Maloney v ANZ Banking Group Ltd
[2007] FMCA 1729
•18 October 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MALONEY v ANZ BANKING GROUP LTD | [2007] FMCA 1729 |
| BANKRUPTCY – Review of Registrar’s decision – application to set aside bankruptcy notice – whether bankruptcy notice contained an overstatement of the amount owing – where interest deducted but not claimed – where calculation for amount deducted for interest not specified – whether form of bankruptcy notice was confusing – whether bankruptcy notice drawn in a way likely to mislead the debtor as to amount payable – whether applicant had set-off, cross-demand or cross claim that could not be set up in original proceedings – whether applicant has a prima facie case. |
| Bankruptcy Act1966 (Cth), ss.30, 40(1)(g), 41(5),(6),(7) Legal Profession Act 2004 (NSW), s.347 Civil Procedure Act 2005 (NSW) |
| Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 Re Wong; Ex parte Kitson (1979) 27 ALR 405 |
| Applicant: | KAREN MAREE MALONEY |
| Respondent: | AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED |
| File number: | SYG 2184 of 2007 |
| Judgment of: | Raphael FM |
| Hearing date: | 9 October 2007 |
| Date of last submission: | 9 October 2007 |
| Delivered at: | Sydney |
| Delivered on: | 18 October 2007 |
REPRESENTATION
| Counsel for the Applicant: | Ms J. Merkel |
| Solicitors for the Applicant: | Hancocks Solicitors |
| Counsel for the Respondent: | Mr S. Golledge |
| Solicitors for the Respondent: | Gadens Lawyers |
ORDERS
The orders made by Registrar Hedge on 28 August 2007 be set aside and in their place:
1. Bankruptcy Notice No NN3746 of 2006 be set aside.
2. The Respondent to pay the Applicant’s costs including the costs before the Registrar to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG2184 of 2007
| KAREN MAREE MALONEY |
Applicant
And
| AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED |
Respondent
REASONS FOR JUDGMENT
Introduction
This application is a review of orders made by Registrar Hedge on 28 August 2007.
On 13 July 2007 the debtor filed an application in this court to set aside Bankruptcy Notice No NN3746 of 2006 which was deemed to have been served upon her on 22 June 2007. The application did not state in terms the grounds upon which it was being made but by an agreed amendment at the hearing before me the words “pursuant to s.40(1)(g) and s.30 and s.41(6)” were added. The debtor argued that the notice should be set aside for any or all of the following three reasons: first, that she had a set-off, cross-demand or cross-claim that could not have been set up in the original proceedings. Second, that the Bankruptcy Notice contained an overstatement of the amount owing and she had complied with the provisions of s.41(5) Bankruptcy Act 1966 to give the creditor notice thereof. Third, the form of the Bankruptcy Notice was confusing. I have decided that the Bankruptcy Notice should be set aside.
Between 2003 and 2004 the creditor bank made loans of $345,000, $260,000, and $80,000 to the debtor and her partner. The loans were secured over properties at Conjola and Kings Point by mortgages whose terms were filed with the Registrar-General as Memorandum of Common Provisions No.2433990. In September 2004 the debtors defaulted under the terms of the loan account by failing to make payments when due. On 10 March 2005 the creditor issued a Statement of Claim in Supreme Court Proceedings 10855/2005 against the debtor and her partner Mr Kiss, seeking judgment for the possession of both properties and for debt. On 22 September 2005 judgment was entered in favour of the creditor against the applicant and Mr Kiss for possession of both properties and for the sum of $835,378.97. Thereafter the Bank sought to sell the properties, which it did. The Conjola property was sold on 20 March 2006 and the Kings Point property was settled on 8 May 2006. The balance of the settlement proceeds after deducting the expenses of sale were not sufficient to meet the indebtedness of the partners, and the Bank issued the Bankruptcy Notice claiming what it calculated was the balance owing to it.
The Bankruptcy Notice indicated that it was based upon the Supreme Court judgment in the sum of $835,378.97 a copy of which was attached. No claim for legal costs or interest was made, but credit was given for “payments made and/or credits allowed since the date of judgment or orders” in the sum of $471,283.58 leaving a total debt owing of $364,095.39. The debtor says that this constitutes an excessive claim because there was included within the deductions the sum of $8,410.08 for enforcement expenses and some $34,791.96 was deducted for interest. According to the affidavit of Fiona Nolan filed on behalf of the Bank, interest had accrued on the judgment debt between 23 September 2005 and 20 March 2006 at the court rate of 9% in the total sum of $36,871.11. Whilst 23 September 2005 is the day after the judgment was entered, the date of 20 March 2006 is the date upon which the first property settled. No calculation of the interest owing thereafter seems to have been made and the amount deducted for interest, according to the affidavit, of $34,791.96 does not seem to have been the subject of any calculation revealed to the debtor (or even to the court).
The debtor argues that the Schedule has been completed in a manner which is confusing. Whilst interest has been deducted, it is not claimed and the figure that has been deducted is not readily calculable from the Schedule. At the hearing before me there was considerable argument about the Bank’s power to charge a rate of interest different to that prescribed by the court under the Civil Procedure Act 2005 (NSW) but it seems that that argument was otiose because the calculation made by the Bank was based on the Civil Procedure Act figure. It seems to me that if interest was to be charged on that basis then it should have been noted in the Schedule. Of course, there is nothing to prevent a creditor asking for less interest in the Bankruptcy Notice than it is entitled to and one frequently sees that interest is not claimed, possibly because of the complexities surrounding the calculation. I do not accept the argument put forward by the Bank that the interest claim was made outside the judgment and in accordance with the terms of the deposited mortgage. On the other hand, I do accept that the so-called enforcement expenses are expenses that the Bank is entitled to charge under the Deposited Agreement para 8.3(a):
“costs and expenses incurred by ANZ or an ANZ appointee in exercising or trying to exercise its rights.”
A Bankruptcy Notice cannot be drawn in a way that is likely to confuse or mislead a debtor as to the amount payable. The test is whether the Bankruptcy Notice will “reasonably mislead a debtor as to what is necessary to comply with the notice”: Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 165 per Mason CJ, Wilson, Brennan and Dawson JJ (referring to James v FCT (1955) 93 CLR 631 at 644; Pillai v Comptroller of Income Tax [1970] AC 1124 at 1135) see also Farrugia v Farrugia [2000] FCA 129 per Madgwick J at [14]; Vereker v Timbs [2001] FCA 1776 per Branson J at [15]. In such cases, the notice will be a nullity whether or not the debtor is in fact misled: Kleinwort Benson (supra) at 165.
Further, in Vereker v Timbs [2001] FCA 1776 Branson J referred to Re O'Keefe; Ex parte Australian Factors Ltd (1963) 19 ABC 101 at 103 where Clyne J commented:
“...when a judgment creditor seeks the issue of a bankruptcy notice, he must state specifically therein the amount which the debtor is required to pay to the creditor. If he claims the payment of interest upon his judgment he must specify the amount of such interest. It is not the obligation of the debtor to calculate the interest which the judgment creditor calls upon him to pay: to make specific something unspecified.”
It is well established that if a judgment creditor chooses to claim interest on a judgment debt, it is necessary for the calculation of the claim to be accurate: see Re Wong; Ex parte Kitson (1979) 27 ALR 405 at 411 per Lockhart J; Re Farrugia; Ex parte Deputy Commissioner of Taxation (NSW) (1988) 80 ALR 651 at 653 per Sweeney, Lockhart and Burchett JJ.
The failure to complete the form in the manner in which I believe is appropriate by including the interest is objectively confusing. The makeup of the amount deducted would not, on the evidence before me, have been made known to debtor prior to her seeing Ms Nolan’s affidavit. This is not a matter to which the principles expounded by the High Court in Adams v Lambert [2006] HCA 10 apply.
On 9 July 2007 the debtor and Mr Kiss issued a Statement of Claim out of the District Court of New South Wales claiming that the sale of the properties by the Bank had been made in breach of its duty to them. The relevant paragraphs in the Statement of Claim are set out below:
“7. At all material times in the exercise of the mortgagee’s power of sale the Defendant owed the Plaintiffs a duty to exercise powers of sale in good faith with due regard to the interests of the Defendants and not to fraudulently, or wilfully or recklessly sacrifice the mortgaged property.
8. The sales mentioned in paragraphs 6 and 7 were sold by the Defendant in breach of its duty as mortgagee,
Particulars
a. The Defendant failed to take reasonable steps to ascertain the value of the properties before selling;
b. The properties were sold for less than their market value;
c. No or insufficient precautions were taken to obtain proper prices for the Conjola and KP [Kings Point] properties;
d. The properties were not properly advertised and marketed for sale;
e. The Conjola property was misdescribed as a three bedroom house with no garage when it was a five bedroom house with a large garage.
f. The Conjola property was advertised as one lot when it comprised two lots.
g. The Conjola property was advertised without raising potential purchasers’ awareness that a new kitchen and bathroom was installed about a year earlier.
h. Advertisements of sale were too few and placed in insufficient media to be likely to bring the proposed sales of the properties to the notice of probable purchasers or to induce such competition as would be likely to secure a fair price.
i. The time between advertisements of auctions and auctions was too short.
j. There was no or no sufficient attempt to engage the interest of competing buyers either before or after the properties failed to sell at auction.
k. No or insufficient regard was had to valuations obtained for the properties including the valuations obtained by the Defendant of $975,000 and $475,000 for the Conjola and KP properties respectively and subsequent valuations of $480,000 and $350,000 for the Conjola and KP properties respectively.
l. The Defendant failed to draw the attention of potential buyers to the valuations mentioned in subparagraph k.
m. The Defendant refused to proceed with a sale of the Conjola property to a bona fide purchaser who had exchanged contracts with the Plaintiffs at a price of $680,000.
n. The Defendant refused to allow the Plaintiffs to proceed with the sale mentioned in subparagraph m and to refinance the KP property at the difference between $680,000 and the amounts owed under the mortgages to the Defendant;
o. No or insufficient regard was paid to the fact which was known to the Defendant that the Plaintiffs had obtained approval to refinance the KP property for the difference between the amount owed under the mortgages and the agreed price of $680,000 for the Conjola property.”
It is not denied that this cross-claim is one that could not be set up in the original proceedings and therefore, provided it meets the test set out Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183; Ebert v Union Trustee Co of Australia Ltd (No. 2) (1960) 104 CLR 346; Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 and Totev v Sfar [2006] FCA 470 then the grounds under that section will have been made out. The question is whether the Statement of Claim, that has been verified by both plaintiffs, fulfils the requirements set out in those cases. These requirements are most succinctly summarised by Lindgren J in Glew v Harrowell [2003] FCA 373 at [9]-[12]. The claimant must have a prima facie case, even if she does not adduce evidence which would be admissible on a final hearing making it out. There must be a fair chance of success or a claim which a debtor is fairly entitled to litigate and the claim being advanced must be genuine or bona fide. In Re Donkin; Ex parte AGC Advances Ltd (1994) 52 FCR 271 Drummond J dealt with a case very similar to the one here being decided. A cross-claim alleging sales at an undervalue was made against the finance company. A Statement of Claim had been issued (at 273-4):
“The respondent submits that the applicant’s affidavit of 16 June last is insufficient to enliven s.41(7) for a number of reasons. The respondent points to the fact that the allegations in the statement of claim filed 4 November 1993 are nowhere verified by the Applicant or anyone else: they are mere pleading allegations.
…
As against that, there is information before me material suggesting, in broad outline, that the applicant has a claim against the respondent that overtops the amount, payment of which is demanded by the notice, and which claim could not have been set up in the proceedings in which the judgment was given against the applicant.”
His Honour then went on to refer to the familiar authorities Re Brink, Vogwell v Vogwell (1939) 11 ABC 83 and Ebert, before saying (at 276):
“The modern cases in which attention is focused on the sufficiency of the initial affidavit to enliven s.41(7), as distinct from whether, when the matter comes before the Court, the debtor’s material is sufficient to satisfy the Court of the matters referred to in the subsection, show that it is not regarded as essential that the initial affidavit must contain sworn evidence verifying every element of the claim relied on by the debtor as giving rise to the cross-demand.”
In this case, of course, the applicant’s affidavit exhibited the cross-claim which was itself verified. His Honour also referred (at 277) to McKechnie; Ex parte Weir (1991) 27 FCR 515 at 520, where Foster J indicated that in cases where quantification of a cross-claim may require valuation evidence:
“ … nothing more can be done in the debtor’s initial affidavit than to indicate the existence of the cause of action or causes of action upon which reliance is to be placed, give an outline of their nature, and provide material to base an assertion that their prosecution will produce indebtedness in the judgment creditor in excess of the debtor’s debt. The fact that considerably more may, in all probability, be necessary to persuade the Court on the appointed day, that the requisite prima facie case is made out, does not alter this situation.”
Finally, Drummond J opined (at 277):
“An outline of the cause of action relied on by the debtor to constitute the cross-demand, with sufficient accompanying detail to show that the debtor is bona fide in his contention that he has such a cross-demand, is all that is required of the initial affidavit.”
If one has regard to the Statement of Claim filed by the debtors, it will be seen that a number of allegations against the Bank are made. Some of the allegations made in the particulars at para 8 of the Statement of Claim extracted at [7] of these reasons may themselves need more particularisation but I am satisfied that the allegations found at (e), (f), (g), (k), (m) and (n) do raise a prima facie case which the claimants would be fairly entitled to litigate. If the allegations concerning the sale to Mr Daniel William Free are made out they would appear to entitle the debtors to a further $380,000 over and above that which the Bank obtained on its sale. That would be an amount greater than the balance owing under the Bankruptcy Notice which is said to be $364,095.39. The Bank argues that the Statement of Claim is not sufficiently particularised and that the affidavit should have contained a lot more information. For example, it suggests that in regard to the allegations about the description of the property, a copy of the agent’s particulars could have been exhibited; likewise with the advertisement of the property as one lot as opposed to two. Certainly this information would have been of assistance but if a plaintiff, in a Statement of Claim that is required to be verified and is the subject of s.347 of the Legal Profession Act 2004 (NSW), makes a statement about her own property being misdescribed, I believe I am entitled to accept that statement on its face without the necessary proof that would be required when the dispute is finally heard. I am of the view that the Statement of Claim annexed to the debtor’s affidavit fulfils the requirements outlined in the cases for a cross-claim under s.41(7) of the Bankruptcy Act and would set aside the Bankruptcy Notice on that ground.
As this is a review of a Registrar’s decision the orders which I shall make are that the orders that Registrar Hedge made on 28 August 2007 be set aside and in their place:
1. Bankruptcy Notice No NN3746 of 2006 be set aside.
2. The Respondent to pay the applicant’s costs including the costs before the Registrar to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
I certify that the preceding eight (8) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 18 October 2007
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