National Australia Bank Ltd v Cranney
[2011] FMCA 169
•31 March 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| NATIONAL AUSTRALIA BANK LTD v CRANNEY & ANOR | [2011] FMCA 169 |
| BANKRUPTCY – Part X personal insolvency agreement – creditor’s application to set aside – omission of material liabilities from debtor’s statement of affairs – unfair exclusion of creditor from voting – existence of debt relied upon under guarantee – equitable defences not established – agreement set aside – sequestration order made – no costs orders for or against trustee. |
| Bankruptcy Act 1966 (Cth), ss.40(1)(g), 40(1)(i), 64A, 64C, 64D, 64E, 64H, 64M, 64Y, 64ZA(6), 64ZA(8), 64ZA(9), 64ZB(3), 82, 109(1)(a), 115(1), 155H(5), 188, 188(2C), 189AAA, 189A, 190A(1)(i), 190A(1)(h), 222, 222(1), 222(1)(c), 222(1)(d), 222(5), 222(5)(c), 222(5)(e), 222(5)(e)(i), 222(6), 222(7), 222(9), 222(10), 222(11), 229, 230, 231(3) Bankruptcy Regulations 1996 (Cth), regs.10.04, Sch.4A cll.2.2, 2.22(2)(a), 5.6 |
| Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 Commonwealth Bank of Australia v Toma [2009] FMCA 846 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 Federal Commissioner of Taxation v Bruton Holdings Pty Limited (in liquidation) (2010) 188 FCR 516 Forshaw v Thompson & Anor (1992) 35 FCR 329 Hypec Electronics Pty Limited (in liq) v Mead; BL & GY International v Hypec Electronics Pty Limited (in liq) (2004) 61 NSWLR 169 Lancaster v NZI Capital Corp Ltd (Lockhart, Beaumont and Gummow JJ, 11 October 1991, BC9103440) Legione v Hateley (1983) 152 CLR 406 Minister for Immigration, Local Government & Ethnic Affairs v Dela Cruz (1992) 34 FCR 348 Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 NZI Capital Corporation Limited v Lancaster (1991) 30 FCR 441 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 Palazzolo v Palazzolo (Neaves J, 19 July 1991, BC9103274) Petelin v Cullen (1975) 132 CLR 355 Re Dingle; Westpac Banking Corporation v Worrell & Anor (1993) 47 FCR 478 Re John Codrington; Ex parte: Don Mckay Tourist & Charter Pty Limited v Codrington [1989] FCA 349 Re Kleiss; Ex parte Kleiss v Capt’N Snooze Pty Ltd (1996) 61 FCR 436 Re Lockett; Ex parte Northern Equity Ltd (French J, 6 April 1992, BC9203445) Russo v Aiello (2003) 215 CLR 643 Saunders v Anglia Building Society [1971] AC 1004 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Whittet v State Bank of New South Wales (1991) 24 NSWLR 146 Vacuum Oil Company Pty Ltd v Wiltshire (1945) 72 CLR 319 |
| Applicant in both proceedings: | NATIONAL AUSTRALIA BANK LTD ABN 12 004 044 937 |
| First Respondent in SYG2179 of 2010: | ROHAN GEOFFREY CRANNEY |
| First Respondent in SYG2189 of 2010: | DAVID KENNETH CRANNEY |
| Second Respondent in both proceedings: | CHRISTOPHER MEL CHAMBERLAIN |
| File Numbers: | SYG2179 of 2010 SYG2189 of 2010 |
| Judgment of: | Smith FM |
| Hearing dates: | 7 February 2011 and 7 March 2011 |
| Delivered at: | Sydney |
| Delivered on: | 31 March 2011 |
REPRESENTATION
| Counsel for the Applicants: | Mr J Johnson |
| Solicitors for the Applicants: | TurksLegal |
| Counsel for the First Respondents: | Mr F Assaf |
| Solicitors for the First Respondents: | Jackson Lalic |
| Counsel for the Second Respondents: | Mr G Carolan |
| Solicitors for the Second Respondents: | Shaw Reynolds Bowen & Gerathy |
ORDERS IN SYG2179 OF 2010
The personal insolvency agreement of Rohan Geoffrey Cranney dated 9 September 2010 is set aside under s.222(1) and (5) of the Bankruptcy Act 1966 (Cth).
A sequestration order be made against the estate of Rohan Geoffrey Cranney under s.222(10) of the Bankruptcy Act 1966 (Cth).
The applicant’s costs, including all reserved costs, be taxed and paid from the estate of the bankrupt in the priority fixed by s.109(1)(a) of the Bankruptcy Act 1966 (Cth).
Note that the date of a relevant act of bankruptcy is 2 August 2010.
Note that a consent to act as trustee has been signed by David John Frank Lombe.
The applicant must enter and give a copy of this order to the Official Receiver within 2 working days.
ORDERS IN SYG2189 OF 2010
The personal insolvency agreement of David Kenneth Cranney dated 9 September 2010 is set aside under s.222(1) and (5) of the Bankruptcy Act 1966 (Cth).
A sequestration order be made against the estate of David Kenneth Cranney under s.222(10) of the Bankruptcy Act 1966 (Cth).
The applicant’s costs, including all reserved costs, be taxed and paid from the estate of the bankrupt in the priority fixed by s.109(1)(a) of the Bankruptcy Act 1966 (Cth).
Note that the date of a relevant act of bankruptcy is 2 August 2010.
Note that a consent to act as trustee has been signed by David John Frank Lombe.
The applicant must enter and give a copy of this order to the Official Receiver within 2 working days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG2179 of 2010
| NATIONAL AUSTRALIA BANK LTD ABN 12 004 044 937 |
Applicant
And
| ROHAN GEOFFREY CRANNEY |
First Respondent
| CHRISTOPHER MEL CHAMBERLAIN |
Second Respondent
SYG2189 of 2010
| NATIONAL AUSTRALIA BANK LTD ABN 12 004 044 937 |
Applicant
And
| DAVID KENNETH CRANNEY |
First Respondent
| CHRISTOPHER MEL CHAMBERLAIN |
Second Respondent
REASONS FOR JUDGMENT
This judgment addresses two proceedings brought by the National Australia Bank Ltd (“NAB”) which were heard concurrently. It explains why personal insolvency agreements (“PIAs”) executed by Rohan Cranney and his brother David Cranney should be set aside, and why sequestration orders should be made in relation to their estates. It also addresses a costs dispute, whether the Part X trustee, Mr Chamberlain, should pay the NAB’s legal costs or should receive the benefit of a costs order against the NAB.
Rohan and David Cranney are farmers and graziers on properties near Corowa in NSW. The properties are owned by one or more family companies, and their business activities were conducted through family partnerships, family trusts and family companies. After 2001, most of their activities were conducted in the name of the Cranney Family Trust, and they were its trustees until their replacement in that role by Cranney Farm Pty Ltd in February 2008.
For some years, the family’s ventures were financed with assistance from the NAB, and large borrowings became due for repayment. As I shall find below, Rohan and David were liable in August 2010 to the NAB in an amount of at least $6,074,831.91, under a guarantee they and other family members executed on 18 January 2007 in relation to the indebtedness of two family companies, Collendina Pty Ltd and Wongala Holdings Pty Ltd (“the Collendina guarantee”). On evidence given at the hearing before me, the unsecured liability of each of them under the Collendina guarantee is now $7,552,088. In addition, an amount of $3,690,226 is outstanding on additional money lent by the NAB to them as trustees for the Cranney Family Trust, under a facility made available in January 2007.
In 2010, both brothers faced bankruptcy petitions and other litigation brought by their creditors, and they consulted a ‘business reconstruction and insolvency specialist’, Mr Chamberlain, who has offices in Wagga Wagga, Dubbo and Shepparton. He gave them advice and assisted them to follow procedures under Part X of the Bankruptcy Act 1966 (Cth).
The personal insolvency agreements
On 2 August 2010 both brothers signed authorisations under s.188, appointing Mr Chamberlain as their controlling trustee in relation to a proposed arrangement with their creditors. He conducted a meeting of creditors in Albury on 6 September 2010, which by special resolutions of some of their creditors accepted their proposed PIAs. In circumstances which I shall narrate below, the NAB was excluded from voting. The requisite majorities were overwhelmingly provided by Rohan and David’s parents and two other members of their families, upon claimed indebtedness shown in loan accounts. Some smaller creditors also supported the PIAs, for reasons which have not been explained to the Court. In relation to Rohan Cranney’s PIA, the creditors who were admitted to vote totalled $2,056,568 in favour and $421,919 against. In relation to David Cranney’s PIA, the creditors who were admitted to vote totalled $2,185,468 in favour and $474,851 against.
The PIAs were executed on 9 September 2010, and appointed Mr Chamberlain as trustee under Part X. In effect, both brothers obtained a full release in relation to all indebtedness owed at that date to all their creditors, regardless of whether or how the creditors had voted (see ss.229 and 230). None of their property vested in the trustee for the benefit of their creditors, and no income was made available to creditors, but creditors were promised distributions from contributions from each brother of $50,000 payable on 28 February 2011 and $100,000 payable on 30 June 2011. The intended source of these funds was left unclear to the creditors, and was also unclear to me on the evidence given to the Court.
In his two reports to creditors under s.189A dated 20 August 2010, Mr Chamberlain said that the ‘related party’ creditors had indicated that “they will not participate in any distribution”. Upon this assumption, he anticipated a dividend of 18 cents in the dollar for Rohan Cranney’s ‘participating creditors’, and of 15 cents in the dollar for David Cranney’s ‘participating creditors’. He estimated a dividend of between 10 cents in the dollar and nil for creditors if both estates were administered in bankruptcy. He recommended the PIAs to the creditors.
Both reports informed creditors that “the contributions due will be underwritten and guaranteed by both Collindina Pty Ltd and the Debtor’s father”. On the day following the making of the PIAs the brothers’ father and the family company, Collendina Pty Ltd, did execute a deed of guarantee for the payment of these amounts and for the payment of Mr Chamberlain’s fees and disbursements (“the PIAs guarantee”). However, Mr Chamberlain’s reports also noted that Collendina’s chief asset, the family’s rural property, was subject to mortgage to the NAB and that it was “the subject of current Winding Up proceedings”. Wongala Holdings Pty Ltd was said to be under receivership with a deficit to retire even its secured creditors.
An impression from Mr Chamberlain’s reports that other members of Rohan and David Cranney’s family and their business entities might also be suffering a financial crisis, tended to be confirmed by recent evidence given to the Court that, in fact, there was default in the payment of the PIAs’ instalments of $50,000 due on 28 February 2011.
Mr Chamberlain’s estimates and recommendations to creditors were expressly based upon his acceptance of Statements of Affairs executed by each of Rohan and David Cranney under s.188(2C), which omitted the NAB as an unsecured creditor of each of them for more than relatively minor personal credit card debts. In this respect, Mr Chamberlain noted in his report to creditors concerning David Cranney:
(5) Contingent Liability – I have been advised the debtor has provided the National Bank with guarantees in respect to debts in the vicinity of $6,000,000 for debts claimed due by Collendina Pty Ltd, Wongala Holdings Pty Ltd and others (“The Group”).
I am awaiting better and further particulars of any such claim but am aware there have been cross claims lodged against the Bank by “The Group” and as a consequence no claim may arise. At present I have not factored any NAB debt within those PIA return or Bankruptcy calculations but should any such claim arise it will have a material bearing on either outcome.
I am trying to obtain further detail in this regard and expect a supplementary report will be issued in the next several days.
In Mr Chamberlain’s report concerning Rohan Cranney, there was no mention of any possible liability by him to the NAB as an unsecured creditor.
In a supplementary report to the creditors of Rohan Cranney dated 26 August 2010, Mr Chamberlain revised his estimated dividend to 15 cents in the dollar as a result of his discovering additional ‘creditor claims’. His calculation continued to disregard the NAB as an unsecured creditor, but he said:
Contingent Creditor – National Australia Bank (NAB)
It has been revealed the debtor has provided guarantees to the NAB for debts due by Collindina Pty Ltd and other Companies in the vicinity of approximately $6million however my enquiry has not determined if those guarantees have crystallized whilst I am also aware that the Cranney Group have lodged a cross claim against the Bank.
In summary if the NAB debt materializes it would form a default under the PIA as it would materially alter the return to creditors and should the P.I.A be supported on the anticipated 15 cents in the dollar return it would warrant termination and subject the debtor to Bankruptcy.
Clear evidence that Rohan and David Cranney’s liability to the NAB under the 2007 Collendina guarantee had, indeed, ‘crystallised’, was provided to Mr Chamberlain in two proofs of debt forward to him by the relevant officer of the NAB, Mr Wyatt, on 3 September 2010. It identified the Collendina guarantee executed in 2007, and attached a copy of a demand addressed to all the guarantors, including Rohan and David Cranney “as Trustee for the Cranney Family Trust”. The demand recited the default of the customer following a demand dated 8 May 2007, and demanded from the guarantors the payment of $6,074,831.91, plus subsequent accruals. Neither Rohan nor David have given evidence to the Court denying that they had notice of this demand at the time that they completed their Statements of Affairs, and I accept Mr Wyatt’s unchallenged evidence that it had been served on them in December 2007.
Mr Wyatt’s proof of debt claim was submitted only three days before the creditors’ meeting appointed in Mr Chamberlain’s circular to creditors dated 20 August 2010. However, the NAB had only been given this circular with its enclosed notice of creditors’ meeting and other documents in emails sent to Mr Wyatt on 1 September 2010. This was less than the “at least 10 days” notice required to be given to creditors of whom a trustee has been told or “has otherwise found out” (see s.64A of the Act and reg.10.04 of the Bankruptcy Regulations 1996 (Cth)). Mr Chamberlain gave no evidence explaining his delay in notifying the NAB – and, indeed, his affidavits filed in the proceedings were not read by his counsel.
Giving Mr Chamberlain the benefit of some doubts whether the omission of the NAB indebtedness from the brothers’ Statements of Affairs occurred upon his advice, I would infer from the contents of his reports to creditors that his delay in notifying the NAB as to the Part X proceedings and the creditors’ meeting probably resulted from: (i) a failure by Rohan and David Cranney to give him accurate information as to their indebtedness to the NAB, and to include the NAB as an unsecured creditor in relation to the Collendina guarantee and other outstanding liabilities in their Statements of Affairs; and then (ii) Mr Chamberlain’s acceptance of these omissions without any investigation of their indebtedness to the NAB until very shortly before the creditors’ meetings.
In each of the minutes of the creditors’ meetings subsequently prepared by Mr Chamberlain, he recorded making the following statements to the small number of attendees, before the votes on the PIAs were taken:
Review of Statement of Affairs: The Statement of Affairs sent to Creditors with the Notice of Meeting deemed as being tabled for discussion and those present were invited to question the Debtors on the Statement(s) and on the Debtors examinable affairs generally.
The President advised that the Statement of Affairs lodged by the Debtor had not disclosed a debt to the National Bank for which a Proof of Debt had been received on Friday 3rd September 2010 for $6,074,831.
The President advised that even though the Bank was not entitled to vote at this meeting, the debt claimed was material and the President was aware it was under dispute and was subject to separate legal proceedings.
As a consequence the President advised he could not comment on the likelihood a claim would crystallize from the National Bank against the PIA Estate (if supported) however should that occur this would affect the projected return to Creditors quite materially and a meeting would be called to provide Creditors the option of terminating the PIA.
The President also advised there has been a couple of Proofs of Debts lodged prior to the meeting for amounts in excess those disclosed and should those figures be correct the anticipated return would reduce by approximately 1 cent in the dollar.
Questions: No questions were raised by Creditors.
The exclusion of NAB from voting at the creditors’ meetings
In conversations on 1 September 2010 with Mr Chamberlain’s employee Mr Dodson, Mr Wyatt told Mr Dodson: “I will be attending to the lodgement of a proof of debt on behalf of the Bank shortly. We will most likely be voting against the PIA”.
In his letter to Mr Chamberlain sent by facsimile or email on 3 September 2010, Mr Wyatt said:
Further to your telephone conversation dated 3 September 2010, I enclose the completed proof of debt forms for Mr David Kenneth Cranney and Mr Rohan Geoffrey Cranney and Notice of Demand on Guarantor to which the debt noted in the respective Proof of Debts refers to.
I confirm that NAB will be dialling in to the meeting of creditors on Monday 6 September 2001. As per our previous discussions, we are likely to be voting against any PIA arrangements proposed in your report dated 26 August 2010.
Should you have any queries in this regard, please do not hesitate to contact me.
An email exchange with Mr Dodson followed on the same day, concluding at 5pm with Mr Dodson confirming that Mr Wyatt would be telephoned during the meeting to allow his participation. I infer from these exchanges, that Mr Wyatt thought that he would be permitted to vote at the meeting, and that Mr Dodson said nothing to remind him to lodge an additional ‘proxy’ form.
Although the Act makes provision for a creditor to participate in a meeting by telephone (see ss.64C and 64H), it was common ground before me that a corporate creditor who has submitted a proof of debt and is allowed to so participate, must also submit a Form 7 “statement of claim and proxy form” before acquiring an entitlement to vote on a resolution (see ss.64D, 64E and 64ZA(6)). The trustee must after opening a meeting announce the names of proxies (see s.64M), and a person claiming to be a proxy of a creditor is not entitled to vote as proxy unless his or her instrument of appointment has been lodged with the trustee “before or after” that announcement (see s.64ZB(3)). A general power to determine “any question that arises as to the entitlement of a person to vote” is given to the trustee presiding at the meeting, and he may adjourn the meeting if he “needs a period in which to determine” such a question (see s.64ZA(8) and (9)). Adjournment of a meeting is also provided for in s.64Y.
It is regrettable that Mr Wyatt overlooked these technicalities, and failed to notice in the bundle of eleven documents sent to him on 1 September 2010, a blank Form 7, which creditors were invited to complete and return “to enable the trustee to make an assessment of your ability to vote”. Such a form was not included with the Proof of Debt form returned by Mr Wyatt to Mr Chamberlain on 3 September 2010.
I find that it is probable that this oversight on the part of Mr Wyatt was apparent to Mr Chamberlain and Mr Dodson, if not immediately from Mr Wyatt’s communications on 3 September 2010, then certainly before they both attended and opened the meeting on 6 September 2010, and then contacted Mr Wyatt to enable him to attend by telephone. This inference is irresistible from the uncontested evidence of Mr Wyatt. I find that they decided not to alert him to his oversight prior to the meeting, nor to give him an opportunity to remedy it before the start of the meeting or in the course of the meeting, but decided to conduct a vote of creditors on the PIA without allowing him to participate in the vote on behalf of NAB.
The meeting was being held in the “Albury Commercial Club” at 10am on a Monday, and there is no evidence to contradict the likelihood that it would have been a simple matter to contact Mr Wyatt before the meeting, or briefly to delay the commencement or progress of the meeting, to allow him to send a proxy form by instantaneous communication of some sort to them at that address. In fact, Mr Wyatt tried to remedy the situation, by faxing and emailing his proxy to Mr Chamberlain’s business address during the meeting. Mr Chamberlain was aware of this attempt, but maintained his refusal to recognise Mr Wyatt’s status or to briefly adjourn the meeting to enable Mr Wyatt’s vote to be counted after receipt of a proxy form.
My findings in this respect are based upon the evidence of Mr Wyatt, which is not contradicted by evidence from either Mr Chamberlain or Mr Dodson, and was not challenged in cross‑examination. Mr Wyatt gave the following evidence in his affidavits of 6 October 2010 and 14 December 2010:
16.On 6 September 2010 I was telephoned by Mr Dodson from Chamberlains SBR. I was dialled into what I understood to be the creditor’s meeting of David Kenneth Cranney and Rohan Geoffrey Cranney. I then had a telephone conversation with Mr Chamberlain whereby words to the following effect were said (following the formal introductions to the meeting):
Mr Chamberlain “We have received the Proof of Debts lodged by the Bank but we have not received proxies. Accordingly, we are not allowing the Bank to vote on the resolution”.
Me:“That was an oversight on my part. The Bank has lodged proofs and I have advised you previously that we would be voting against the resolution”.
Mr Chamberlain “We are not allowing the Bank to vote”.
…
21.Before the meeting of creditors on 6 September 2010 was concluded I had the following conversation with Mr Chamberlain:
Mr Chamberlain: “Your proxies will not be accepted for voting purposes”.
Me:“I am very concerned with your decision. The Bank is likely to challenge your decision and apply to set aside the PIAs”.
…
4.In addition to the matters set out in paragraphs 16 and 21 of my earlier affidavit, I recall the following conversation taking place while I was on the telephone during the creditor’s meeting.
Mr Chamberlain: “We intend to run the two meetings (for David & Rohan) concurrently. We have received the Proof of Debts lodged by the Bank but we have not received proxies. Accordingly, we are not allowing the Bank to vote on the resolution”.
Me:“That was an oversight on my part. The Bank has lodged proofs and I have advised you previously that we would be voting against the resolution”.
Mr Chamberlain: “We are not allowing the Bank to vote”.
Me: “I find it odd that the Bank has not been contacted in respect to the proxy issue. I had several conversations in the past week with your office regarding the Bank’s proof and whether the Bank would be attending voting. In previous situations if this was an issue the trustee would ordinarily contact our office and raise the issue prior to the meeting to allow the Bank to submit proxy as necessary”.
5.I then put myself on mute and arranged for copies of the proxies I had executed voting against the proposals to be faxed and emailed to the trustee’s office during the meeting. I remained on the telephone during this time. I then had a further conversation with Mr Chamberlain as follows:
Me:“I have just faxed and emailed you copies of the proxies. Will you accept these?”
Mr Chamberlain: “No”.
Me:“I have significant concerns regarding the integrity of the meeting and put you on notice I will contact our solicitors immediately with a view to challenging the proposal if it is passed. I have concerns about the proposal put forward as I note the funds are to come from an entity which was already subject to winding up proceedings which is a related party of the debtors”.
6.I remained on the telephone. The creditor’s meeting then continued and a resolution was passed voting in favour of execution of the PIA’s. I was on the telephone when the resolutions were passed in favour of execution of the PIA’s. I recall that the resolutions were passed after I had arranged for the proxies to be emailed and faxed to Mr Chamberlain. I left the meeting after approx 15 minutes into the meeting and prior to the meeting’s conclusion.
It must have been apparent to Mr Chamberlain before the meeting that NAB’s vote was likely to be crucial to the outcome of the creditors’ meeting. He has given no evidence to the Court to explain his reasons for conduct at the meeting which was prima facie unfair and unreasonable in the circumstances. Only a small number of persons were in attendance, and there is no evidence suggesting that anyone would have been inconvenienced by a short delay while Mr Wyatt’s oversight was remedied. There is no evidence that Mr Chamberlain would have rejected on any other ground NAB’s entitlement to vote based upon its proof of debt, and on the evidence now before me he would not have had proper grounds for doing that. Even assuming, without any evidence, that it was critical to obtain a vote on the PIAs without adjourning the meeting to another day, so as to enjoy the statutory stay on pending creditor’s petitions (see s.189AAA and Commonwealth Bank of Australia v Toma [2009] FMCA 846), this consideration would not have justified the attitude adopted by Mr Chamberlain which is shown in Mr Wyatt’s evidence.
In all the circumstances, I infer that Mr Chamberlain’s conduct of the meeting was influenced by a desire to take advantage of Mr Wyatt’s oversight, based upon a partisan objective to procure adoption of the PIAs upon which he had been employed to advise the Cranney family. When drawing this inference, I have taken into account that Mr Chamberlain is an officer of the Court who is a party to the proceedings and has chosen not to give evidence explaining his conduct, and the principle that evidence is to be weighed “according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted” (cf. Russo v Aiello (2003) 215 CLR 643 at [11]). In my opinion, his conduct was inconsistent with his duties to treat all creditors fairly and impartially (cf. s.155H(5) and Bankruptcy Regulations Sch.4A cll.2.2, 2.22(2)(a), and 5.6), and under s.190A(1)(i) to exercise the powers and perform the functions of a controlling trustee “in an impartial and independent manner”. It was also commercially imprudent, since it led inevitably to the present litigation (cf. s.190A(1)(h)).
My detailed consideration of the evidence concerning the exclusion of the NAB from voting on the PIAs is largely peripheral to my consideration of powers under s.222 of the Act to set them aside and to make sequestration orders. This essentially turns upon the existence of the indebtedness asserted by the NAB, which was omitted from the two Statements of Affairs and was erroneously discounted by Mr Chamberlain in his recommendations to creditors. As I shall explain, the highly material omissions from the Statements of Affairs and their consequences provide sufficient justification for the making of substantive orders under s.222.
However, it was appropriate for me to make the above findings, since the NAB’s case in support of orders under s.222 also relied upon issues as to the conduct of the creditors’ meeting, and also argued that there were other deficiencies in Mr Chamberlain’s investigation of Rohan and David Cranney’s unsecured liabilities to the NAB and of other aspects of their financial affairs. I have not found it necessary closely to examine the evidence relevant to most of these issues. However, it appears to me that the present litigation would probably not have occurred but for the combination of Mr Wyatt’s oversight and Mr Chamberlain’s refusal to facilitate its remedy. It therefore became necessary for me to narrate and to make findings about these background events, to address the dispute as to costs which I shall decide below.
The existence of NAB’s debt
The NAB invokes the Court’s powers under s.222 to set aside a PIA where it is satisfied that “the terms of the agreement … are not calculated to benefit the creditors generally” (s.222(1)(d)), or where it is satisfied that “the debtor has (i) omitted a material particular from the statement of the debtor’s affairs given under subsection 188(2C) or (2D)” and that “it would be in the interests of the creditors to do so” (s.222(5)(e) and (6)).
These powers are available only while the PIA is “in force” and if the application is made before “all the obligations that the personal insolvency agreement created have been discharged” (see opening words to s.222(1), and (7)). It is not contended that these preconditions are not satisfied in the present matters.
Rohan and David Cranney do, however, challenge whether the NAB has standing to apply to the Court under s.222 as ‘a creditor’ within s.222(1)(c) and (5)(c). They submit that the Court can only be satisfied as to this, if it makes positive findings on evidence admitted before it that NAB has established the existence and quantum of the indebtedness by each of them, being indebtedness which would be current and provable in an insolvency but for the release arising under the terms of the PIAs and s.230 of the Act. In effect, their Defences to the proceedings invited the Court to conduct a trial as to the NAB’s debt asserted in its proofs of debt submitted to Mr Chamberlain and re‑asserted in its Statements of Claim in the present proceedings. Very shortly before the hearing, they raised several additional grounds of defence to the alleged debts under the 2007 Collendina guarantee and demand. The NAB attempted to meet this challenge, and its evidence and submissions supported the effectiveness of the terms of the guarantee and the demand, and attacked the various defences.
I was referred to no authorities as to the meaning of ‘a creditor’ in s.222, but counsel for Rohan and David Cranney submitted that I was bound to require NAB to prove on the balance of probabilities that it is in fact and law a creditor in relation to a particular debt, by the judgment of the Full Court in Re Dingle; Westpac Banking Corporation v Worrell & Anor (1993) 47 FCR 478. Counsel for NAB did not take issue with this submission.
Unaided by authority, I am not sure that the references to ‘a creditor’ in s.222 are more than references to a person who establishes that they have sufficient standing to invoke the Court’s powers under that section, by showing reasonable grounds for presenting a proof of debt to a trustee under Part X or to a trustee in bankruptcy in the event that a sequestration order is made. Such an interpretation has much to commend itself in the context of s.222 and the definition of debts provable in bankruptcy in s.82 (adopted by s.231(3) for the purposes of Part X). It might seem unnecessary and premature for the Court itself to rule upon the existence of a creditor’s debt, where this is a matter which is likely to fall for determination by a trustee in bankruptcy, in the event that a PIA is set aside.
Re Dingle did not itself involve an application by a creditor to set aside a PIA under current or previous provisions of the Act, but was an application in the Court’s general bankruptcy jurisdiction, which invited the Federal Court to review the merits of a controlling trustee’s ruling that a creditor did not have an entitlement to vote on a proposed composition with creditors. It may be distinguishable for that reason, since I note that I am not asked to review any ruling by Mr Chamberlain as to NAB’s eligibility to vote based on an opinion as to the existence or value of Rohan and David Cranney’s liability under the Collendina guarantee. Moreover, the continuing authority of some of the cases considered in Re Dingle might also need to be assessed in the light of the 1996 amendments, which repealed the previous s.198(2), which precluded creditors from voting rights in relation to unliquidated, contingent or unascertained debts.
However, the existence of the NAB debt having been squarely raised by the pleadings and the parties’ cases in the present matters, I shall assume that I am bound to follow Re Dingle, and that I must determine that issue. This course brings advantages, since my finding in favour of NAB on this issue greatly assists, if not determines, the exercise of powers under s.222. The finding leads to a firm opinion that there were material particulars omitted from the two Statement of Affairs, and that – as Mr Chamberlain himself recognised in his reports to creditors – the consequence of the NAB debt ‘materialising’ is that the PIAs were clearly not in the interests of creditors generally. My finding also leads to a firm opinion that NAB has the prima facie right of a proven creditor to have Rohan and David’s admitted insolvencies administered in bankruptcy, based on acts of bankruptcy arising from their s.188 authorisations.
Although I accept the relevance of the holding in Re Dingle, I do not accept the submission by counsel for Rohan and David Cranney that Re Dingle supports a proposition that NAB must not only establish on the balance of probabilities that liability exists under the Collendina guarantee and demand, but must also positively disprove the special defences asserted by them in their Defences. Their defences put the NAB to proof as to the guarantee and demand, and asserted in the alternative that they had defences based on equitable set‑off, estoppel, or some other species of unconscionableness. In my opinion, on normal principles of evidence, the onus of proof in relation to such defences rests on the debtors who assert them, and Re Dingle does not stand as authority that the ordinary onus of proof is reversed in bankruptcy proceedings of the present kind. Their Honours’ suggestion at pp.490‑491 in that case that Westpac was obliged not only to prove that it was a creditor but also to prove the value of its unsecured debt exceeding the value of its security, has no bearing on the present case, since it is not contended that NAB is a secured creditor in relation to the indebtedness of Rohan and David Cranney under the Collendina guarantee.
Moreover, in my opinion, it is insufficient for Rohan or David Cranney to raise only a prima facie, or genuine, or arguable defence to NAB’s claim under the guarantee, such as might suffice in bankruptcy proceedings concerning the application of s.40(1)(g) of the Act to a creditor’s bankruptcy notice. The opinion of Drummond J in Re Kleiss; Ex parte Kleiss v Capt’N Snooze Pty Ltd (1996) 61 FCR 436, which was cited to me, that a guarantor can answer a bankruptcy notice by raising a “sufficient case” of an equitable set‑off available to the principal debtor is not, in this respect, pertinent authority. Re Kleiss is also distinguishable in the present case, because, as I shall show, the Collendina guarantee expressly precluded the guarantors from relying upon any cross‑claim or set‑off which they or the principal debtors might have against the NAB.
Rohan and David Cranney do not contest their signatures on the 16 page “Guarantee and Indemnity” which are both dated 18 January 2007 and witnessed by a NAB ‘relationship manager’. Nor do they challenge their signatures on a two page “Certificate by Guarantor to NAB Guarantee and Indemnity” which notes the presence of the relationship manager, and also notes the presence of another person.
A reader of the guarantee document would have been left in no doubt as to its intent and effect. It starts with a ‘warning’ page, emphasising the manifest importance of the document. Its ‘details’ on preliminary pages i and ii clearly identify Collendina Pty Ltd and Wongala Holdings Pty Ltd as ‘the customer’, and the ‘basic amount’ covered by the guarantee as being their indebtedness to the NAB on all accounts ‘owing at any time’ up to a limit of $6,030,000, plus additional interest and other accruals. The ‘guarantor’ is identified as 6 persons or entities, being Rohan and David Cranney, their parents, Cranney Properties Pty Ltd, and a trust identified as ‘The Cranney Family Trust’ with ‘trustee’ Rohan and David Cranney.
The ‘provisions’ commence on page 2 with ‘plain English’ explanations of the effect of signing the document:
Part A Background to the guarantee and indemnity
…
Key words
2.The meaning of words printed like this is explained in 29 below.
What you acknowledge by signing it
3.You acknowledge that:
(a)all the terms and conditions of this Guarantee are set out in this document; and
(b)in deciding to enter into this Guarantee the only statements by NAB which you took into account and relied on are those contained in this document; and
(c)no other statement, document or promise can affect the operation of this Guarantee; and
(d)no provision of this Guarantee can be varied or waived by NAB except by written notice from NAB; and
(e)you are responsible for making, and for continuing to make, your own investigation of the creditworthiness, financial position and honesty of the customer and any other person named as a co‑guarantor in this Guarantee; and
(f)in the future, facilities granted to the customer may be varied, extended or replaced or new or additional facilities may be granted, even though you may not be asked to consent to them or even have knowledge of them.
You are liable even if others are not
4.You are liable to NAB under this Guarantee even if the customer or any other person named as or intended to be a co‑guarantor for any amount which the customer owes NAB:
(a)does not sign or does not sign properly this Guarantee or any other document; or
(b)does not become liable under this Guarantee or any other document; or
(c)stops being liable or is discharged from liability whether by agreement with NAB or because of any principle of law or equity; or
(d)gives NAB notice to stop further liability as permitted by this Guarantee, and you did not sign the notice or give NAB a similar notice; or
(e)becomes incapacitated.
…
Other relevant clauses included:
Part B What you undertake to pay
Your payment undertakings
…
6.2You guarantee that the customer will pay NAB all the amounts which the customer owes NAB at any time. If the customer does not pay an amount when due, you agree to pay that amount to NAB when NAB demands it. NAB may demand from you separately different amounts which the customer fails to pay.
In addition to the amount NAB demands, you must also pay NAB at the same time, without any further demand, any further Basic Amount accrued and not paid by the customer since the date shown on NAB’s demand under this clause.
…
6.4NAB may demand and recover from you any amounts which the customer owes NAB without taking into account any amounts which NAB may owe the customer for any reason.
…
Part D The extent of your liability
What will NOT end your liability
14.1This Guarantee is a continuing security for all the amounts which the customer owes NAB. It is not discharged by any intermediate payment or settlement of accounts.
14.2.Your obligations under this Guarantee are not affected by anything that might otherwise affect them under the law relating to sureties, including:
(a)any change in the legal capacity, rights or obligations of the customer, a co‑guarantor, any other person or you; or
(b)the fact that the customer, a co‑guarantor, or any other person or you are a trustee, nominee, joint holder or joint venturer, or a member of a firm, partnership, committee or association; or
(c)the fact that, in relation to any amounts which the customer owes NAB or any security (whether given by the customer, you or a co‑guarantor), guarantee or indemnity for them, NAB:
(i)obtains a judgement against the customer, a co‑guarantor or any other person; or
(ii)gives up, releases, varies or exchanges, or fails to obtain, perfect, register or realise, or deals in any other way with the security, guarantee or indemnity; or
(iii)grants time or any other concession to, or compounds or compromises with, or does or omits to do anything which affects the obligations of, the customer, a co‑guarantor or any other person to NAB or to you; or
(iv)receives any dividends out of the estate or assets of the customer, a co‑guarantor or of any person; or
(d)the fact that any security, guarantee or indemnity held or taken by NAB is void, defective or informal or ranks after any other security or obligation for any reason; or
(e)the customer, a co‑guarantor or any other person becoming incapacitated; or
(f)a variation or extension to, or a stopping, replacement or refusal of any credit, banking facilities or other arrangement given to the customer alone or with any other person, whether with or without your consent or knowledge; or
(g)NAB granting to the customer alone or with any other person, new or additional credit or banking facilities, or the increasing of credit or banking facilities above the Basic Amount, whether with or without your consent or knowledge; or
(h)NAB transacting any business with or on account of the customer alone or with any other person whether with or without your consent or knowledge; or
(i)the fact that any amounts which the customer owes NAB may not be recoverable from the customer, a co‑guarantor or any other person for any reason; or
(j)the cessation of business by any firm or partnership which the customer or you comprise, or any change in its membership.
14.3If the customer comprises a firm or partnership
(a)the firm or partnership ceases business, or
(b)its membership changes (whether by death, retirement or admission of any partner or for any other reason),
this Guarantee continues to bind you whether or not you are, or you remain, a member of the firm or partnership and applies to the amounts which the customer owes NAB as incurred before or after the change of membership or cessation of business.
…
You give up certain rights
16.1You waive any rights which you have as surety at any time which may be inconsistent with the provisions of this Guarantee or which would restrict NAB’s rights or remedies under it.
16.2As long as you or the customer has any liability to NAB for any reason:
16.2.1you must not without NAB’s prior written consent:
(a)claim or have the benefit of any set‑off or make any counterclaim against the customer for any reason and whether or not the customer is insolvent; or
…
You cannot make deductions from what you owe NAB
19.1You must make payments to NAB without any set‑off or counterclaim and without any deduction or withholding for taxes.
19.2If a law requires you to make a deduction or withholding, you must pay NAB the extra amounts which are necessary to make sure that NAB receives the full amount which NAB would have received if no deduction or withholding had been made.
Your liability is separate to all other security NAB holds
20.Despite any rule of law or equity to the contrary:
(a)this Guarantee is additional to every other security, guarantee, indemnity, right and remedy NAB holds now or later; and
(b)this Guarantee and NAB’s rights and remedies under it and any other security, guarantee, indemnity, right, remedy or instrument which NAB has at any time continue to exist separately and do not merge with or affect each other.
You are liable personally and as trustee
21.1If you enter this Guarantee as trustee of the trust named in the Details, you:
(a)are liable both personally and in your capacity as trustee; and
(b)give NAB an assurance that:
(i)you have power and authority as trustee of the trust to enter into this Guarantee and are doing so for a proper purpose; and
(ii)you are doing so, and are entitled to do so, in a way that permits NAB to resort to the trust property in priority to the claims of the beneficiaries; and
(iii)you are entitled to be indemnified fully out of the property of the trust for your liabilities and obligations as trustee under this Guarantee in priority to the claims of the beneficiaries.
21.2If no trust is named in the Details, you assure NAB that you are not entering into this Guarantee as trustee of any trust.
…
Each of the guarantors’ signatures appear on a separate page which commences with a box containing clear warnings as to the importance of understanding the terms of the guarantee. The additional ‘certificates’ signed by them also clearly acknowledged receiving an explanation of the nature and effect of the guarantee, including its warnings. They also acknowledged that the signatory understood:
4.In particular I understand that under the Guarantee:
·NAB may claim the full amount of the Guarantee Limit solely from me even if the Customer is not liable or there were other guarantors;
·the Guarantee Limit is the basic amount mentioned above, which can be made up of any amounts owed by the Customer to NAB, plus additional amounts described in the Guarantee;
·NAB can claim amounts from me without first having to exhaust claims against the Customer;
·I remain liable, up to the Guarantee Limit, despite any events or agreements that may occur without my knowledge or consent, including increases in the Customer’s debts to NAB, extensions to the date for repayment or changes to the types and number of facilities;
·If I am a trustee of a trust named in the Guarantee, I am liable personally and in my capacity as trustee; and
·NAB is entitled to set off any credit funds in my name against my liability under the Guarantee.
Prima facie, this documentation leaves little room for persons such as Rohan and David Cranney to deny being bound by the terms of the documents they signed, including by being personally liable for liabilities incurred as trustees. In the witness box, they appeared to be mature and fully competent adults with no apparent impediments of health, education, foreign culture, or lack of business experience.
As I have noted above, Rohan and David Cranney did not, in their evidence to the Court, challenge Mr Wyatt’s evidence that they were served in December 2007 with a demand under the guarantee for $6,074,831.91. They did not challenge his evidence that no part of this amount, and its additional accruals, has been paid by either the principal debtors or themselves or any other guarantor.
I am satisfied that at all relevant times this amount has been owing by them by reason of the terms of the documents they executed in January 2007 and the service of the demand on them, and that their liability under the Collendina guarantee is currently $7,552,088. For the reasons which follow, I am not satisfied that they have made out any of their special defences to this liability.
Rohan and David Cranney’s defences and affidavits make the following contentions:
i)they both executed the Collendina guarantee on 18 January 2007 in a rush, without reading its terms;
ii)they thought that it related only to new borrowing of $1,700,000 from the NAB by the Cranney Family Trust and of $230,000 by Collendina Pty Ltd and Wongala Holdings Pty Ltd, and did not appreciate that it related to the current indebtedness of Collendina Pty Ltd and Wongala Holdings Pty Ltd under a $5,800,000 bill facility provided in 2004;
iii)they were unaware of the terms of the Collendina guarantee showing that they would be liable personally when signing as trustees of the Cranney Family Trust, including for an amount exceeding the net assets of the trust, which are alleged to have been “approximately $320,616” as shown in its last set of accounts as at 30 June 2007;
iv)the NAB demand of December 2007, if not the January 2007 Collendina guarantee, was directed at them only in their capacity as trustees;
v)when signing the guarantee, they both assumed that their liability was limited to the current net assets of the Cranney Family Trust;
vi)the NAB is estopped from relying on the terms of the guarantee providing otherwise, because it knew and encouraged their above assumptions;
vii)it would be unconscionable for the NAB to deny their assumptions, at least, that their liability was confined to the current net assets of the Cranney Family Trust; and
viii)they have a set‑off against their liabilities under the guarantee, by reason of causes of action alleged against the NAB in pending proceedings in the Supreme Court of NSW brought against it by the principal debtors, Collendina Pty Ltd and Wongala Holdings Pty Ltd.
In his affidavit, Rohan Cranney gave an account of events in 2004 and 2007, upon which these defences rely. He referred to the initial bill facility for $5,800,000 given to Collendina Pty Ltd and Wongala Holdings Pty Ltd in 2004. Incomplete documentation concerning this transaction was tendered by the parties. It consists of a copy of a letter of offer dated 3 December 2004 signed by a NAB ‘relationship manager’ Mr Hendricks. The letter’s attached details under the heading ‘securities’ include:
Guarantee and Indemnity for $5,800,000-00 given by Cranney Properties Pty Ltd, Rohan Geoffrey Cranney and David Kenneth Cranney as trustee for the Cranney Family Trust, Geoffrey Laurence Cranney, Helen Rosemary Cranney, Rohan Geoffrey Cranney and David Kenneth Cranney.
The file copy attached to Mr Wyatt’s affidavit has a handwritten alteration to the stated amount, replacing it with “$6030,000”, but the authorship and date of this annotation is not explained in any evidence.
Rohan Cranney’s affidavit states:
9.The documents in relation to the above facility were signed at a meeting in about December 2004. The meeting was at Collendina Station. I was in attendance along with David and my parents. Jack Hendrix attended on behalf of the Applicant.
10.When discussing the guarantee that the Cranney Family Trust would be giving, I said words to the following effect: ‘David and I will not be signing these guarantees in our personal capacity; we are only putting up the assets of the trust’. Hendrix replied words to the effect of: ‘No problem’. To the best of my recollection, Hendrix then crossed out the section listing David and me as Guarantors on form and initialled the corrections.
11.It was agreed at this time that only the assets of the trust would be used to satisfy the guarantee. I understood from Hendrix that the NAB would only seek to recover against the assets of the trust and not against myself and my brother, David, personally.
The January 2007 Guarantee
12.In or about January 2007 the Applicant forwarded to the Cranney Family two further letters of offer. Exhibited behind Tab 3 of Exhibit RGC1 is a copy of Business Letter of Offer dated 11 January 2007 for a facility totalling $1.7 million. Exhibited behind Tab 4 of Exhibit RGC1 is a copy of Business Letter of Offer dated 11 January 2007 for a facility totalling $230,000.00.
13.Both letters of offer list the securities that would be given for each facility. Pursuant to the letter of offer exhibited behind Tab 4 of Exhibit RGC1, David and I would be executing a guarantee as trustee for the Cranney Family Trust only and not in our personal capacities. This was consistent with the agreement and discussions referred to in paragraph 10 above.
14.Subsequent to receiving these letters of offer I attended a meeting, together with my parents and my brother, David, at the NAB’s Carlton offices in Melbourne. Justin D’Alfonso, our Banking Relationship Manager at the time, attended together with an NAB Credit Manager. We were presented with further documents and told to sign on the spot. We were shown specifically where to sign. I had a conversation with D’Alfonso to the following effect:
Me:‘Is this in line with the letter of offer you sent us?’
D’Alfonso:‘Yes it is.’
Me:‘We will need you to send us a copy of the signed documents.’
D’Alfonso:‘Not a problem.’
I assumed the documents were in the same terms as the letters of offer we had received earlier. We were not given the opportunity to take the guarantee away to read or to obtain advice on. We were never sent nor have we received a copy of the signed guarantee.
15.I did not know that I was executing the guarantee in my personal capacity. I was not given a copy of the guarantee. My understanding was that we had only given a guarantee as trustee for the Cranney Family Trust and that the NAB would only seek to recover against the assets of the trust, as had been previously agreed. This has been the agreement for the entire duration of the banking relationship.
David Cranney swore an affidavit in almost identical terms.
There is no documentary corroboration of the claim that Mr Hendricks altered the terms of the NAB’s 2004 letter of offer, so as to delete the requirement that Rohan and David Cranney give guarantees in their personal capacities as well as trustees, nor that the records of NAB at that time or subsequently contain any notation to this effect.
More significantly, there is no record or other evidence showing an awareness by any agent of the NAB in 2004 or subsequently of a belief or assumption on the part of Rohan and David Cranney that the giving of a guarantee by them in their capacity of trustee of a trading trust would not render the trustees personally liable to the creditor in the event of a deficit in the trust assets and liabilities. I am not satisfied by Rohan Cranney’s affidavit that, in fact, such a belief was ever communicated clearly and unequivocally to an agent of the NAB, whether in relation to the 2004 negotiations for finance or in relation to the 2007 negotiations for additional finance. I am not satisfied that any agent of the NAB entered the 2004 transaction upon that common assumption.
Such a belief by David and Rohan Cranney, assuming that it was held by them, would not have reflected long established legal principles (see Federal Commissioner of Taxation v Bruton Holdings Pty Limited (in liquidation) (2010) 188 FCR 516 at [38], citing Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367, itself citing Vacuum Oil Company Pty Ltd v Wiltshire (1945) 72 CLR 319). There is no inference that a bank officer would or should have been aware of, or assumed the existence of, an uncommunicated belief to the contrary of these principles.
The two letters of offer of additional finance dated 11 January 2007 are in evidence. One concerned additional funds of $1,700,000 to Rohan and David Cranney as trustee for the Cranney Family Trust. It required identified securities over real estate and a guarantee from three Cranney companies. The other letter of offer provided an additional overdraft facility of $230,000 to Collendina Pty Ltd and Wongala Holdings Pty Ltd, and required the giving of additional securities and:
Guarantee and Indemnity for $6,030,000.00 given by Geoffrey Laurence Cranney, Helen Rosemary Cranney, Rohan Geoffrey Cranney and David Kenneth Cranney As Trustee for The Cranney Family Trust, and Cranney Properties Pty Ltd A.C.N. 000 906 374.
The guarantee executed on 18 January 2007 is, in my opinion, implicitly referable to the NAB’s requirements made at that time in relation to the additional financing of Collendina Pty Ltd and Wongala Holdings Pty Ltd. It may also have been regarded within the NAB as implementing the condition on the 2004 facility. This probably accounts for the added presence as guarantors of Rohan and David Cranney in their personal capacity. On the evidence before me it is possible that the NAB did not in 2004 press for the giving of the guarantee from family members and the trustees, but that the financial position of the borrowers in January 2007 upon the giving of additional finance was regarded as making it prudent to cover the borrowing companies’ full current liabilities in the new guarantee. On the evidence before me, I find nothing unexpected, unreasonable or unconscionable on the part of the NAB when requiring this, even if it involved invoking the provision for a guarantee in the 2004 financing offer as well as the terms of the 2007 offer.
I accept that the 2007 offer did not include Rohan and David Cranney as prospective guarantors in their personal capacities. However, nothing turns upon this, in my opinion. In fact, the NAB’s December 2007 demand on Rohan and David Cranney under the Collendina guarantee did not invoke their personal liability arising from any capacity other than that of trustees of the Cranney Family Trust. The terms of the guarantee clearly made the trustees personally liable for the full amount of the indebtedness of the principle borrowers, regardless of the resources of the trust available to the trustees to indemnify themselves and regardless of whether they remained trustees (see cll.14.2(a), (b), (j) and 21.1, extracted above).
I can find no evidence of a ‘clear and unambiguous’ representation given by, nor ‘clear and convincing proof’ of an assumption created or encouraged by, any agent of the NAB in relation to the making of the 2007 Collendina guarantee, to the effect that these provisions of the Guarantee would not be given full effect (cf. Legione v Hateley (1983) 152 CLR 406 at 436, Whittet v State Bank of New South Wales (1991) 24 NSWLR 146 at 151, Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 at 512). I therefore consider that the defences of estoppel, whether by representation or convention, are not established.
The Defences of Rohan and David Cranney also assert that it would be ‘unconscionable’ for the NAB to rely upon the terms of the Collendina guarantee, in so far as it makes the trustees personally liable without limit by reference to the available assets of the trust. I am inclined to read this as no more than an aspect of the defence of estoppel, which I have rejected above. There is no broad equitable doctrine of unconscientious conduct, and no other equitable principle based on concepts of unconscionableness are invoked in the present case (see Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at [20]‑[26], and Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [81]‑[82]). In my opinion, absent a relevant representation made or a conventional assumption accepted or created by an agent of NAB, there would be nothing unfair or unconscionable in allowing it to rely upon the clear terms of the documents executed in 2007.
The Defences and affidavits hint at a complaint that preceding and during the execution of the Collendina guarantee on 18 January 2007, officers of the NAB withheld from Rohan and David Cranney a reasonable opportunity to read and appreciate the terms of the documents they signed. However, the evidence does not satisfy me that this happened. The guarantee documents which Rohan and David Cranney signed manifestly drew attention to the important terms of the documents, including on the pages they signed, as did the additional certificates executed by them. They show that the NAB followed recognised prudential procedures in relation to the procuring of guarantees.
I am not persuaded that anything happened at the signing of the documents which would provide a ground for setting the guarantee aside on grounds of fraud, coercion, misrepresentation or mistake. Rohan and David Cranney are not persons at special disadvantage in relation to incurring the obligations of guarantors. At most, I would accept that they did not request an opportunity to examine the documents they signed, and that they were themselves ‘in a rush’ to sign them. This is the impression I took from the oral evidence of David Cranney, in which he admitted little recollection of events, and suggested that the desire of the family to return to the farm explained why they did not ask for time to read the documents (see transcript 07.02.11 p.96, also p.79). I do not consider that this circumstance provides them with a defence.
No proceedings have been brought by Rohan or David Cranney in any Court, and no cross‑claim is brought in this Court invoking its equitable jurisdiction in bankruptcy matters or its Trade Practices jurisdiction, to gain relief from enforcement of the Collendina guarantee against them according to its terms.
Rohan and David Cranney make no allegation that they lacked a capacity to appreciate the effect of signing the document. Nor have they pleaded principles of non est factum in relation to their signatures, and certainly have not presented evidence satisfying me that they signed under a radical misunderstanding of the document (cf. Saunders v Anglia Building Society [1971] AC 1004, and Petelin v Cullen (1975) 132 CLR 355).
For all the above reasons, I am not satisfied that any misunderstandings on their part as to the liabilities they incurred by signing the documents were brought about by any actions attributable to NAB in the nature of fraud, misrepresentation, or other conduct estopping the NAB or making it unconscionable for it to rely upon the terms of the guarantee.
In such a situation:
The general rule, … is that where there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations is bound by those terms, and it is immaterial that the person has not read the document. (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [57]);
and
The respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. (Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at [33]).
This conclusion provides a complete and short answer to the contended defence of equitable set‑off, based on claims being made against NAB by the principal borrowers, Collendina Pty Ltd and Wongala Holdings Pty Ltd in proceedings 6081/08 in the Supreme Court of NSW. In these proceedings, the borrowers seek damages under the Trade Practices Act 1974 (Cth), and injunctions against a receiver and the NAB, based on wide ranging allegations concerning the NAB’s conduct of their banking accounts. Although there are allegations that beneficiaries of the Cranney Family Trust have suffered detriment, none of them, nor Rohan and David Cranney are plaintiffs in the Supreme Court proceedings. The NAB has cross‑claimed for possession of various properties. No evidence has been tendered before me which persuades me that the plaintiffs’ claims have real merits or prospects of success.
Putting aside the evidentiary difficulties facing the equitable set‑off defences of Rohan and David Cranney’s challenging their liabilities to the NAB under the Collendina guarantee, the terms of the guarantee themselves preclude reliance by them on the claims made in the Supreme Court proceedings (see cll.16.2 and 19.1). My above findings provide no reason not to give full effect to its terms which exclude any right of a guarantor to rely on set‑off or counterclaim.
For all the above reasons, I am not satisfied as to any of the defences contended by Rohan and David Cranney to the indebtedness relied upon by NAB in the present proceedings. I am satisfied that at all relevant times the indebtedness existed in the amount claimed, and continues to exist in the amount of $7,552,088. The debt accrued upon the service of the demand under cl.6.4 of the guarantee (see Forshaw v Thompson & Anor (1992) 35 FCR 329 at 340), and is not to be treated as contingent, uncertain, or reduced in value because it might be discharged in the future if the NAB recovers from the borrowers, or from their security, or from other guarantors (cf. Re John Codrington; Ex parte: Don Mckay Tourist & Charter Pty Limited v Codrington [1989] FCA 349 at [13]).
Although not forming part of the indebtedness relied upon in its proof of debt given to Mr Chamberlain on 3 September 2010, the NAB has led evidence, which has not been disputed, that Rohan and David Cranney are also indebted to the NAB in an amount of $3,690,226 arising under facilities given to them for the purposes of the business they conducted as trustees of the Cranney Family Trust. I have not found it necessary to rely upon that additional liability when arriving at my conclusions in the present matter.
The grounds for setting aside the PIAs
The omissions from their Statements of Affairs of their liabilities to the NAB under the Collendina guarantee were, in my opinion, ‘material particulars’ for the purpose of s.222(5)(e)(i), since the information was clearly ‘of significance’ because it had the capacity, recognised by Mr Chamberlain in his reports and statements to creditors, completely to alter his assessment of their insolvencies and his recommendations to creditors (cf. Minister for Immigration, Local Government & Ethnic Affairs v Dela Cruz (1992) 34 FCR 348 at 352).
Further, in my opinion, the consequences of the omissions and my findings as to the existence of the debtors’ liability to the NAB, clearly render the PIAs “not calculated to benefit the creditors generally” and their setting aside “in the interests of the creditors” for the purposes of s.222(1)(d) and (6). Even assuming that the promises of contributions under the PIAs had substance, it has not been challenged that creditors could expect under the PIAs no more than a trivial dividend once the NAB is found to be a creditor in relation to liabilities under the Collendina guarantee. Moreover, for the reasons pointed to above, on the evidence before me, I am not satisfied that there was or is any real prospect that the promised contributions will be forthcoming from Rohan and David Cranney, nor that the PIAs guarantee in fact provides any real prospect of support for the promised contributions.
In such circumstances, it was not in the interests of creditors generally to forego their rights to have the financial affairs of Rohan and David Cranney investigated and administered in bankruptcy, even if the evidence before me does not give any assurance that additional assets or income would become available (compare Re John Codrington (supra) at [20]‑[23]; Re Lockett; Ex parte Northern Equity Ltd (French J, 6 April 1992, BC9203445); NZI Capital Corporation Limited v Lancaster (1991) 30 FCR 441 at 451, upheld by the Full Court on 11 October 1991 (see BC9103440); and Palazzolo v Palazzolo (Neaves J, 19 July 1991, BC9103274).
There are a number of additional elements which support the grounds relied upon by the NAB for setting aside the PIAs under s.222(1) or (5), and which support the exercise of the discretions under those provisions. These include:
i)The absence of justification for Rohan and David Cranney’s omissions of the NAB liabilities from their statements of affairs;
ii)Consequent upon those omissions, the inaccurate or ill‑informed assessments of the debtors’ affairs by Mr Chamberlain in his reports to creditors in relation to the NAB liabilities;
iii)The late notice of the creditors’ meetings to the relevant officer of the NAB, and the possibility that this contributed to his oversight in not returning the proxy form;
iv)The unreasonable conduct of Mr Chamberlain in not allowing Mr Wyatt’s oversight to be rectified, leading to the exclusion of the NAB from voting rights;
v)The probability that the PIAs would have been rejected by creditors and that Rohan and David Cranney would have been required to submit to bankruptcy administration, if this had not occurred;
vi)The desirable further investigations of the financial affairs of Rohan and David Cranney pointed to by Mr Chamberlain’s reports and by the evidence before me. This would include the foundations of the large indebtedness claimed by members of their family and related entities, the nature of their interests in assets used in their past and present farming endeavours, the affairs of the Cranney Family Trust, and the nature and sources of their past and current income.
I consider that the above matters also point towards exercise of the consequential power under s.222(10) to make sequestration orders against the estates of Rohan and David Cranney. I have found that at all relevant times they have owed very substantial debts to the applicant, the NAB. They have admitted their insolvency. They have committed acts of bankruptcy since 2010, including their signing authorities under s.188 on 2 August 2010 (applying s.40(1)(i)). Those acts of bankruptcy provide an appropriate relation‑back period for an insolvency administration pursuant to ss.115(1) and 222(11), and it is possible that earlier acts of bankruptcy occurred within six months before the bringing of the present application.
I am therefore satisfied that NAB has established an entitlement to the substantive relief which it seeks in both proceedings.
In relation to costs, I am satisfied that NAB should be awarded costs from the bankrupt estates of Rohan and David Cranney, with the priority which would be given to a petitioning creditor.
NAB also seeks a costs order against Mr Chamberlain, upon the basis that the litigation would have been unnecessary if his conduct had not frustrated NAB’s ability to vote at the creditors’ meetings.
For his part, Mr Chamberlain seeks an order that NAB should pay his legal costs in the proceedings, upon the basis that he was a necessary and innocent party to the proceedings, and that it would not have occurred if Mr Wyatt had not overlooked the need to lodge a proxy form prior to the creditors’ meetings. Mr Chamberlain did not seek any order for the payment of his legal costs by Rohan and David Cranney or from their estates in bankruptcy. Nor did he seek any orders in relation to his remuneration and outgoings incurred when acting as their controlling trustee and then as trustee under the PIAs.
I have above examined the circumstances in which the PIAs were adopted by special resolution at the creditors’ meetings. I have found that there was a regrettable oversight by Mr Wyatt on the one hand, and an unreasonable decision by Mr Chamberlain to take advantage of it on the other hand. I have taken into account Mr Chamberlain’s special role as an officer of the Court when acting as trustee under Part X and as a respondent to the present applications. The implications of this in relation to personal costs orders for or against a trustee were thoroughly examined by Campbell J in Hypec Electronics Pty Limited (in liq) v Mead; BL & GY International v Hypec Electronics Pty Limited (in liq) (2004) 61 NSWLR 169, although none of the situations discussed by him has direct analogy with the present case.
It is relevant that the litigation has achieved more for the NAB than the setting aside of the PIAs, since it has produced a judicial determination of the indebtedness of Rohan and David Cranney under the Collendina guarantee, and has resulted in bankruptcy administrations without the need for separate creditor’s petitions.
On balance, in the present case I consider that justice is best served by making no costs order as sought by either of these parties against the other.
I note that no party to the proceedings, nor any creditor served with notice of them, has applied for a compensatory order under s.222(9) of the Bankruptcy Act, arising from the setting aside of the PIAs.
I certify that the preceding eighty (80) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate:
Date: 31 March 2011
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