Re Skase, C.C. v Ex parte Wardley Australia Ltd
[1991] FCA 468
•15 AUGUST 1991
Re: CHRISTOPHER CHARLES SKASE
Ex parte: WARDLEY AUSTRALIA LIMITED and STATE BANK OF NEW SOUTH WALES LIMITED
No. B0041 of 1991
FED No. 468
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Beaumont J.(1)
CATCHWORDS
Bankruptcy - Bankruptcy notice - affidavit of judgment debtor apparently, but not in fact, under s.41(7) - in truth a claim by debtor to go behind judgment and set aside bankruptcy notice - form of relief.
HEARING
SYDNEY
#DATE 15:8:1991
Solicitor for Judgment : J. Lockhart (Allen Allen and Hemsley
Creditors:
ORDER
Declare that the affidavit sworn by the judgment debtor on 8 May 1991 and filed herein on 10 May 1991 is not an affidavit of the kind referred to in s.41(7) of the Bankruptcy Act 1966.
Costs reserved.
NOTE: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.
JUDGE1
Wardley Australia Limited ("Wardley") and State Bank of New South Wales Limited ("State Bank") seek a declaration that the affidavit of Christopher Charles Skase sworn on 8 May 1991 in these proceedings does not disclose a counter-claim set-off or cross-demand that could not have been set up in the proceedings in which the judgment was obtained against Mr Skase being proceedings No. 50627 of 1990 in the Commercial Division of the Supreme Court of New South Wales and that the time fixed for compliance with the Bankruptcy Notice issued on 15 January 1991 was not extended by virtue of s.41(7) of the Bankruptcy Act 1966. The background to the matter is as follows.
The background
(a) The proceedings in the Supreme Court
By summons filed in the Supreme Court of New South Wales on 1 November 1990, Wardley and State Bank sued Christopher Charles Skase to recover the sum of $20,012,286.72, together with interest at the rate prescribed by a Deed of Guarantee and Indemnity between Wardley and Mr Skase dated 11 October 1989. The summons bore an endorsement that the plaintiffs wished to proceed under the Service and Execution of Process Act. On 16 November 1990, the action was called on; there was no appearance for Mr Skase; the Supreme Court gave leave to sign judgment upon compliance with the Rules of Court. On 13 December 1990, the Supreme Court vacated the order granting leave to sign judgment. On 19 December 1990, the Supreme Court gave leave to the plaintiffs to sign judgment against Mr Skase, upon compliance with the Rules of Court, with the further proviso that "there be filed with the application to enter judgment the necessary affidavits to which will be annexed the guarantee and facility agreement..."
On 8 January 1991 judgment was entered that Mr Skase pay to Wardley the sum of $20,800,743.39.
(b) The present bankruptcy proceedingsOn 15 January 1991, a bankruptcy notice issued, addressed to Mr Skase, giving him notice, inter alia, that within 28 days after service of the notice, he was required to pay the said sum of $20,800,743.39 to Wardley or to secure or compound the sum. The bankruptcy notice also contained the following note:
"NOTE: If you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph
(A), being a counter-claim, set-off or cross demand that you could not have set up in the action (or proceeding) in which the judgment (or order) was obtained, you may, under sub-section 41 (7) of the Bankruptcy Act 1966, within the period set out above, file an Affidavit to that effect giving details of the counter-claim, set-off or cross demand, as the case requires, and the reasons why you were unable to set up the counter-claim, set-off or cross demand and, if you do so, the time for complying with the requirements of this notice shall be deemed to have been extended until the Court determines whether it is satisfied that you have such a counter-claim set-off or cross demand."
On 22 March 1991, a Registrar made the following orders: 1. Personal service of Bankruptcy Notice No B0041 of 1991 be dispensed with. 2. A true copy of the Bankruptcy Notice, together with a sealed copy of this Order be served on or before Tuesday, 26 March 1991 as follows: (a) By pre-paid ordinary post addressed to Christopher Charles Skase, (CC Skase) C/- Mr Geoff Harley, Messrs Henderson Trout, Solicitors and Notaries, 26th Floor, Santos House, 215 Adelaide Street, Brisbane in the State of Queensland; (b) By pre-paid ordinary post addressed to C.C. Skase, C/- Mr Desmond Brooks, Director, at Media Five, PO Box 888, Southport in the State of Queensland; (c) By pre-paid ordinary post addressed to C.C. Skase, C/- Mr Peter Sawyer at Sawyer Corporate Communications, 200 Mary Street, Brisbane in the State of Queensland; (d) By pre-paid ordinary post addressed to C.C. Skase, C/- Mr Bill Potts at Messrs Price and Roobottom, 44 Davenport Street, Southport in the State of Queensland; and (e) By pre-paid ordinary post addressed to C.C. Skase, C/- Mr John Allpass at Qintex Australia Limited (Receivers and Managers Appointed), Level 12 Riverside Centre, 123 Eagle Street, Brisbane in the State of Queensland. 3. Service in accordance with this Order shall be deemed good and sufficient service of the Bankruptcy Notice upon the Debtor. 4. The Bankruptcy Notice shall be deemed to be served on the Debtor on 12 April 1991. 5. The Bankruptcy Notice be amended pursuant to Rule 108 deleting the words "service of this notice on you, excluding the day on which this notice is served on you" and substituting "12 April 1991, excluding that date".
On 25 March 1991, service of the bankruptcy notice was effected in accordance with the order for substituted service.
On 8 May 1991, Mr Skase swore an affidavit in Mallorca, Spain, as follows:
"1. I was not aware that Wardley Australia Limited (the Judgment creditor) had obtained judgment against me in my capacity as guarantor, which judgment has founded the bankruptcy notice. I only became aware that judgment had been obtained and a bankruptcy notice issued when I received a facsimile transmission at the end of April from a Mr William Potts, solicitor, of Price and Roobottom, solicitors of the Gold Coast, Queensland who are acting for me with respect to another matter.
2. In December, 1987 the Judgment creditor arranged a loan of $16 million, which amount was to be provided by the Judgment creditor and the State Bank of New South Wales as to $8 million each. The facility was provided as part of a loan totalling approximately $475 million, which was arranged by the Judgment Creditor for the purposes of enabling the acquisition of the Seven Network Television Stations by a company in the Qintex Group of Companies.
3. When the facility was initially arranged security was provided in the form of charges over the shares and assets over certain of the companies in the Qintex Group. I was not required to provide a personal guarantee, and up until September, 1989 it had been my practice never to give personal guarantees for loans to Qintex Limited, a fact well known to the judgment creditor.
4. In early 1989 the Judgment Creditor worked as advisor to the Qintex Group of Companies for the purposes of restructuring assets and liabilities (in particular borrowings). In or about March, 1989 the Judgment creditor and the State Bank of New South Wales entered into (an) arrangement with the Qintex Group whereby it was agreed that the portion of the original group loan used effectively for the purposes of Qintex Limited would be repaid from a restructuring of all Qintex Limited's financial facilities. For the purposes of the restructuring the Judgment Creditor and the State Bank of New South Wales agreed in March, 1989 to roll over the Qintex Limited loan pending the complete restructuring of the Group loans. The rollovers continued on a regular basis until September 1989. It was envisaged that these rollovers would continue until the restructuring was finalised. In September, 1989 a scheduled rollover was due. On the particular day, a Mr Stuart Davis, an account executive of the Judgment Creditor, advised Mr Richard Capps, the then treasurer for the Qintex Group of Companies that any rollover was contingent upon me providing a personal guarantee. Davis conveyed to me through Mr Capps that:-
(a) a personal guarantee was required because of a prevailing nervousness in the Australian money market occasioned by the increased interest rates and the reduced liquidity of the banking system;
(b) that the personal guarantee was a temporary show of commitment for one 30 day rollover whilst the Judgment Creditor obtained new internal approvals and approvals from the State Bank of New South Wales for future rollovers.
(c) that the personal guarantee was 'a security stiffener' in advance of the sale of the two Queensland regional television stations in the Channel 7 Network and the sale of Channel ADS 7 in Adelaide, all of which were the subject of negotiations or some other financial restructuring of the television network which was then being considered.
(d) it was never intended that the personal guarantee would be enforced and that the Judgment Creditor was satisfied that it had adequate security to fully protect all of its loans to the Qintex Group in the event of the proposed financial re-structuring not being put in place.
5. In reliance upon the comments conveyed to me, particularly that the guarantee was never intended to be enforced, I gave my personal guarantee.
6. I was informed by Capps and verily believe that the Judgment Creditor would not rollover the facility unless my personal guarantee was forthcoming.
7. The Judgment Creditor knew or ought to have reasonably known that in September, 1989 the Australian credit market was such that if it refused to roll over its facility then it would have been impossible to find an alternative source of finance and that a credit run on the Qintex Group would most likely have resulted. I believed, therfore, that I had no choice but acquiesce to the demand of the Judgment Creditor for a personal guarantee.
8. Had I been aware of proceedings against me as guarantor I would have counter claimed seeking to have my guarantee declared void and unenforceable on the bases:-
(a) that I was induced to give the guarantee as a result of the misrepresentations and misleading and deceptive conduct of the Judgment Creditor;
(b) that my guarantee was given under circumstances amounting to duress;
(c) that the guarantee was obtained as a result of the unconscionable conduct of the Judgment Creditor.
9. For the reasons above, I believe I have a valid counter-claim against the Judgment Creditor.
..."
The affidavit was filed on 10 May 1991.
On 13 June 1991, a Deputy Registrar gave written notice to the parties as follows:
"TAKE NOTICE that the abovenamed debtor filed in this registry an affidavit pursuant to section 41(7) of the Bankruptcy Act 1966, on 10 May 1991.
TAKE FURTHER NOTICE that pursuant to rule 10 of the Bankruptcy Rules I appoint 9.15 am on Tuesday 2 July 1991 at Level 18, Law Courts Building, Queens Square, Sydney as the time and place for the debtor to appear before the Federal Court of Australia for the purpose of satisfying the Court that he has a counter claim, set-off or cross-demand as referred to in his affidavit."
On the same day, 13 June 1991, Mr Skase filed a debtor's petition in the Queensland District Registry. The petition was endorsed pursuant to s.55 (4A) of the Bankruptcy Act 1966 ("the Act") (cf. Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 at 599-600). On 17 June 1991 Messrs Clayton Utz, wrote to the New South Wales District Registry as follows:
"We point out that Christopher Charles Skase has filed a Debtor's Petition in proceedings No. B1253 of 1991 in Queensland. Mr N.J. Pocock of Bentleys, Chartered Accountants, has been appointed trustee of Christopher Charles Skase's Bankrupt Estate.
As Christopher Charles Skase has been declared bankrupt we point out that there is no need for the debtor to appear before the Federal Court of Australia in regard to Bankruptcy proceedings No. NSWB0041 of 1991."
On 2 July 1991, a judge adjourned the proceedings to 23 July 1991. Only the judgment creditors then appeared. The judge directed that the judgment creditors give notice, within seven days, to the then trustee of Mr Skase's bankrupt estate, Mr Neville Pocock, and to Mr Skase, of any orders they sought. In the case of Mr Skase, this direction was complied with. He was informed, by letter, that the judgment creditors sought declarations and orders: (1) That the time fixed for compliance with the requirements of the bankruptcy notice be deemed not to have been extended. (2) That any application by Mr Skase under s.41(7) be dismissed. There is also evidence that on 2 July, Mr Pocock was aware of Mr Skase's application under s.41(7) but took the view that it had been stayed by virtue of s.58 or s.60 of the Act.
On 23 July 1991, a Deputy Registrar ordered that the determination under s.41(7) be adjourned until 13 August 1991 and that the parties, other than the judgment creditors, who appeared, be notified of the adjourned date. Mr Skase was notified of the adjournment by letter addressed to Messrs. Phillips Fox in Brisbane. Mr Pocock was not notified since it was believed (correctly as it transpired) that he would not still be the trustee by 13 August. Mr Max Donnelly, the new trustee, is aware of the present proceedings.
When the matter was called on for hearing on 13 August, there was no appearance on behalf of Mr Skase. The judgment creditors now seek the declaratory relief mentioned previously.
The statutory schemeThe relevant statutory scheme is as follows:
"41(7) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has filed with the Registrar an affidavit to the effect that he has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied."
By s.40(1)(g), it is provided as follows: "(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not -
(i) where the notice was served in Australia - within the time fixed by the Registrar by whom the notice was issued; or
(ii) where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service,
comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained."
By r.10 of the Bankruptcy Rules, it is provided: "Where a debtor on whom a bankruptcy notice has been served files an affidavit to the effect that he has a counter-claim, set-off or cross demand of a kind referred to in paragraph 40(1)(g) of the Act and giving details of the counter-claim, set-off or cross demand, as the case requires, and the reasons why he was unable to set up the counter-claim, set-off or cross demand, the Registrar -
(a) shall fix a date, time and place at which the debtor may appear before the Court for the purpose of satisfying the Court that he has the counter-claim, set-off or cross demand referred to in the affidavit; and
(b) shall serve notice of the date, time and place so fixed on the solicitor for the debtor and the solicitor for the judgment creditor specified in the notice respectively."
The contentions of the judgment creditors
On behalf of the judgment creditors, it is contended that Mr Skase's affidavit did not comply with the provisions of s.41(7) for several reasons. They say, amongst other things, that the matters relied upon by Mr Skase could have been set up by him either as a defence or as a cross-claim in the proceedings in the Supreme Court. It will be recalled that s.41(g) referred to a "counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt..., being a counter-claim, set-off for cross-demand that he could not have set up in the action or proceeding in which the judgment...was obtained."
In my opinion, this contention is correct. The affidavit of Mr Skase makes no attempt to suggest that the matters upon which he relies could not have been set up in the Supreme Court proceedings. Rather, the affidavit proceeds upon the footing that Mr Skase's contention is that the Court should go behind the Supreme Court judgment and enquire whether there was a debt due in "truth and reality" (see Corney v Brien (1951) 84 CLR 343, per Fullagar J. at 355; Olivieri v Stafford (1989) 91 ALR 91 at 100-101). Of course, in limited circumstances a court of bankruptcy may go behind a summary judgment but if, as appears to be the case, Mr Skase proposed to invite this Court to do this and, consequently, to set aside the bankruptcy notice on this ground, Mr Skase did not pursue this application. All that he did was to file the affidavit which may have given the impression that Mr Skase was invoking s.41(7) instead of seeking to set aside the bankruptcy notice. An application to set aside a bankruptcy notice on the grounds propounded by Mr Skase, is a different thing from an application for a determination under s.41(7). In the latter case, if the Court is satisfied of the existence of an appropriate cross-claim or other demand, the Court then decides that the bankruptcy notice is spent rather than sets it aside (see James v Abrahams (1981) 34 ALR 657 at 661; Re Laybutt; Ex parte Robinson, Burchett J., unreported, 17 July 1985; Re Theodoros; Ex parte Black, Von Doussa J., unreported, 23 May 1990).
As I have said, in my opinion, the matters sought to be raised by Mr Skase in his affidavit could have been pleaded in the Supreme Court proceedings. It must follow that the affidavit did not comply with s.41(7) (see Sanfrancesco v Cikara (1991) 100 ALR 779).
Form of reliefThe real purpose of the judgment creditors in bringing the present proceedings is with a view to ascertainment of the date of commencement of the bankruptcy of Mr Skase. As has been said, Mr Skase was made bankrupt on his own petition on the 13 June, but if no affidavit under s.41(7) was filed, there will have been an act of bankruptcy committed before Mr Skase filed his petition and his bankruptcy will have accordingly commenced at an earlier date. In James v Abrahams, above, the Court declared (at 668) that it was not satisfied that the debtor possessed a counter-claim, set-off or other demand of the type referred to in s.40(1)(g). In Sanfrancesco v Cikara, above, Neaves J. declared that the affidavit sworn and filed was not an affidavit of the kind referred to in s.41(7). In the present case, although I am satisfied that Mr Skase was given an adequate opportunity to be heard and declined that invitation, there was no contradictor to argue a point of view contrary to the contentions of the judgment creditors. In those circumstances, I think that the appropriate form of relief is to make a declaratory order along the lines of that made by Neaves J.
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