National Australia Bank v B Larter (No.2)
[2007] FMCA 1005
•27 June 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| NATIONAL AUSTRALIA BANK v B LARTER (No 2) | [2007] FMCA 1005 |
| BANKRUPTCY – Creditor’s petition – debtor disputing judgment debt – whether the Court should go behind the judgment considered – cross-claim against the creditor – whether appeal against rejection of the cross-claim “other sufficient cause” not to make a sequestration order considered. |
| Bankruptcy Act 1966 (Cth), s.52 Bankruptcy Regulations Federal Magistrates Court Rules 2001 (Cth) Limitation Act 1969 (NSW), s.16 |
| Garcia v National Australia Bank (1998) 194 CLR 395 International Alpaca Management Pty Limited v Ensor [1999] FCA 72 Larter v National Australia Bank [2007] FMCA 426 National Australia Bank Limited v Electra Electrical Products (Australia) Pty Ltd & Ors, unreported, District Court of New South Wales 3800 (2005), 10 April 2006 National Australia Bank Limited v Electra Electrical Products (Australia) Pty Limited (2007) NSWDC 3 National Australia Bank Limited v Wanda Larter (No 2) [2007] FMCA 595 Totev v Sfar [2006] FCA 470 |
| Applicant: | NATIONAL AUSTRALIA BANK |
| Respondent: | BRUCE IAN LARTER |
| File Number: | SYG1163 of 2007 |
| Judgment of: | Driver FM |
| Hearing date: | 27 June 2007 |
| Delivered at: | Sydney |
| Delivered on: | 27 June 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr J M White |
| Solicitors for the Applicant: | Dibbs Abbott Stillman |
The Respondent appeared in person
ORDERS
A sequestration order be made against the estate of Bruce Ian Larter.
The applicant creditor’s costs, including reserved costs, if any, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
The Court notes that under the Bankruptcy Regulations, a copy of these orders is to be provided to the Official Receiver in Sydney within two days after the order is entered.
The Court notes that the date of the act of bankruptcy is 20 March 2007.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG1163 of 2007
| NATIONAL AUSTRALIA BANK |
Applicant
And
| BRUCE IAN LARTER |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
I have before me a creditor’s petition filed on 10 April 2007. The applicant creditor, the National Australia Bank, seeks a sequestration order and consequential orders against the respondent, Bruce Ian Larter. The bank asserts an act of bankruptcy in that Mr Larter failed within 21 days after service of a bankruptcy notice upon him on 22 May 2006 to pay the debt identified in the bankruptcy notice or make arrangement to the bank’s satisfaction for payment of the debt. I note that the date of the act of bankruptcy is identified as 20 March 2007. That is explained by a judgment given by Federal Magistrate Raphael on that day in Larter v National Australia Bank [2007] FMCA 426 in which his Honour dismissed with costs an application to set aside the bankruptcy notice.
The bankruptcy notice claims the sum of $125,064.68 pursuant to a final judgment obtained in the District Court on 10 April 2006, a certified copy of which is annexed to the notice. On 9 June 2006 Mr Larter filed an application to extend the time for compliance with the bankruptcy notice. It was that application that was heard and determined by Federal Magistrate Raphael on 20 March 2007.
The bank relies upon an affidavit of service of James Stephen Twigg sworn on 17 April 2007, an updated affidavit of debt of Craig Ensor sworn 25 June 2007 and an updated affidavit of search of Stacey Amanda Taylor sworn on 25 June 2007. No objection was raised to the receipt of that evidence, which is before me.
I note that the petition was served on Mr Larter on 12 April 2007. On 6 June 2007 Mr Larter sought and obtained an adjournment of the petition to allow him to file a notice of opposition to the petition. Registrar Segal made orders for Mr Larter to file and serve notice of opposition and an address for service by 20 June 2007. The matter was relisted for hearing yesterday. When the matter was referred to me yesterday from the registrar’s list it was apparent that no notice of opposition had been filed. However, I also noted that Mr Larter, who had been legally represented, had lost the services of his solicitor, Mr John J Kells who, on 4 June 2007, had filed a notice of ceasing to act in accordance with the Federal Magistrates Court Rules 2001 (Cth).
It was apparent from what Mr Larter had said to me yesterday that he opposed the creditor’s petition on the basis that he disputed the debt evidenced by the certificate of judgment and was seeking to appeal against that judgment and that there also were apparently issues arising from a cross-claim. Mr Larter was yesterday seeking an adjournment of the petition so that he could pursue his rights of appeal in the New South Wales Court of Appeal. I made orders for the hearing of the petition today on the basis I would consider today whether to go behind the judgment debt, whether to dismiss the petition, whether to adjourn the petition or whether to make the orders sought in the petition.
The parties appeared before me today and presented additional evidence and made submissions. In addition to the affidavits referred to above, I have a number of documents before me as exhibits. Exhibit A1 is a bundle of documents tendered by the bank, being an affidavit by Stacey Amanda Taylor made on 16 March 2007 in proceedings SYG 2677 of 2006 and SYG 1658 of 2006, being bankruptcy proceedings against Wanda Larter, the wife of Mr Larter. I also have before me the numerous exhibits to that affidavit. Exhibit A2 is a copy of submissions made in the District Court proceedings 3800 of 2005 on behalf of a company called Electra Electrical Products (Australia) Pty Limited (“Electra”) and Mr and Mrs Larter in opposition to applications for summary judgment against them and to strike out a cross-claim instituted against the bank. Exhibit R1 is a bundle of documents tendered by Mr Larter comprising an ordinary summons for leave to appeal filed in the New South Wales Court of Appeal on 25 June 2007 and related documents, including a draft notice of appeal.
In her affidavit forming exhibit A1, Ms Taylor deposes as to some of the procedural history concerning the disputes between the parties. The basic facts are that Electra, a company of which Mr Larter was the sole director, obtained overdraft finance from the bank and in order to secure that credit facility the bank required guarantees to be given by Mr and Mrs Larter. It is not disputed that guarantees were entered into, although Mr Larter asserts that he did not properly understand the extent of the documents that he was signing. It is disputed whether the guarantee was extended by further written agreement on 1 February 2000. It is not disputed that the bank relied upon the guarantees in order to recover money due to it and that the bank instituted proceedings in the District Court to recover those moneys.
Electra instituted a cross-claim against the bank, it appears as a means of assisting the defence to the proceedings instituted by the bank. Electra alleged a breach of an obligation of confidence owed to it by the bank. It appears, although it was not authoritatively decided, that Electra assigned its rights in relation to the cross-claim to Mr and Mrs Larter. The action by the bank was dealt with by Robison J of the District Court in National Australia Bank Limited v Electra Electrical Products (Australia) Pty Ltd & Ors, unreported, in the District Court of New South Wales 3800 (2005) on 10 April 2006. His Honour awarded summary judgment in favour of the bank[1]. It is that judgment which supports the bankruptcy notice and ultimately the creditor’s petition.
[1] Exhibit SAT3 to the affidavit of Ms Taylor comprising exhibit A1 in this proceeding.
The cross-claim was dealt with by Rolfe J of the District Court in National Australia Bank Limited v Electra Electrical Products (Australia) Pty Limited (2007) NSWDC 3 forming exhibit SAT7 to the affidavit of Ms Taylor comprising exhibit A1. The cross-claim was dismissed with costs.
Section 52(1) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) provides that:
(1) At the hearing of a creditor's petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
The petition in its present form itself contains verification of the matters stated in it and I accept that evidence in relation to formal matters. No issue has been raised concerning the service of the petition and I accept that the petition was properly served. I also accept from the updated affidavit of debt that the judgment debt has not been paid. The Court is in this position permitted, but not required, to make a sequestration order. Subsection 52(2) provides that:
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
Until today the bank had assumed that Mr Larter was seeking to advance an argument that there was a sufficient cause for a sequestration order not to be made for the purposes of s.52(2)(b). That would arguably have been the case if Mr Larter had been seeking to rely upon his appeal against the decision of Rolfe J dismissing the cross-claim. The existence of a cross-claim against a petitioning creditor may constitute sufficient cause for the Court to dismiss a petition. The relevant principles were dealt with by Allsop J in Totev v Sfar [2006] FCA 470 in particular at [33] through to [44]. At [37] of his judgment his Honour noted that:
On proof of the matters in s 52(1) of the Act, the Court will generally proceed to make an order for sequestration. It is for the debtor to persuade the Court that the public interest in the dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations: Cain v Whyte (1933) 48 CLR 639 at 645-6 and 648.
His Honour also referred at [42] to the decision of Katz J in International Alpaca Management Pty Limited v Ensor [1999] FCA 72 where Katz J had stated that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.
In his oral submissions, Mr Larter seemed to be arguing against his own interests by asserting that the cross-claim was not his but was Electra’s. If that be right then the existence of an application for leave to appeal against the judgment of Rolfe J dismissing the cross-claim could not in my view constitute a sufficient cause for the Court to refrain from making the sequestration order. However, in his submissions Mr White, for the bank, pointed out that Electra had purported to assign its interests in the cross-claim to Mr and Mrs Larter. The effectiveness of that purported assignment was not the subject of any ruling by the District Court in light of the dismissal of the cross‑claim.
I proceed on the hypothetical basis that Mr Larter has some interest in the application for leave to appeal to the Court of Appeal in respect of the dismissal of the cross-claim. In addition, it is apparent from exhibit A2 that the cross-claim had a direct impact upon the judgment debt in that the asserted breach of confidence in the cross-claim was also raised as a defence to the bank’s application for summary judgment in its proceedings against Mr and Mrs Larter and the company. Mr Larter is also seeking leave to appeal against the decision of Robison J giving summary judgment to the bank. Both matters are dealt with in the one proceeding in the Court of Appeal.
It is not clear to me whether leave for the appeal would be required although leave is sought. It does appear to me that an extension of time for an application for an appeal would be required given that more than 12 months have elapsed since the judgment of Robison J on 10 April 2006.
This Court is not required to accept the certificate of judgment as sufficient proof of the existence of a debt where there is a bona fide dispute as to the existence of the debt which is being dealt with in another jurisdiction. It is open to the Court to go behind a judgment debt and to consider whether in the circumstances presented the creditor’s petition should be granted or dismissed or whether the petition should be adjourned so that the issues directly impacting upon the judgment debt can be dealt with in an appropriate forum.
In the present case Mr Larter seeks to raise in the Court of Appeal a number of arguments. The first is that the matter before Robison J was commenced after the limitation period had run out. That issue was dealt with by Robison J in his summary judgment. His Honour said:
It is also important to have regard to s 16 of the Limitation Act which effectively provides for a limitation period of twelve years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims. So given that the overdraft facility agreement is a contract in accordance with my finding for the purposes of the respective motions, it would seem to me, having regard to the further factual matters as set forth in the submissions none of which have been contradicted by Mr Kells, [the solicitor for Electra and the Larters] then the proceedings are indeed well within time and I see no reason to find to the contrary and I am left wondering therefore as to why that defence has been pleaded in the first place. The same applies when it comes to the issue of the guarantee. Mr White submits that the limitation defence as pleaded therefore cannot succeed. He correctly asserts that as the limitation defence is the only substantive defence to the NAB’s claim summary judgment should be entered for the plaintiff. He goes on to say there remains no real question to be determined in the absence of the defence, and he therefore seeks that summary judgment be entered.
As I have already noted, that motion was successful. It appears from what Robison J was saying that his Honour considered that a 12 year limitation period applied on the basis that the guarantees were made by deed[2]. That is disputed by Mr Larter now but it is a matter of pure conjecture whether Mr Larter would be able to persuade the New South Wales Court of Appeal that there was any substance in that dispute. It seems to me likely that even if the ordinary six year limitation period applied on the basis of a debt or contract that the period would not have expired before the commencement of the proceeding before Robison J on 7 September 2005. The bank asserted that the overdraft facility granted to Electra was renewed on 1 February 2000. That is also now disputed by Mr Larter but he does not contest that the company continued to make drawings which were permitted by the bank. If the overdraft facility had not been extended on 1 February 2000 then presumably the debt established on the overdraft would then have become due and payable. The proceedings instituted by the bank were instituted less than six years after that date.
[2] Limitation Act 1969 (NSW), s.16
Secondly, Mr Larter asserts that neither he nor his wife were properly parties to the action instituted by the bank because they had never been served with a copy of the bank’s statement of claim as required by the rules of the District Court. I do not have before me evidence to support that contention but even if such evidence existed the facts are that Mr Larter and his wife participated actively in the proceedings before Robison J and in those proceedings were represented by a solicitor and counsel. I see no particular significance in the asserted non‑compliance with the District Court rules in relation to service of the originating process.
Thirdly, Mr Larter concedes that the bank had granted an overdraft to Electra but asserts that the claimed renewal of the overdraft on 1 February 2000 is untrue. Again, I do not see that assertion as significantly assisting Mr Larter. I do not think that assertion if accepted would assist Mr Larter in relation to the limitation defence which had been raised. Further, the moneys drawn down by Electra and permitted to be drawn down by the bank would have been required to be repaid to the bank at some stage.
Fourthly, Mr Larter asserts that the issue of whether he and his wife were guarantors for the overdraft is questionable given what he describes as the deceitful manner in which the bank went about obtaining the guarantors’ signatures. I understand that in this regard Mr Larter would seek to assert that he and his wife did not really understand what they were asked to sign. That issue was dealt with in detail by Federal Magistrate Raphael in relation to an earlier creditor’s petition against Mrs Larter in National Australia Bank Limited v Wanda Larter (No 2) [2007] FMCA 595. In particular, Federal Magistrate Raphael considered whether there was any substance to a defence sought to be advanced in accordance with principles in Garcia v National Australia Bank (1998) 194 CLR 395. He found that there was no substance to such a defence in relation to Mrs Larter and made a sequestration order against her. I see no material distinction in the case before me and I see no reason to disagree with the judgment of Federal Magistrate Raphael.
Having considered the material advanced by Mr Larter and the other available evidence, I am not persuaded that there is a sufficient reason for the Court to go behind the judgment debt in this case. Neither am I persuaded that there is any other sufficient cause why a sequestration order ought not to be made. I am satisfied that Mr Larter committed the act of bankruptcy alleged in the petition and I am satisfied with the proof of the other matters of which s.52(1) of the Bankruptcy Act requires proof.
I make a sequestration order against the estate of Bruce Ian Larter. I order that the applicant creditor’s costs, including reserved costs, if any, be taxed and paid in accordance with the Bankruptcy Act. I note that under the Bankruptcy Regulations a copy of these orders is to be given to the Official Receiver in Sydney within two days after the order is entered and I further note that the date of the act of bankruptcy is 20 March 2007. Finally, I note that no consent to act as trustee has been filed by the applicant and that in the circumstances the Official Trustee will be the trustee of the bankrupt estate.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 2 July 2007
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