Jeans v Commonwealth Bank of Australia

[2004] FCA 841

FEDERAL COURT OF AUSTRALIA

Jeans v Commonwealth Bank of Australia [2004] FCA 841

BANKRUPTCY – substantial judgment entered in favour of creditor against debtor on guarantee – pending application to High Court for leave to appeal – bankruptcy notice given by judgment creditor to judgment debtor – application by judgment debtor for extension of time to comply with bankruptcy notice until special leave application determined – consent of judgment debtor to dismissal of application for extension of time in return for undertaking of judgment creditor not to present petition in bankruptcy for sequestration order against judgment debtor until determination of application for leave to appeal to High Court and until determination of any subsequent appeal of judgment debtor’s to High Court if special leave be granted – hearing of appeal by High Court of application for special leave to appeal listed for hearing on date subsequent to expiration of time for presentation of judgment creditor of bankruptcy petition based on non-compliance with bankruptcy notice – application by judgment creditor to be released from undertaking not to proceed with bankruptcy petition on ground of non-compliance with bankruptcy notice by reason of change of circumstances – application opposed in reliance upon that undertaking – unilateral mistake of judgment creditor at time of giving undertaking as to anticipated time of hearing of special leave application – application of judgment creditor to be released from undertaking on ground of mistaken belief as to prospective hearing date of hearing by High Court special leave application of judgment debtor – application granted in principle

Bankruptcy Act 1966 (Cth) s 41(6A)

Jeans v Commonwealth Bank of Australia Ltd (2004) 204 ALR 327
Ahern v Deputy Commissioner of Taxation (Qld) (1987-1988) 76 ALR 137
Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424
Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170
Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
Mullins v Howell (1879) 11 ChD 763, and Cutler v Wandsworth Stadium (1945) 1 All ER 103
Cutler v Wandsworth Stadium (1945) 1 All ER 103

JOHN ANTHONY JEANS v COMMONWEALTH BANK OF AUSTRALIA

N 7372 OF 2003

CONTI J
29 JUNE 2004
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 7372 OF 2003

BETWEEN:	JOHN ANTHONY JEANS APPLICANT
AND:	COMMONWEALTH BANK OF AUSTRALIA RESPONDENT
JUDGE:	CONTI J
DATE OF ORDER:	29 JUNE 2004
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The Bank’s application stand adjourned until 9 July 2004 at 9.30am, or to such later date as the parties may mutually agree, in order that the Bank bring in short minutes of orders to give effect to these reasons, and that the Court may determine the form thereof in the event of disagreement.

2.        There be no order as to the costs of the application.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 7372 OF 2003

BETWEEN:	JOHN ANTHONY JEANS APPLICANT
AND:	COMMONWEALTH BANK OF AUSTRALIA RESPONDENT

JUDGE:	CONTI J
DATE:	29 JUNE 2004
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Background

1. On 16 May 2003, Sackville J dismissed the application of the present applicant (‘Mr Jeans’), and of his company Deangrove Pty Limited (Receivers and Managers Appointed) to set aside certain securities provided in favour of the Commonwealth Bank of Australia (‘the Bank’) in 1998, and entered judgment in favour of the Bank upon its cross claim against Mr Jeans and that company in the sum of $4,749,813.30.

2. The appeal from that decision to a Full Federal Court, comprising Hill and Madgwick JJ and myself, was unanimously dismissed on 19 December 2003 (Jeans v Commonwealth Bank of Australia Ltd (2004) 204 ALR 327). Application for special leave to appeal from the Full Court’s judgment was thereafter filed with the High Court by Mr Jeans alone as applicant on 23 December 2003, and that application has not yet been heard and determined.

3. In the meantime on 6 December 2003, the Bank caused to be served upon Mr Jeans a bankruptcy notice, pursuant to s 41(5) of the Bankruptcy Act 1966 (Cth) (‘the Act’), based upon the order made by Sackville J on 16 May 2003 in favour of the Bank, involving the entry of that substantial judgment. In response, Mr Jeans filed in this Court, also on 23 December 2003, an application under s 41(6A) of the Act for orders that the time for compliance with that bankruptcy notice be extended up to hearing of the application to the High Court for special leave to appeal from the Full Federal Court’s decision, and further up to the hearing of any appeal to the High Court, if that special leave would be granted. Subsequently on 21 January 2004, Mr Jeans consented to the dismissal of that application, in return for an undertaking given by the Bank simultaneously to this Court in the following terms:

   ‘… the respondent will not, pending the determination of the applicant’s application for special leave to appeal to the High Court in respect of the judgment of the Full Federal Court delivered on 19 December 2003 in proceedings No N681 of 2003, and the determination of any appeal to the High Court should leave be granted, present a petition seeking a sequestration order against the applicant should ground exist otherwise entitling the respondent to do so.’

4. On 19 April 2004, the Bank was advised by the Registry of the High Court that the special leave application would not be heard until either November or December 2004.  Mr Jeans’ special leave application has since been listed for hearing by the High Court on 10 December 2004.  As will subsequently be indicated, that hearing date is well beyond the time when the Bank’s solicitor having the conduct of this matter had anticipated, at the time of the Bank agreeing to give that undertaking, would be in fact appointed by the High Court for that hearing. 

5. The consequence of the dismissal by consent of Mr Jeans’ application of 23 January 2004 to extend the time for compliance with the bankruptcy notice was that Mr Jeans committed an act of bankruptcy on 21 January 2004, pursuant to s 40(g) of the Act. Since a creditor’s petition may only be presented by the Bank in respect of an act of bankruptcy occurring within the preceding six months (see s 44(1)(c) of the Act), it follows that for the Bank to rely upon the act of bankruptcy committed by Mr Jeans on 21 January 2004 by virtue of non-compliance with the Bank’s bankruptcy notice, the Bank must present that petition to the Court by no later than 21 July 2004. Whilst however the Bank’s undertaking given on 21 January 2004, remains in operation, the Bank cannot pursue that course until at least 10 December 2004, when the High Court recently scheduled the hearing of Mr Jeans’ special leave application to take place. The Bank has therefore found itself to be unwittingly in the situation whereby the act of bankruptcy, which would have resulted from its implementation of the bankruptcy notice process, will be inevitably denied to it by 21 July 2004, contrary to its belief, as to the likely time of hearing of Mr Jeans’ special leave application, at the time it entered into the moratorium arrangement with Mr Jeans on 21 January 2004.

   The Bank’s application to be released from its undertaking

6. The Bank seeks therefore to be released from its undertaking given by consent to the Court on 21 January 2004 in favour of Mr Jeans, upon the basis of a replacement undertaking to be proffered by the Bank, to the effect that if it is hereafter to present to the Court, and thereafter serve, a creditor’s petition, based upon the act of bankruptcy committed by Mr Jeans on 21 January 2004, and to do so prior to 21 July 2004, it would consent to an adjournment of ‘the proceedings under petition’ until the determination of the application for special leave, and beyond then until the determination of the appeal, should that leave be granted.  I was referred by the Bank to the Full Federal Court’s decision in Ahern v Deputy Commissioner of Taxation (Qld) (1987-1988) 76 ALR 137, where the issue arose as to whether the refusal of a debtor’s application for adjournment of sequestration proceedings, pending an appeal against the entry of a preceding default judgment, was open to review. In resolving that issue in the affirmative, in circumstances which were characterised as otherwise resulting in injustice of such kind or magnitude as to warrant interference on appeal, the Full Court acknowledged that where an appeal is pending against an income tax assessment, it is a relevant matter for the Court to consider, when exercising its powers as to the adjournment of a bankruptcy petition of the Commissioner, or on considering whether to make a sequestration order, that the subsistence of the appeal did not per se interfere with or affect the operation of the assessment.  Ahern has since been applied in a number of cases: see for instance Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424, where Pincus J described a pending appeal from a sequestration order as ‘not… frivolous’, and as involving a ‘genuine dispute’, such as to require maintenance of the status quo in favour of the debtor. 

7. Conversely, so the Bank’s submission appeared to proceed by way of contrast, the relief which it here seeks as a creditor would necessarily preserve the entitlement of Mr Jeans as debtor to pursue his special leave application to the High Court, without disturbing the integrity of the Bank’s accrued advantage properly obtained arising from service of the bankruptcy notice, and moreover, what is presently pending is merely an application for leave to appeal and not as yet any appeal as of right.

8. More directly on point, albeit not in a bankruptcy context, the Bank invoked the decision of the High Court in Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170, where it was held that a court has power to release a party from an undertaking previously given to the court, in the absence of the consent of the opposing party, even where there was no mistake operative at the time the undertaking was given (as is here the case), and that such relief would be appropriate whenever, for instance, new facts have come into existence, or are discovered, which render the enforcement of the original order unjust. In that context, it was said in the joint judgment of Gibbs ACJ, Aickin, Wilson and Brennan JJ at 177-178 as follows:

   ‘Considerable argument was directed to the question whether a court has power, otherwise than in the case of mistake operative at the time of giving it to release a party from an undertaking at least in the absence of the consent of the other party.  But in our opinion a court undoubtedly has such a power.  Just as an interlocutory injunction continues “until further order”, so must an interlocutory order based on an undertaking.  A Court must remain in control of its interlocutory orders.’ 

   In the present case of course, there is no evidence that the Bank’s misapprehension as to the likely date of hearing of Mr Jeans’ special leave application was otherwise than unilateral, but so also was the nature of the mistake in Philip Morris. 

9. The Bank further submitted that the variation to the existing undertaking presently sought would not erode the protection provided by Mr Jeans to the Bank in the form of that undertaking given, in that the situation would remain that the Bank would continue to be restrained from seeking a sequestration order in relation to Mr Jeans, unless and until the application for special leave, and any appeal for which leave might be granted, would be resolved, or otherwise disposed of, in its favour.  The only material change involved would be that the Bank’s entitlement to utilise the act of bankruptcy committed by Mr Jeans on 21 January 2004 would be preserved beyond 21 July 2004.  The Bank emphasised that the presentation of a petition in bankruptcy by the Bank against Mr Jeans per se would not operate to change his legal status, nor determine the existence relevantly of any right or liability involved, no application for a stay of the judgment of the Federal Court having been granted, much less event sought (cf Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264), the presentation of a petition being described by the Bank as merely a procedural step by which a creditor commences bankruptcy proceedings. A further consequence of the proceedings being adjourned until the conclusion of the High Court proceedings, the Bank submitted, would be that Mr Jeans would not be required to incur the costs of defending the bankruptcy proceedings unless and until his application for special leave to appeal, and any appeal resulting from any such application being successful, has been determined against him. It was emphasised moreover that as between Mr Jeans and his other creditors, whoever they might happen to be, whereof there was apparently no evidence, the status quo would not be prejudiced by reason of the Bank presenting a petition upon the basis that the same would be then adjourned; it was pointed out in that regard that the act of bankruptcy committed by Mr Jeans on 21 January 2004 was one in relation to which any third party creditor of Mr Jeans has been since entitled in principle in any event to present a petition.

10. The unfair prejudice conversely occasioned to the Bank, in the absence of the grant of an extension of the time sought, was said by the Bank to be that if it was not permitted to vary its undertaking given on 21 January 2004, the accrual of the statutory relation back period of time, of which the Bank could otherwise take lawful advantage, would be postponed well beyond the time envisaged by the Bank when it gave its undertaking to the Court on 21 January 2004.  Other creditors of Mr Jeans, whether related to or otherwise connected with him, or otherwise, would gain a windfall advantage unfairly at the expense of the Bank as a substantial judgment creditor arising out of what has been already costly and protracted litigation.  Moreover there would be loss of control or of remedies, or at least diminution in control or availability of remedies, available to the Bank in relation to transactions involving Mr Jeans, or any associated persons of entities of Mr Jeans, which might bear adversely upon his ultimate financial position in bankruptcy, whatever that might happen to be. 

    The grounds for Mr Jeans’ opposition to the release and replacement of the Bank’s undertaking given to the Court on 21 January 2004

11. The grounds for Mr Jeans’ opposition to the release and replacement of the Bank’s undertaking provided to the Court on 21 January 2004 were framed basically upon the evidence of a solicitor, acting as agent for Mr Jeans’ solicitor otherwise engaged in the litigation between Mr Jeans and the Bank, taking the form of an affidavit sworn on 18 June 2004, pars 2 to 8 whereof reading as follows:

    ‘2.On 21 January 2004, I was acting as agent for… the solicitor for the applicant… I instructed senior counsel on behalf of the applicant on that day at the hearing before Registrar Hedge.

    3.The application before the Court on that day was for an order extending time for compliance by the applicant with a bankruptcy notice which had been served upon the applicant on 6 December 2003 by the respondent consequent upon a judgment contained (sic) in the Federal Court of Australia by the respondent in earlier proceedings.  On 23 December 2003, the Court had extended the time for compliance by the applicant with the bankruptcy notice up to and including 21 January 2004.

    4.On the morning of 21 January 2004 I was privy to discussions between senior counsel then appearing for the then applicant and junior counsel appearing for the respondent.

    5.In those discussions a proposal was made that if the applicant consented to the dismissal of his application to extend time for compliance with the bankruptcy notice then the Bank would provide an undertaking to the Court not to present a bankruptcy petition seeking a sequestration order against the applicant pending the determination of a special leave application to the High Court then pending from the judgment of the Full Federal Court delivered on 19 December 2003 in proceedings N681 of 2002.

    6.I took instructions from the applicant in relation to this proposal and informed him that if he agreed to it then he would commit an act of bankruptcy that day but that he was protected by the respondent’s undertaking given to the Court in respect of any bankruptcy proceedings by the respondent until the determination of his High Court application.

    7.Although the appellant informed me that he was concerned that an act of bankruptcy would occur he accepted my advice that he was protected by the undertaking proffered to the Court by the Bank and on that express basis agreed to the orders subsequently made by consent by Registrar Hedge. 

    8.If the undertaking to the Court had not been offered on behalf of the respondent on that day then the applicant would have proceeded with his application for a further extension of time to comply with the bankruptcy notice until a date after the disposition of the High Court proceedings.’

    No reference appears in that account as to any discussion between the parties as to the likely hearing date or approximate date of hearing of the special leave application.

12. By way of elaboration upon that affidavit material, counsel for Mr Jeans commenced his submissions to the Court with emphasis upon the theme that Mr Jeans had made his earlier application to the Court for an extension of time for compliance with the bankruptcy notice, pursuant to s 41(6A) of the Act, in order that he would not have become subjected to the consequences of committing an act of bankruptcy, notwithstanding that he might well be ultimately successful in obtaining special leave from the High Court to appeal against the Full Federal Court’s decision, and might thereafter succeed on the appeal for which any such special leave might be granted. Having previously negotiated an arrangement with the Bank whereby the Court made by consent an order for an extension of the time within which Mr Jeans could effectively continue to pursue his present application for special leave, it was submitted on behalf of Mr Jeans that on the faith of that arrangement, Mr Jeans thereupon acted to his detriment by withdrawing his application of an extension of time for compliance with the Bank’s bankruptcy notice, and by consenting to the same being dismissed, in pursuance of the arrangement. Counsel for Mr Jeans acknowledged on the other hand that if the application for special leave is to be unsuccessful, and the present relief sought by the Bank is to be denied, the Bank would thereafter find itself compelled to issue and serve a fresh bankruptcy notice after denial of the application for special leave, with the consequential disadvantage thereby conversely occasioned to the Bank of an act of bankruptcy of Mr Jeans no longer crystallising until some time in 2005.

13. The situation in Philip Morris was submitted on behalf of Mr Jeans to be distinguishable, in that the two circumstances which the High Court there identified as authorising the withdrawal of or variations to an undertaking to a court were ‘where there has been a mistake or where there are new facts which come into existence which make the enforcement unjust’.  Nevertheless in the present circumstances, I think that those elements are each fulfilled, in that the Bank’s apparently earlier belief as to the estimated time for the hearing of the special leave application turned out to be at least unilaterally mistaken.  In that regard, the solicitor having the conduct of the present proceedings on behalf of the Bank, gave the following affidavit evidence, upon which she was not cross-examined:

    ‘In the course of that morning (that is the morning of the hearing of the application of Mr Jeans to set aside the bankruptcy notice), I gave Mr McLure instructions to provide an undertaking to the Court in the terms set out in paragraph 1 to the notes to the short minutes of order.  At the time I gave those instructions, I anticipated Mr Jeans’ application for special leave to appeal to the High Court would be determined within six months and as a consequence, if the application was dismissed the Bank would be able to rely upon Mr Jeans’ act of bankruptcy of not complying with the bankruptcy notice.  If I had thought that the application for special leave would not be determined within six months, I would not have given instructions to provide an undertaking in the form that I did.’

1. Counsel for Mr Jeans submitted further however that what the Bank is seeking to achieve by its present application to the Court was ‘to completely negate the undertaking that was given’.  I do not think that submission to be correct.  What the Bank is effectively seeking to achieve, by its present application, is confined to an effective maintenance of the status quo constituted by the Full Court’s judgment, and the act of bankruptcy of Mr Jeans subsequently committed by virtue of his non-compliance with the bankruptcy notice based on that judgment.  The Bank is not thereby seeking to effectively deny Mr Jeans’ opportunity to pursue his special leave application to the High Court, which is still of course outstanding, and will not be heard until December of this year. 

2. Counsel for Mr Jeans next submitted that it was necessary in any event for the Bank to establish the existence of mutual mistake on the part of Mr Jeans and the Bank as to the likely future date of the hearing of Mr Jeans’ special leave application to the High Court, something which, as he pointed out rightly, the Bank had not affirmatively established by way of any admission on Mr Jeans’ part.  I was referred to two authorities, purportedly more by way of acknowledged background than by way of provision of any ‘great deal’ of assistance to Mr Jeans’ resistance to the present application.  One of those authorities was Mullins v Howell (1879) 11 ChD 763 where at 766, Jessel MR said as follows:

   ‘I have no doubt that the Court has jurisdiction to discharge an order made on motion by consent when it is proved to have been made under a mistake, though that mistake was on one side only, the Court having a sort of general control over orders made on interlocutory applications.

   …

   Here there is not only an undertaking but an agreement to which the rules of equity apply; so, being satisfied that the Defendant made a mistake, I should not, following the rule in equity, enforce the agreement as against him, and a fortiori I should not enforce the undertaking against him.  At the same time I am satisfied that the Plaintiffs were not to blame; the only person to blame being the Defendant himself.  Still as it is clear that he never intended to give the undertaking in this form, and seeing that there is an agreement as well as an undertaking, the Plaintiff ought to have the opportunity of deciding whether they will take the rest of the order which the Defendant intended to agree to…’

   That dictum would seem to be more in favour of the Bank’s present application. 

3. By way of summary, counsel for Mr Jeans emphasised the following matters:

   (i)in the present circumstances, an agreement was reached between the parties, in the terms extracted in [3] above, involving the Bank’s undertaking therein set out;

   (ii)it would be unjust in the circumstances that the Bank be granted the relief it seeks, since the Bank’s mistake was merely unilateral on its part, and the Bank was in no way misled by Mr Jeans in reaching the agreement now sought to be varied; and

   (iii)although the Bank had agreed not to seek any sequestration order against Mr Jeans prior to the ultimate conclusion of his High Court appeal, given that his application for special leave to appeal was to be granted, if the present application by the Bank is to be allowed, Mr Jeans would be at risk of bankruptcy at the instance of any creditors who might seek to rely on his act of bankruptcy constituted by his non-compliance with the Bank’s bankruptcy notice; I should observe that no such creditors, if there presently be any, were however identified by Mr Jeans.

   The Court’s conclusion

4. The nature of the unilateral mistake on the part of the Bank, which has led to the Bank’s present application for variation of its undertaking to Mr Jeans, was one of an incorrect estimate on the part of the Bank as to the future time when a hearing of Mr Jeans’ application for special leave to the High Court might be heard.  At the time the Bank gave the subject undertaking to Mr Jeans on 21 January 2004, neither party knew of course precisely what the hearing date of Mr Jeans’ special leave application would actually be.  It is not known what opinion (if any) Mr Jeans might have then held as to the likely hearing date or approximate hearing date which in due course would be appointed by the High Court for Mr Jeans’ special leave application.  Moreover Mr Jeans has not distilled in any event any material detriment which would be, or be likely to be occasioned to him by reason of a variation in the Bank’s undertaking being allowed to the extent presently sought by the Bank.  Mr Jeans has not moreover identified any creditor who might hereafter be able to take advantage of the circumstance of his non-compliance with the bankruptcy notice based upon the very substantial Federal Court judgment entered against him.  Nor has Mr Jeans given evidence as to his financial ability to meet his very substantial indebtedness the subject of the judgment held by the Bank, in the event that his special leave application to the High Court is dismissed.  Moreover no evidence has been tendered on behalf of Mr Jeans as to any other conceivable creditor of his who might be prejudiced by the grant of the relief presently sought by the Bank. 

5. I am satisfied that the Court has jurisdiction and authority to grant the relief sought as to the release of the Bank from its present undertaking to such extent as is necessary to give effect to these reasons for judgment, the Bank having established in my opinion a compelling case in principle for the grant of that relief.  I direct that the Bank bring in short minutes of order on 9 July 2004 at 9.30am in order to give effect to these reasons for judgment.  In the circumstances I am of the view that there should be no order as to the costs of the application.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.

Associate:

Dated:             29 June 2004

Counsel for the Applicant:	DA McLure
Solicitor for the Applicant:	JK O’Sullivan
Counsel for the Respondent:	CM Harris
Solicitor for the Respondent:	Robert H Butler
Date of Hearing:	22 June 2004
Date of Judgment:	29 June 2004