Interlego AG v Croner Trading Pty Ltd

Re: CHRISTOPHER ROBIN FISHER and FAY ANNETTE FISHER
And: WESTPAC BANKING CORPORATION; TOM MACDONALD; PATRICK MAHER; BRIAN A.
GREGORY; GREG J. MUNRO; BRIAN AIREY and AUSTRALIAN GUARANTEE CORPORATION LTD
No. WA G81 of 1992 FED No. 624
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Practice and Procedure - pleadings - statement of claim - whether reasonable cause of action disclosed - claim upon Bank, finance company and employees - allegation of unenforceable loan created by book-entry credit not supported by assets in currency or real wealth - conspiracy - Magna Carta - Biblical prohibition on usury - principles on strike out - no cause of action disclosed - difficulties arising from cost and lack of access to legal services.

Transfer of Land Act (WA) 1893 s.145

Contracts Review Act 1980 NSW

The Industrial Arbitration Act 1940

Industrial Relations Act 1991 (NSW)

Bullen and Leake and Jacobs - Precedents of Pleadings 13th Ed. (1990)

General Steel Industries Inc. v. Commissioner of Railways (NSW) (1964) 112 CLR 125

Coe v. Commonwealth of Australia (1979) 24 ALR 118

Turner v. The Bulletin Newspaper Co. Pty Ltd (1974) 131 CLR 69

Bride v. Stewart (unrep Fed Ct 18/1/90 French J.)

HEARING

PERTH

#DATE 18:8:1992

The Applicants appeared in person.

Counsel for the Respondent: Mr A. McCarthy

Solicitors for the Respondent: Parker and Parker

ORDER

THE COURT ORDERS THAT:

1. The statement of claim is struck out.

2. The applicants to pay the respondents' costs of the motion.
Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Christopher Robin Fisher and Fay Annette Fisher of Hopetoun in Western Australia are dissatisfied customers of the Westpac Banking Corporation ("the Bank") and the Australian Guarantee Corporation Ltd ("AGC") who have commenced proceedings against the Bank and AGC and certain of the Bank's officers arising out of borrowings and related financial dealings which have taken place since July 1984. Their principal claim is based in part upon allegations that the Bank, in purporting to make loans to them, effected book entries which did not represent the commitment of "legal tender". This practice which they call cost-free book-entry credit creation is said to be, among other things, misleading or deceptive and in the alternative to give rise to an entitlement on their part to offset against their obligation to the Bank their own credit created by filling out an appropriate certificate. A criminal conspiracy by all the respondents to strip them of their assets is also alleged. As particularised, this involves the further allegations that the Bank promised credit and after obtaining security on the strength of such promise withheld the credit and forced the sale of their land and subsequently of a supermarket owned by a company operated by Mrs Fisher and another person. Certain mortgages executed in favour of the Bank and AGC are said to have been not properly executed and to be unenforceable for non-compliance with a provision of the Transfer of Land Act (WA) 1893 relating to the witnessing of instruments. Reliance is placed upon the Magna Carta as a defence to the exercise of any remedy by the Bank as mortgagee against the Fishers' matrimonial home. Various Biblical injunctions relating to release of debtors and the practice of usury are also invoked.

The original statement of claim was filed on 30 June 1992 and a substituted statement of claim filed on 22 July 1992. On 31 July 1992 the respondents moved to strike out the statement of claim in its entirety and alternatively various paragraphs of it. Argument on the motion proceeded on 7 August 1992 and was reserved until today. There are two other proceedings before the Court in Perth and others in Adelaide and Sydney which raise similar issues.
The Substituted Statement of Claim
By their application filed in the Court on 30 June 1992, Christopher Robin Fisher and Fay Annette Fisher claim against the Bank, five of its employees and AGC various forms of relief for alleged misleading or deceptive conduct, criminal conspiracy and improper execution of a mortgage. The substituted statement of claim filed on 22 July 1992 begins by reciting that they are the registered owners of certain land (para.1), that the Bank and AGC are corporations engaged in trade and commerce (paras. 2 and 4) and that Messrs. MacDonald, Maher, Gregory, Munro and Airey, named as the second to fifth respondents, are and were at all material times officers, employees, agents or servants of the Bank (para.3).
The Fishers allege that on 10 July 1985, the Bank approved a loan of $270,000 to them secured by a mortgage which was registered on 29 July (para.5). They plead that the "alleged debt" was created by the Bank as "a book-entry credit" at no cost to it. The Bank, they say, has no right to claim payment in legal tender cash currency of the Commonwealth, in return for that cost-free book-entry credit created out of nothing and totally unbacked by real wealth assets or legal tender in the hands of the Bank (para.6). Particulars are set out in paragraphs designated (a) to (j) inclusive. The first five paragraphs of the particulars allege a practice on the part of the Bank of publicly representing as its assets or capital a figure calculated by adding real money in its possession to valueless debts and paper, including transitory cheques and multiplying the total by a factor "of at least 15". For every dollar held by the Bank "in legal tender of the Commonwealth of Australia" it claims without any basis in fact, that it actually holds $1,500. What the Bank lent to the Fishers is said in the particulars (para.(g)) to be not legal tender of the Commonwealth but book-entry credit created out of nothing and at no cost to the Bank but for which the Bank "is illegally and deceitfully demanding... legal tender of the Commonwealth of Australia plus extortionate interest and charges" (para. (g)). Reference is made to a decision of a United States Judge in 1968 said to be a precedent for the proposition that book entry credit is illegal (para.(h)). A copy of the judgment in question, which is annexed to the original statement of claim, indicates that it was a County court jury decision dismissing an action for recovery of possession of land brought by the First National Bank of Montgomery as plaintiff. In a memorandum annexed to what appears to be a formal record of proceedings, Martin V. Mahoney, a Justice of the Peace for Credit River Township, Scott County, Minnesota said, inter alia, that the consideration used to support the mortgage under which the possession action had been brought was created in money or credit by the Bank upon its own books by bookkeeping entry. He said:

"The Jury found there was no lawful consideration and I agree. Only God can created (sic) something of value out of nothing."

The particulars to para.6 of the substituted statement of claim also refer to a Reserve Bank publication said to demonstrate that total currency available to Australia is $15,201 million against "Total cost- cost-free book-entry credit created" of $333,730 million. The conclusi on is offered that it is arithmetically impossible for all the book entry debts created by the Bank in Australia to be paid by its customers, a factor of which the Bank and its officers who are named as respondents are said to be aware. The particulars go on to refer to a submission from the Australian Bankers Association to a recent Parliamentary Inquiry into the Australian Banking Industry which is said to show that cost-free book-entry credit created by the banks exceeds gross domestic product in Australia. References are also made to a publication called "HOW TO SCREW YOUR BANK" in an extract from it annexed to the original statement of claim. That extract lists a number of publications evidently thought to be relevant to the question of "cost-free book-entry credit creation". It includes a reference to five publications written by Major C.H. Douglas which are said to detail the truth about book entry credit creation by the banks and to offer a sensible solution to replace "this secretive and oft denied fact of fiscal fraud by the Banks".
The next substantive paragraph in the statement of claim (para.7) pleads that "The alleged loan application, the alleged mortgages and the alleged mortgage debenture specifically fail to state that the (Bank is) engaged in a barter contract which comprises book-entry credit created at no cost to the (Bank) in exchange for legal tender cash currency of the Commonwealth of Australia from the (Fishers)". On this basis it is said that the Banks "alleged contractual documents are ... misleading and should be struck out in accordance with the Contracts Review Act, Section 4; Trade Practices Act 1974, Sections 52, 52A, and 53; Industrial Arbitration Act 1940, Section 88F and the Fair Trading Act". Prior to this pleading there is no reference in the statement of claim to a loan application or any mortgage other than the one mortgage referred to in para.5. The Contracts Review Act 1980 is a New South Wales statute and no fact is pleaded to bring the present matter within the reach of the law of New South Wales. The Industrial Arbitration Act 1940 was also a New South Wales statute until its repeal by the Industrial Relations Act 1991 (NSW).
In the alternative to the plea made in para.7, it is contended in para.8 that if the Court should find the Bank is entitled to create cost-free book-entry credit then the Fishers claim the same right. Particulars to para.8 invoke Magna Carta and assert that it guarantees to the Fishers equality with respect to the creation of cost-free book-entry credit (paras. (a) to (d)). There is said to be no law or regulation of Australia, its States or Territories, or any other place in the world, which authorises the creation of cost-free book-entry credit by the Bank or by AGC (paras.(e) to (g)). In the absence of any such law or regulation the Fishers say they are not in any way debarred from themselves creating cost-free book-entry credit as does the Bank. Attached to the original statement of claim and referred to in the substituted statement of claim is what the Fishers assert is their own book entry certificate which, if the Court finds that cost-free book-entry credit creation is legal and acceptable, shall be completed and shall fully satisfy the Bank and AGC's demands without prejudice to the other rights and claims of the Fishers.
The certificate referred to is on a printed form, a copy of which is annexed to these reasons.
Paragraph 9 of the substituted statement of claim alleges a criminal conspiracy on the part of the respondents to "criminally defraud" and "asset strip" the Fishers. This is particularised at some length (paras. (a) to (h)). The respondents are said to have taken advantage of the inexperience and naivety of the Fishers to construct a "criminal scam which is breath-taking in its simplicity and audacity". They are said to have taken advantage of the trust and ignorance of the Fishers to "inveigle" them into "the alleged contracts". Prior to this point in the pleading, the only contract pleaded is the loan of $270,000 referred to in para.5. The first, second, third, fourth and fifth respondents are said knowingly and with "malice aforethought" to have extended only enough cost-free book-entry credit to the Fishers to get them "entangled with the respondents" and then to have withheld essential credit. By this means it is said they forced the Fishers to sell valuable assets at a loss and to have coerced them into doing business with an associated company, AGC, to their further and continued detriment (para.(d)). It is also alleged that they "inveigled" the Fishers to sign a mortgage D551018 in favour of AGC which was registered on 2 September 1987 (para.(e)). "Knowingly and with malice aforethought" they are said to have acted in combination to force the Fishers to progressively sell their assets to the direct and substantial benefit of the respondents. This pre-determined asset stripping is said to be clear from the respondents "implementation of their secret schedule" (para.(f)). Paragraph (f) is sub-particularised by reference to an overdraft facility that the Fishers had with the Bank initially with a limit of $25,000 which increased to $53,000 on 22 October 1987. In April 1985 the Bank is said to have dishonoured the Fishers final payment cheque of $20,406.86 for an International Prime Mover which they were purchasing on some form of instalment arrangement. At the time the cheque was dishonoured, the Fishers say they were $5,423.77 in credit and that the overdraft facility was in place. They claim that the respondents forced the sale of their vehicle for only $52,000 and "inveigled" them into leasing a $112,000 Scania vehicle through AGC for a total cost of $154,189.92.
The Bank and its officers are alleged to have taken advantage of the fact that the Bank was the only one in the Fishers' geographical area and did so "...to systematically asset strip the (Fishers) by successively promising credit and then, after obtaining yet further security by way of mortgage, withholding the promised credit and then forcing the (Fishers) to parcel the (Fishers) land and sell it piecemeal to the advantage of the (Bank)". Specifically, it is pleaded that the Bank obtained the alleged mortgage over an unencumbered title by false pretences. Which alleged mortgage is referred to is not clear.
The sub-particulars go on to refer (in para.(iii)) to a partnership between Mrs Fisher and another person, not her husband, which in 1987 purchased a shelf company called Kultex Pty Ltd which constructed a new supermarket in Hopetoun. Kultex, trading as Hopetoun Supermarket opened a trading account with the ANZ Bank in Perth. Twelve months prior to its opening for business, the Westpac Bank is alleged to have loaned Mr Peter Dow, one of its clients, "credit to purchase and rebuild the only local store in Hopetoun". Hopetoun Supermarket opened on 23 July 1988 and is said to have been successful to the extent that by 5 August 1989 the business had banked $620,290 with the ANZ. The Westpac Bank is then said to have written to the Fishers requiring the provision of information concerning the Hopetoun Supermarket and when that was refused, the Bank and its employees are alleged to have "closed down the farming business of the (Fishers)". Further credit was withheld until the Hopetoun Supermarket was sold at the insistence of the respondents. In October 1990 it is alleged, Hopetoun Supermarket was leased at the insistence of the respondents to "an incompetent and inexperienced local female client of the (Bank) who was advanced sufficient credit by the (Bank) to take over the property which the respondents had denied to the (Fishers) but insufficient credit to enable the local female to stock the supermarket". The intended end result is said to have been that the supermarket was closed. This, it is alleged, was done to deny business to the ANZ in the Hopetoun area and to protect the Bank's business arrangements with Mr Dow and to destroy the Fishers. The particulars to para.9 further claim that the Bank is guilty of negligence and failing to exercise proper care as banker to the Fishers. This, it is to be borne in mind, is offered as a particular of an allegation of criminal conspiracy. In support of this particular alleging negligence, reference is made to some judicial decisions and to textbooks.
The alleged extent of the asset stripping is set out in para.(h) of the particulars to para.9 summarising a total of $1,632,452 said to have been paid to the Bank against book-entry credit borrowed from the Bank of $447,500. For the period cited the Bank therefore is said to have made a gross profit of not less than 365%. On the basis that the maximum amount of real wealth cash currency of the Commonwealth provided by the Bank was no more than 4% of the alleged borrowings, the real gross profit is said to be not less than 9,120%.
Paragraph 10 alleges that AGC is a non-bank financial institution which is an associated company of the Bank and "contrary to the public relations image assiduously fostered at considerable advertising expense by the first and seventh respondents both are institutionally dishonest and habitually engage in illegal and immoral practices and no reliance may or should be placed on anything said or submitted in evidence by the respondents". Reference is made by way of particulars to information said to be contained in the manual "HOW TO SCREW YOUR BANK" and the "now infamous Westpac Papers".
Paragraph 11 sets up that the alleged mortgages were not properly executed and should be struck out. The mortgages referred to are said to have been unenforceable because an officer, employee or agent of the Bank and AGC in each case signed them purporting to be an independent witness, when in fact they were at all times a party to the dealing. Reliance was placed upon s.145(1) of the Transfer of Land Act (WA) 1893.
Paragraph 12 pleads that the Federal Court of Australia is justified in its existence, powers and authorities by the Constitution of the Commonwealth of Australia which in turn is justified in its existence, powers and authority by the Magna Carta. There follows extensive reference by way of particulars to the Magna Carta. It is asserted, inter alia, that Magna Carta guarantees the rights of the Fishers to their matrimonial home and that "this fundamental and guaranteed right may not under any circumstances be abrogated or interfered with by the respondents or anyone else". The thrust of this plea seems to be that the provisions of Magna Carta are proof against any claim made by the Bank under its mortgage.
Paragraph 13 then turns to the King James version of the Bible said to be relied upon in the swearing in of witnesses. Both the Court and the respondents are said to have automatically and irrevocably covenanted and agreed to the contents of the Bible and all that it contains. Various forms of official oaths of office and of allegiance, including the Oath of Office upon swearing in of a Judge of the Federal Court, are referred to. In para. (f) of the particulars to para.13 there is a reference to Deuteronomy Ch 15: 1-2 quoting a passage to the effect that at the end of every seven years creditors should release their debtors. Scripture passages against usury are also quoted (paras. (h) and (i)) followed by an assertion that the "alleged mortgage contract" between the Bank and the Fishers is usury. The particulars go on to allege that the Court is "fully liable and duty bound in law to uphold and enforce the Commandments" and a list of thirty Biblical curses applicable to those who do not uphold the Divine law is set out. Whether the Statement of Claim Should be Struck Out
The principles regulating the exercise of the Court's power to summarily strike out a pleading are well established. The power is to be exercised sparingly and only when the claim is so obviously untenable that it cannot possibly succeed - General Steel Industries Inc. v. Commissioner of Railways (NSW) (1964) 112 CLR 125 at 129 (Barwick C.J). The rule permits the striking out of a statement of claim when objectionable matter is so closely intertwined with other matter that the pleading as a whole may tend to embarrass the fair trial of the action. The whole pleading may then be struck out even though a cause of action could be spelled out of the pleading as a whole - Coe v. Commonwealth of Australia (1979) 24 ALR 118 at 132 (Jacobs J.); Turner v. The Bulletin Newspaper Co. Pty Ltd (1974) 131 CLR 69 at 88 (Menzies J.). The question whether there is so much material in the statement of claim that is irrelevant or embarrassing that it will bring down the whole pleading is one of degree - Bride v. Stewart (unrep Fed Ct 18/1/90 French J.).

The allegations set out in the substituted statement of claim may be grouped as follows:

1. Allegation that a purported loan by the Bank to the Fishers was simply a book-entry credit in respect of which the Bank was not entitled to claim repayment in legal tender. Alternatively, the book entry credit so created could be offset by a like "paper credit" created by the Fishers.

2. Allegation that contractual documents purporting to evidence a loan were misleading or deceptive insofar as they did not describe the true nature of the underlying transaction i.e. the creation of a book-entry credit.

3. Allegation that the respondents conspired to criminally defraud the Fishers and strip them of their assets.

4. Allegation of negligence on the part of the Bank.

5. Allegation that mortgages in favour of the Bank and AGC are unenforceable having been witnessed other than in accordance with the provisions of s.145 of the Transfer of Land Act (WA).

6. Allegation that by reason of the Magna Carta the Fishers' matrimonial home is protected against enforcement action under the mortgage registered over it.

7. Allegation that biblical laws binding on the Court and the parties require release of debtors by creditors after 7 years and prohibit usury.

The statement of claim asserts that a loan was approved and secured by mortgage. It is not suggested that the Fishers did not obtain the benefit of the loan. Mrs Fisher told the Court from the bar table that it had been used to acquire real property. The essence of the complaint seems to be that the Bank cannot make an enforceable loan unless at the time it has assets in the form of currency or "real wealth" to back it up. If that is the proposition upon which the Fishers rely, it is untenable. There is nothing to prevent a bank evidencing a loan by a credit entry. Its obligation under the loan agreement is nevertheless a real one. If the money is advanced by way of electronic transfer or appropriate book-entries there can none the less be real rights and real obligations created which are enforceable at law. Contract documents and securities recording a loan in such cases do not mislead or deceive for want of hard currency backing for it. On the alternative plea, it is patent that the mere completion of a certificate by the Fishers could not of itself discharge any obligation to their Bank.
The conspiracy plea asserts conspiracy to defraud. In a plea of conspiracy, the statement of claim should specify the parties to the conspiratorial agreement and their relationship to each other. It should allege the content of the agreement giving the best particulars available of the dates when or between which the agreement was made or continued. The plea should state precisely the objects and methods of the conspiracy and the overt acts done by each of the conspirators in pursuance of it. It must also allege the injury and damage occasioned to the applicant as a result - Bullen and Leake and Jacobs - Precedents of Pleadings 13th Ed. (1990) pp 221-222. The plea of conspiracy in this case is manifestly deficient in the requirements necessary to establish a cause of action. Putting to one side the use of the word "criminal" which is irrelevant in the context of a plea of civil conspiracy, it does not identify the alleged agreement by reference to when it was made nor the acts of each of the respondents alleged to be parties of it. Despite the broad allegation of fraudulent objects, these are not specified in such a way as to expose purpose and means of a fraudulent character. The use of words such as "scam", "entangle", "coerce" and "inveigled" does not suffice to disclose a comprehensible plea of fraudulent conduct. The allegation of successive promises of credit subsequently not honoured might support a claim for misleading or deceptive conduct if it could be shown that when the promises were made it was not intended to honour them, that the provisions were acted upon and that loss or damage was suffered as a result . The allegations do not, however, support a claim of conspiracy. The allegation of negligence, which appears at para.(g) of the particulars to para.9, cannot support a plea of conspiracy to defraud. Nor is anything pleaded to support the claim of negligence. The plea in relation to conspiracy does not disclose a cause of action.
The claim in relation to the execution of certain mortgages asserts that they are unenforceable because witnessed by persons who were employees or officers or agents of the Bank and AGC, who in turn were parties to the mortgages. Reliance was placed on s.145 of the Transfer of Land Act. That section provides that instruments or powers of attorney under the Act signed by a person and attested by a witness who is not a party to the instrument or power of attorney shall be held to be duly executed in various geographical locations which are set out, including "within the limits of the Commonwealth or a Territory of the Commonwealth". The short answer to this contention is that an officer or employee of a party who witnesses a document is not a party to the document for the purposes of the section.
In relation to the remaining pleas based on the Magna Carta and the Bible, it is sufficient to say that they disclose no legally tenable cause of action.
CONCLUSION
As appears from the preceding reasons, the statement of claim does not disclose any tenable cause of action and must therefore be struck out. In so saying, I accept that Mr and Mrs Fisher are sincere people under financial and personal stress doing what they can to save their assets. They have resorted to a proceeding based upon a statement of claim which follows along somewhat similar lines to other pleadings presently in the Court here and in other States of Australia. It is unfortunate if they and others like them have had false hopes and expectations aroused by the suggestion that matters of the kind raised in their statement of claim can lead to some legal remedy for their difficulties. Their best course would be to get proper legal advice particularly in relation to their claim that they were promised credit which was later withheld. It may be, however, that they cannot afford to pay for advice and cannot get legal aid. In this time of economic difficulty, the cost of legal services and limitations upon the availability of publicly funded legal aid or privately sponsored pro bono representation create a climate in which more people are forced to resort to the Court without representation and in which legal quackery offered by unqualified persons can flourish. That represents at least in part, a failing of our institutions. It is to be hoped that means now being addressed by Government, the Courts and the legal profession can effect an improvement.

[1992] FCA 624

18 AUGUST 1992