WAR 42. The question whether it is a sufficient answer to a bankruptcy notice for a debtor to set up a cross demand against a judgment creditor jointly with someone else was answered in the negative (Re Camilleri; Ex parte Maguire unreported, 08/05/1996 FedCt(Vic) 0238/96, Olney J).
In terms of the principles regarding when the Court may “go behind” a judgment in bankruptcy proceedings, it may be accepted that the Court may exercise its discretion to do so: see Zhang v Yan [2021] FCA 905 (Zhang) at [50]-[57]. However, the Court is usually reluctant to do so where judgment has been entered after a fully contested trial in which the parties have been given the opportunity to present their cases: Zhang at [54]. Moreover, the Court ought to take into account that a bankruptcy notice is not attended with the same adverse consequences as a sequestration order in considering whether the discretion ought to be exercised within the context of a set aside application: see Naumovic at [130] and the cases referred to therein.
APPLICATION
Following the handing down of the Appeal Judgment, the applicants contended that they ought, nonetheless, to succeed in these proceedings for the following reasons:
(a)firstly, they claim to have a counter-claim, set-off or cross demand within the meaning of s 40(1)(g) of the Bankruptcy Act that is equal to or exceeds the amount of the Judgment Debt; and
(b)secondly, they contend that the Court should nonetheless go behind the Judgment Debt.
Counter-claim, set-off or cross demand
Respectfully, I do not consider that the applicants have explained the counter-claims, set-offs or cross demands that they rely upon with complete clarity. In written submissions, the applicants referred to the following:
7.It follows that as against the Judgment Debt, the Edmonds are not limited to ‘rights to found a counter claim, set off or cross-demand’ and can raise other ‘rights of action’ in negligence, tort and statutorily and defences and/or bars and estoppels that were not raised in the SC proceedings. They will also enjoin other parties: see Edmonds 4 at [65]…
13.The Edmonds have made a fresh application for Prohibition under the [Farm Debt Mediation Act 1994 (NSW)]: see the Statutory Declaration made on 07 August 23 by Mrs Edmonds: Doc. 25 in Ex. SHE-1, pp 310-669. It is anticipated by the Edmonds that the Rural Assistance Authority will do so promptly…
15. As deposed by Mr Hough for BWG on 22 July 2021: Edmonds 4 at [38]-[39]; Ex. SHE-1., pp 238-266, BWG’s case in the SC was founded upon the premise that BWG was unlicensed and not required to be licensed under the [National Consumer Credit Protection Act 2009 (Cth) (NCCP Act)] for the purposes of the Agreement: Edmonds 4, at [39]. The “Service Fee” was purportedly earned by BWG without compliance with ay [sic] requirements imposed under the NCCP Act: see, e.g., ss 128-133, contraventions of which create rights of compensation under ss 176-179…
17.BWG has claimed substantial GST amounts and exorbitant interest charges thereon from the Edmonds (see Edmonds 4, at [43](b)(f) & (g), without any known or disclosed basis or compliance with any said GST obligations, when it had no legal entitlement to do so and it is liable to make restitution and indemnify the Edmonds in relation thereto.
18. In relation to the supply of credit services to consumers, a supplier must not engage in misleading, deceptive or unconscionable conduct: see sections 4, 18-22 of the Australian Consumer Law (ACL) and 12CA-12CC & 12DA-12DC of the [Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act)]
19. BWG engaged in such proscribed conduct: see e.g. Edmonds 4 at [62]-[64]…
21. … BWG has claimed substantial amounts and exorbitant interest charges for recovery collections and legal costs from the Edmonds (see Edmonds 4, at [43](c), (d) without any apparent or disclosed basis or compliance with any legal obligations imposed under the [Uniform Legal Profession Laws 2014 (NSW)].
These matters and other matters claimed by the applicants were contested by the respondent. Reliance upon the Farm Debt Mediation Act 1994 (NSW) was not pressed by the applicants at hearing, nor was any contention regarding “recovery collections and legal costs”.
Paragraphs 65 to 66 of Mrs Edmonds’ affidavit made on 8 August 2023 (Fourth Edmonds Affidavit) refer generally to the following claims:
65.In the event that the Bankruptcy Notice is set aside, we undertake to progress our said AFCA Claim, proceed with a Farm Debt Mediation and insofar as necessary will sue Connective, CCS and/or COSN to which BWG, Messrs Hough (as ACR and a BWG director and Partner) and Winstanley (as a BWG Director and Partner) and the beneficiaries of or partners in the Condor Trust (when ascertained), all of whom will be held accountable and are liable to be joined as defendants or cross-defendants in future proceedings.
66.In such event, each right of action referred to herein in general terms, including those which arise from the said Appointment Agreement, the Full Member Agreement and said insurances and indemnities will enure to our benefit and provide to us a set off, counterclaim or cross demand that was not available to us in the said SC Proceedings and substantially exceed the amount of the said Bankruptcy Notice.
At [13] of the Fourth Edmonds Affidavit, Mrs Edmonds refers to potential claims against Connective Services Pty Ltd (Connective) in respect of which it is said that “preliminary discovery… might be essential”. Paragraphs 33 to 37 refer to a contention that Connective is liable to indemnify the applicants in the amount of $4,371,484 in addition to the Judgment Debt. The respondent is said to be liable to indemnify Connective.
At the hearing, without prior notice to the respondent, the applicants contended that s 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) meant that they could maintain a claim against an insurer and/or Connective and/or the respondent due to an agreement between Connective and the respondent requiring insurance to be maintained. The applicants referred to a complaint that had been made in this regard. However, the applicants did not identify in their submissions the insurer or the insurance policy in question. The applicants also did not explain with any clarity (such as by reference to legislation or case law) why the NSW legislation applies, notwithstanding the agreement in question specifying the application of the laws of Victoria.
At [19], [24] and [47] of the Fourth Edmonds Affidavit, Mrs Edmonds refers to matters that she says were not disclosed by the respondent and others that she appears to consider ought to have been disclosed. In particular, she contends that the respondent represented that it was providing credit services under an Australian Credit Licence (held by Collective) and that the proposed loan would be governed by the “Consumer Credit Laws”. The respondent denied that it made any misleading or deceptive representations, that it failed to make any required disclosures and that it breached any consumer credit laws in relation to the Agreement or Deed.
At [30] of her affidavit, Mrs Edmonds contends:
30.A further group of positive inhibitions that was raised by BWG arose from its lodgement and maintenance of a wrongful caveat over our said properties as described by Mr Hough in the circumstances referred to in paragraphs [6]-[29] ff of his Affidavit of 29 March 2022. It was held in the Judgment of 04 May 2022, at [76]- [87] that BWG had no right to do so under the Agreement or the Deed. That was despite BWG retention of the Caveat from 12 December 2017 until 12 November 2022, purportedly to secure payment of the said Debt, defined differently in Recital M and Clause 1.1 of the Deed. During those 5 years the Caveat effectively removed or precluded our financial capacity to refinance our loans and to engage competent lawyers on any consistent, coherent and on-going basis. Document 13 at page 179, is the email of 10 November 2022 from BWG's lawyers to ours attaching a screenshot of the PEXA registration of Withdrawal of the Caveat over Rosewood. That enlivened and crystallized our statutory claim for compensation (under section 74P of the NSW Real Property Act 1900), which exceeds substantially the amount of the Judgment Debt.
In reference to the argument under s 74P of the Real Property Act 1900 (NSW), the applicants relied upon the finding in the SC Judgment that the respondent had not been entitled to enforce a charge over their property notwithstanding that a caveat had been maintained (at [88]). This was generally contended to have impeded the applicants’ ability to obtain finance and to have caused them losses. However, the applicants did not respond in detail to the respondent’s observation that there was no evidence in support of this submission, nor any explanation of why the respondent’s caveat was said to have been the caveat that prevented refinancing in circumstances where it was only one of a number of caveats on their property. The applicants also did not respond in detail to the respondent’s observation that the mere fact of erroneous maintenance of a caveat would not, without more, sound in compensation: see Boensch v Pascoe [2019] HCA 49; (2019) 268 CLR 593 at [109]-[116] per Bell, Nettle, Gordon and Edelman JJ.
At [41] of the Fourth Edmonds Affidavit, Mrs Edmonds asserts:
41With respect to the licensing facts deposed to by Mr Hough in paragraphs 14-19 of his said Affidavit of 22 July 2021, we were advised recently that in that situation the Directors of BWG had the necessary knowledge that at all material times it was prohibited statutorily from engaging in credit transactions, including providing credit assistance and credit services without a licence, from conducting business with unlicensed persons and from charging or recovering the Service Fee under the Agreement or Deed (see ss. 29, 31 & 32 of the NCCP Act and/or s. 12DMA of the Australian Securities and Investment Act 2001 (ASIC Act). It follows that BWG is barred thereby from recovering the Judgment Debt from us.
Paragraph 43 contends that the Judgment Debt and Appeal Judgment “were obtained by reason of irregularities, taxation evasion or avoidance and other statutory contraventions and lack of good faith on the part of BWG and Messrs Hough and Winstanley”. The reasons for this are said to include inducement into the Deed by misstatements, wrongful claims for legal costs in the absence of an assessment order or agreement, wrongful charges of interest and unlawful claims for GST. Such claims were denied by the respondent. At hearing, the applicants did not press their contentions regarding legal costs.
Paragraph 50 refers to a recent application to the Rural Assistance Authority, seeking to prohibit enforcement of the Judgment Debt. This was not pressed at the hearing.
Paragraphs 52 to 56 contend that, for various reasons, the Court should go behind the Judgment Debt and the Appeal Judgment.
There are, at least, a number of issues with the above within the context of the current application.
Firstly, the applicants appear to contemplate joining multiple parties to their proposed actions. This indicates that the requirement of mutuality is not met, as discussed above.
Secondly, many of the applicants’ proposed claims seek to re-litigate issues determined in the Supreme Court Proceedings and the Appeal Proceedings regarding the applicants’ liability to the respondent under the Deed. For the reasons given below, I have declined to go behind the Judgment Debt.
Thirdly, the claims have in significant part been advanced in such a vague and inchoate manner that it is difficult to reach any state of satisfaction regarding their merit or value. In relation to value, reference was made in the materials to a claim in excess of $4 million. This was supported by an affidavit by Mrs Edmonds dated 18 August 2023, which was largely relied upon as submissions rather than evidence. Reference was generally made to historical financial statements and to a number of historical valuations (which do not demonstrate present value and do not appear to have been contemporaneous with the sales that are said to have occurred). Those documents were not admitted for the truth of the representations contained therein and the applicants accepted that they possessed no admissible evidence in this regard. Even in the absence of admissible evidence, there has been no clear and sustained attempt through the oral or written submissions to articulate, in a comprehensive or definitive manner, the basis and value of the contended claims in the event that I declined, as I have done below, to go behind the Judgment Debt.
Having regard to the above, I am not satisfied that the applicants have demonstrated that they have a prima facie case of a counter-claim, set-off or cross demand that has reasonable probability of success, such as to warrant the Court not requiring the Bankruptcy Notice to be enforced.
For the reasons that follow, even if I had reached a contrary view, I would not have been persuaded that the applicants had a counter-claim, set-off or cross demand within the meaning of s 40(1)(g) of the Bankruptcy Act. This is because I have not been persuaded that the applicants were relevantly unable to advance such claims in the Supreme Court Proceedings.
Were the applicants relevantly unable to advance their claims in the Supreme Court Proceedings?
In written submissions, the applicants submitted that they were unable to set up relevant counter-claims, set-offs or cross demands in the Supreme Court Proceedings for a number of reasons.
The first was that they were “positively inhibited” from doing so by reference to a number of paragraphs in the Fourth Edmonds Affidavit. Those paragraphs refer, firstly, to a finding in the Supreme Court Proceedings that a particular Letter of Offer did not activate a requirement on the part of the applicants under the Agreement to pay a particular fee. They refer to contentions that the applicants have a compensation claim regarding the respondent’s wrongful maintenance of a caveat. They refer to a contention that the applicants were inhibited from raising a cross claim against the respondent based upon what had been represented regarding its role as a Trustee of the Condor Trust. They also refer to various other misleading representations, non-disclosures and/or breaches of fiduciary duties that they contend occurred on the part of the respondent. However, a number of these allegations were vague and did not explain, for example, how particular disclosure or fiduciary obligations were said to have manifested at relevant times (such as at the time of entry into the Deed and/or over the course of the Supreme Court Proceedings).
The applicants’ submissions then referred to the respondent’s lack of success in the Supreme Court Proceedings concerning the applicants’ contended liability under the Agreement and to what appear to be reasons that they say they are not liable for the Judgment Debt and/or prevented from raising further claims.
The submissions contended that rights of action contemplated arose either independently against other entities, or concurrently against other entities and the respondent.
They contended that the first applicant, Mrs Edmonds, was subject to statutory bars in ss 4 and 5 of the Felons (Civil Proceedings) Act 1981 (NSW) (Felons Act) preventing her from instituting proceedings without leave.
The submissions also referred generally to a contention that the Court of Appeal “disregarded” the applicants’ “statutory, monetary claims”. They further contended that “BWG was represented to be a straw company” and that “ASIC and ATO searches made by Edmonds and responsible authorities in respect of entities in connection with Condor Trust, Connective and BWG indicate phoenix like activities to shield against or defeat recovery prospects”.
The applicants did not explain with any clarity why the matters referred to above, other than the application of the Felons Act, ought to be considered “legal” impediments as opposed to “practical” impediments.
Some of the allegations made in the written submissions, such as the references to “phoenix like activities” were sensibly not pressed by the time of the hearing in the absence of adequate supporting evidence.
I accept the respondent’s submission that the reference in the applicants’ written submissions to the NSW Court of Appeal having “disregarded” their claims was inappropriate. The NSW Court of Appeal considered, but did not accept, the applicants’ submission that they had been prevented from raising in the Supreme Court Proceedings the numerous defences and counterclaims that they subsequently wished to rely upon. At [89] of the Appeal Judgment, it was found that the applicants “had a reasonable opportunity, over the course of the proceedings, to formulate such defences or counter claims as they wished to rely upon”. For the reasons given in the Appeal Judgment, I accept that this is the case. The applicants had some level of legal assistance during the Supreme Court Proceedings and were given adequate opportunity to raise such claims or defences as they wished to raise.
This is so notwithstanding the fact that the applicants’ contemplated claims involve third parties. Such parties could potentially have been joined to the Supreme Court Proceedings through any cross claim that the applicants wished to raise. In any event, as I have found above, such claims lack the requirement of mutuality discussed in Naumovic at [75]-[78].
To the extent that the applicants relied upon the Felons Act, I accept the respondent’s submissions as to why this did not preclude the applicants from raising the counter-claims, set-offs and/or cross demands now relied upon in the Supreme Court Proceedings. It was agreed that Mrs Edmonds was not incarcerated until 3 September 2021. This was well after the Supreme Court Proceedings were commenced (on 22 April 2021) and the filing of the applicants’ Defence (on 18 June 2021). Further, any need to obtain leave did not mean that the applicants “could not have set up” the counter-claims, set-offs and/or cross demands in the Supreme Court Proceedings. It simply meant that leave was required to do so, as was obtained in the Appeal Proceedings. As was considered in the Appeal Judgment, the threshold for doing so was not a high one (at [13]-[16]). It was one that only applied to Mrs Edmonds, not to Mr Edmonds.
Having regard to the above, I do not accept that the applicants could not have set up the counter-claims, set-offs and/or cross demands now relied upon in the Supreme Court Proceedings. The applicants therefore do not have a counter-claim, set-off or cross demand as contemplated in s 40(1)(g) of the Bankruptcy Act.
Should the Court go behind the SC Judgment?
Whilst the applicants’ written submissions referred generally to the case of Zhang in relation to this heading, they did not otherwise develop the argument in a clear fashion.
Some indication was given in the Fourth Edmonds Affidavit which, in addition to the matters summarised above, states at [41]:
41.With respect to the licensing facts deposed to by Mr Hough in paragraphs 14-19 of his said Affidavit of 22 July 2021, we were advised recently that in that situation the Directors of BWG had the necessary knowledge that at all material times it was prohibited statutorily from engaging in credit transactions, including providing credit assistance and credit services without a licence, from conducting business with unlicensed persons and from charging or recovering the Service Fee under the Agreement or Deed (see ss. 29, 31 & 32 of the NCCP Act and/or s. 12DMA of the Australian Securities and Investment Act 2001 (ASIC Act). It follows that BWG is barred thereby from recovering the Judgment Debt from us.
Paragraph 43 states:
43. Further groups of positive inhibitions arose, whereby this Court should go behind the said Judgments of 4 May 2022 and 24 July 2023, which were obtained by reason of irregularities, taxation evasion or avoidance and other statutory contraventions and lack of good faith on the part of BWG and Messrs Hough and Winstanley:
(a) we were wrongfully induced to enter into the Deed by misstatements in respect of our alleged liability in the Schedule annexed to the Deed;
(b) for example, it is recorded that the Service Fee of BWG in respect of the said In Base Loan Offer as being $211,200, comprised of a 5 % Fee of $192,00 and gst of $19,200, upon which interest was charged and capitalised at the rate of 2.5% per month;
(c) another example is provided in Document 21 at pages 270-271, which is a Letter dated 22 September 2020 from Ark Lawyers for BWG to YJP Legal for us which contains the misrepresentation that we were liable to pay $83,730.48 for external collection and legal costs under the Agreement, which was held as aforesaid to create no liability on our part to BWG and as to which we would add that we had no liability to pay such amounts or any interest thereon in the absence of an assessment order or agreement (under the Uniform Legal Practitioners Laws 2014 (NSW) or a specific debt finding thereon;
(d) BWG therefore wrongfully charged and capitalized substantial amounts of interest at the said exorbitant rate upon those and subsequent unsubstantiated collection and legal costs;
(e) BWG was not registered for GST, such that it was not entitled legally to charge or collect and did not remit GST under the GST Laws;
(f) the Condor Trust is not a legal entity and GST was only chargeable and was not charged under any valid Tax Invoices by BWG as the Trustee of the Condor Trust in accordance with the GST Laws;
(g) under the GST Laws no GST was chargeable as BWG was a Finance Provider or in respect of financial supplies that include our loans and input taxed supplies (not taxable)…
Paragraph 54 states:
54.…. The Court of Appeal made no express finding upon our defence that the Deed was executed under a unilateral or common mistake that liability arose under the Agreement.
Paragraph 55 states:
55.Further or alternatively, in general terms, we contend that the Deed is inoperable, void and/or unenforceable in its entirety or alternatively as to clause 2.1 because of illegalities inherent in it or because it violates public policy and/or pursuant to rules of law or equity, particularly when it operates to stifle, nullify or undermine such rule/s as to:
(a) that a corporation must not, in trade or commerce, assert or maintain a right to payment from a person for unsolicited financial services (s. 12DM of the ASIC Act);
(b) consumer protections provided to us in respect of finance transactions, e.g. under the NCCP Act or Australian Consumer Laws, which are forward in a case of refinance thereof;
(c) that finance brokers are required to be licensed, cannot engage in unlicensed finance transactions, nor receive or recover payment for related credit services (ss 29, 31 & 32 of CNCCP Act);
(d) consumer laws which exist protect borrowers from misleading, deceptive and unconscionable conduct in relation to finance transactions (ss. 4 & 18-22 of the ACL and ss. 12CA-12CC & 12DA-12DC and in particulars. 12DM of the ASIC);
(e) solicitors must not engage in 'mortgage financing,' contrary to which Mr Winstanley, ALP was a Partner of BWG in the finance transactions, where the transactions were not being administered under a relevant professional body and no claim may be made against the fidelity fund;
(f) the judgment debt includes substantial amounts of GST and interest thereon when BWG was not registered for GST and is liable to defeat the revenue interests of the Australian Government;
(g) where the judgment debt includes substantial amounts of debt collection fees and legal costs which were not recoverable under the Agreement, nor the Legal Profession Laws;
(h) proper application of the FDM Act to us as farmers.
At [60]-[61], Mrs Edmonds contended:
60. Those pleadings and the said SC Judgments reveal the nature and quanta of and extent to which our real claims and cross claims were not considered or were decided mistakenly by the SC and can be considered in order for this Court to satisfy itself that there is not truly an extant debt owing by us to BWG as a necessary foundation for the making of a sequestration order. Otherwise, it does not provide a genuine basis to do so and is contrary to the interests of our other creditors or that there is sufficient other reason not to make such an order.
61. In doing so, we rely also upon illegalities that were raised by us and were not considered in the SC and rendered the Deed and Judgment Debt unenforceable. These included disregard of the application of and contraventions of the said GST Laws, contraventions of said Australian Consumers Laws, said ASIC Act, NCCP Act (ss. 29, 31 & 32 and 128-133 and s. 74P of the NSW Real Property Act 1900, that were accompanied by mistaken dismissal of the relevant application NSW FDM Act.
In relation to what is said at [60] of the Fourth Edmonds Affidavit, it should be noted that the issue in these proceeding is whether the Bankruptcy Notice ought to be set aside, and not whether a sequestration order ought to be made.
Some more enthusiastic language is used in the contentions made at [62]-[64] of the Fourth Edmonds Affidavit, where various references are made to “fraudsters” and “sham or bilking transactions” attended by “conspiracies”. Such allegations were, sensibly, not pressed by the time of the hearing in the absence of adequate supporting evidence.
At [51] of that affidavit, Mrs Edmonds indicated that the applicants were considering applying for special leave in respect of the Appeal Judgment. In oral submissions, it was stated that the applicants intended to file such an application.
In oral submissions, the applicants did not press any argument regarding “mortgage financing”, debt collection fees or legal costs, or the application of the Farm Debt Mediation Act 1994 (NSW). However, the applicants did press their arguments regarding what they say was the unlawfulness of the underlying debt found to exist in the form of the Judgment Debt. This was in circumstances where they say that the non-interest component of the Judgment Debt (the amount of $240,520) was based upon an unenforceable Agreement and contained an unlawful GST component, involved unsolicited financial services in breach of the ASIC Act, as well as breaches of the NCCP Act and ACL. The applicants also contended that they were misled or mistaken in agreeing to the Deed by the unlawful Agreement and that they were able to rely upon their contended counter claims or set-offs to go behind the judgment.
The interest component of the Judgment Debt was the subject of a further challenge at hearing, in respect of which the respondent was given limited notice. At hearing and in post hearing submissions, it was contended that this component was unlawfully calculated by reference to the Agreement which was not justified by reference to the Deed. The applicants did not dispute that this amount was calculated in accordance with the rate in the Agreement (which was accepted by the respondent). However, the applicants contended that this was not an available method of calculation in circumstances where no liability was found under the Agreement.
I am not persuaded that it would be appropriate to go behind the Judgment Debt in the circumstances of this case. The Judgment Debt was handed down after contested proceedings before the Supreme Court, in which Darke J had the benefit of more fulsome evidence including oral evidence that was tested before his Honour. On appeal, his Honour’s construction of the Deed (which formed the underlying basis of the Judgment Debt) was upheld and it was rejected that the applicants were denied sufficient opportunity to present arguments that are now relied upon by the applicants. The SC Judgment is carefully reasoned and appears to be correct for the reasons that were given in that decision.
Many of the applicants’ arguments appeared to be based upon claims that they propose to make for compensation. It has not been explained in adequate detail how and why they say that such claims obviate their liability in relation to the Judgment Debt. Counter-claims and cross demands do not negate the existence of a debt, although they may speak to amounts that may be set-off against it. Whilst references have generally been made to the Deed being void for illegality or public policy, such arguments have not been adequately developed by reference to case law.
As was submitted by the respondent, the Judgment Debt was founded upon a narrow issue. That issue was construction of the Deed as requiring payment by the applicants of a sum of $240,520 irrespective of that sum having actually been lawfully owing under the Agreement (whether by reference to GST, the services that were provided by the respondent, or otherwise). This was having regard to the context of the Deed provided by the Agreement and the surrounding communications between the parties, in respect of which the NSW Supreme Court had the benefit of additional evidence. This included oral evidence upon which Darke J made adverse credibility findings in respect of Mrs Edmonds’ evidence as to why she contended that she had entered into the Deed. The construction of the validity of the Deed in the NSW Supreme Court proceedings was upheld on appeal, in the Appeal Judgment at [94]-[97]. Essentially, the purpose of the Deed was considered to be the provision of “commercial certainty” i.e. agreement of what was owed, irrespective of whether or not it had actually been owing or lawfully recoverable under the Agreement. The Deed, therefore, was not premised upon the correctness of the underlying Agreement.
In terms of the interest component, the following was stated at [73] to [75] of the SC Judgment:
73.By cl 2.1 of the Deed, the company and Mrs and Mr Edmonds jointly and severally undertook to repay the Debt to BWG on the earlier of various events. Debt is defined in cl 1.1 of the Deed to include the Service Fee plus all accruing interest. By Recital M, the Service Fee plus accrued interest calculated in accordance with the Agreement was stated to be $240,520 as at 12 April 2018. It is further stated in Recital M that interest continues to accrue on the Service Fee at the interest rate. The reference to the interest rate is plainly a reference to the interest rate that is specified in cl 7 of the Agreement (see Recital D)…
75. In these circumstances, it is my view that Mrs and Mr Edmonds are obliged to pay BWG $240,520 plus interest accrued on that amount after 12 April 2018 at the rate specified in cl 7 of the Agreement. That is a high rate of interest (2.5% per month compounding each month) but it has not been shown in the circumstances to be penal or unconscionable.
This was the basis upon which I was informed by the parties that the interest component of the Judgment Debt had been calculated i.e. by reference to the rate of interest set out in the Agreement. This followed from [89] of the Judgment, where it was stated:
89. BWG is entitled to a monetary judgment against both Mrs and Mr Edmonds for $240,520 plus interest. The Court will direct BWG to bring in an interest calculation to enable the appropriate judgment sum to be determined. The interest calculation will be directed to be served upon Mrs and Mr Edmonds, who will be given an opportunity to either agree to, or dispute, the calculation.
The applicants submitted that there was no entitlement on the part of the respondent to having interest calculated in the manner contemplated in the Agreement, in circumstances where separate liability under the Agreement had not been found. The applicants relied upon what was said in the Appeal Judgment at [96], where it was stated:
96.Thus, the Debt which is acknowledged and undertaken to be paid in clause 2.1 of the Deed, is at least the sum of $240,520.00 irrespective of what sums are actually found to have been owing under the Fee Agreement as at the date when the Deed was entered into or from time to time. In this regard, it was not contended before the primary judge or before this Court that the Debt in clause 1.1 also includes further sums by way of “accruing interest and amounts payable pursuant to the Agreement” (as stated in clause 1.1 of the Deed). It is thus unnecessary to consider whether the Debt, as defined in the Deed, is in fact a sum in excess of $240,520.00.
However, the Court of Appeal had not been asked to consider whether the interest component of the Judgment Debt had been correctly calculated. This is because the applicants do not appear to have challenged this component of the Judgment Debt on appeal, beyond the more general challenges that they pursued in relation to their liability under the Deed. The question, therefore, is whether there is sufficient reason to question this part of the Judgment Debt to warrant going behind it for the purposes of these proceedings.
I am not persuaded that this is the case. As was submitted for the respondent, its approach to calculation of the interest accorded with [73]-[75] of the SC Judgment, as well as the construction of the “Debt” for the purposes of the Deed as a term defined by reference to Recital M in both the SC Judgment and the Appeal Judgment. That definition was as follows:
M. As at 12 April 2018, the Service Fee plus accrued interest calculated in accordance with the Agreement totals $240,520.00 (the Debt), which continues to accrue at the Interest rate.
Clause 1.1 provided definitions in respect of which the words were stated to have “their corresponding meanings unless the context requires otherwise”. In respect of the term “Debt” it was stated:
Debt means the Service Fee, plus all accruing interest and amounts payable pursuant to the Agreement.
Recital D of the Deed reproduced the interest rate provision from the Agreement.
Consistently with the approach to construction taken in the SC Judgment and the Appeal Judgment, under the Deed the “Debt” as at 12 April 2018 was defined in the amount of $240,520 by reference to Recital M. This was so regardless of any underlying liability for this amount under the Agreement. Recital M made clear the parties’ intention that the amount owing would “continue… to accrue at the Interest rate”. Clause 1.1 and Recital D applied the interest rate calculation methodology under the Agreement. As was stated in the SC Judgment, the “reference to the interest rate is plainly a reference to the interest rate that is specified in cl 7 of the Agreement (see Recital D)”. This, therefore, applied by force of the Deed, notwithstanding that the applicants were not found to have otherwise owed the Service Fee under the Agreement.
Therefore, I am not persuaded that sufficient basis has been demonstrated for questioning the interest component of the Judgment Debt such as to warrant going behind it for the purposes of these proceedings. Even if there had been, I would have found, as was found in the SC Judgment at [73], that the applicants were required to pay interest at the rate specified in cl 7 of the Agreement.
I am also conscious that these proceedings concern an application to set aside a Bankruptcy Notice, which is not attended with the same adverse consequences as a sequestration order: Naumovic at [130]. Should the applicants wish to revisit and/or expand upon their arguments in this regard within the context of the sequestration proceedings, then it will be open to them to seek to do so.
Having regard to the above, I have declined to go behind the Judgment Debt.
Other matters
In post hearing submissions, the applicants additionally submitted that the Bankruptcy Notice was misleading and ought to be set aside on this basis because of what was said to have been evidence given on behalf of the respondent in the Supreme Court Proceedings, to the effect that the debt was owing to it “ATF The Condor Trust”.
This submission went beyond the grant of leave provided in respect of the post hearing submissions and relied upon material that was not admitted into evidence at the hearing of this matter. In any event, it cannot succeed. The parties to the Deed and liability in respect of the Judgment Debt were clearly determined in the Supreme Court Proceedings. That determination was reflected in the Bankruptcy Notice.
A further submission beyond the grant of leave was also made to the effect that the applicants had a potential counter claim due to the respondent’s “failures to arrange loans in conformity with the Agreement”. However, this argument was not developed by the applicants. It suffers from similar issues to those considered in relation to the applicants’ other proposed counter claims above, namely, that the value and basis of the claim has not been adequately identified and it has not been demonstrated that it was unable to be raised in the Supreme Court Proceedings.
CONCLUSION
For the above reasons, the application before the Court must be dismissed.
I will hear from the parties in relation to costs.
I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Laing. Associate:
Dated: 30 August 2023
16
0