Rogers v Law Coast Mortgages --
[2001] FMCA 64
•28 August 2001
FEDERAL MAGISTRATES COURT OF AUSTRALIA
ROGERS v LAW COAST MORTGAGES [2001] FMCA 64
BANKRUPTCY – application to set aside Bankruptcy notice – Debtor claims cross-demand – intention to dismiss application but pronouncement of order delayed – s40(1)(g) of Bankruptcy Act 1966
| Applicant: | GREGORY ERIC ROGERS |
| Respondent: | LAW COAST MORTGAGES PTY LTD |
| File No: | BZ199 of 2000 |
| Delivered on: | 28 August 2001 |
| Delivered at: | Brisbane |
| Hearing Date: | 7 August 2001 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Applicant appeared in person. |
| Counsel for the Respondent: | Mr M K Conrick |
| Solicitors for the Respondent: | McColm Matsinger |
FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE
BZ199 of 2000
GREGORY ERIC ROGERS
Applicant
And
LAW COAST MORTGAGES PTY LTD
Respondent
REASONS FOR JUDGMENT
Introduction
I have before me an application by GREGORY ERIC ROGERS (“the Debtor”) filed 18 December 2000 seeking an order that the Bankruptcy Notice QN751/00 dated 16 October 2000 (“the Notice”) be set aside. The Respondents to this application are LAW COAST MORTGAGES PTY LTD and CHRISTIE and ORS (“the Creditors”).
Issue
The Debtor seeks to set aside the Notice in reliance upon a “counter-claim, set off on cross-demand” within the meaning of s 40(1)(g) of the Bankruptcy Act 1966.
Background
The background is well known to the parties. In brief, a company PERDON PTY LTD (“Perdon”) borrowed moneys from the Creditor, for property development purposes, in 1997. The Debtor, a director of Perdon, by written guarantee personally guaranteed the performance by Perdon of its obligations under a loan agreement secured by a registered mortgage over land owned by Perdon.
The original advance was $637,000.00 and a second advance of $155,000.00 was approved. It appears that some difficulties in early 1998 arose between Perdon and the Debtor as to the use of “construction funds” which were invested by Perdon permitting use of the funds.
On or about 12 April 1998 the Debtor says Perdon defaulted on an interest payment on the second advance and the dispute about the availability of funds to meet interest payments escalated resulting in:
a)An alleged default to pay interest on 5 May 1998 on the first advance;
b)An alleged default to pay interest on 12 May 1998 on the second advance;
c)Imposition of higher rates of interest because of the alleged defaults (and the accessing of invested funds to make those payments);
d)The issue on 21 May 1998 of Notices of Default and subsequent Notices, ultimately resulting in Derrington J ordering Perdon to deliver up possession of some of the security;
e)Perdon, and the Creditor, complaining that the Debtor wrongly denied it construction funding.
f)Furthermore, and as a separate issue, the Debtor claims he was unaware of an agreement in existence between the Debtor and a third party, which eventually, he claims, assigned control over the security to the third party when default occurred.
Procedural background
A brief overview of the litigation which has ensured between the parties is given in an Affidavit of Solicitor MICHAEL RIDGE filed in this Court on 4 January 2001. There have been numerous applications including injunctive relief arising from three related pieces of litigation:
a)On 4 January 1999, Perdon commenced a Federal Court Action No QG 1/99 against the Debtor (“The Perdon action”).
b)On 4 January 1999, the Creditor commenced a Federal Court Action No QG 2/99 against the Debtor (“The Rogers’ action”).
c)On 5 January 1999, the Debtor issued writ 73/99 against Perdon out of the Supreme Court of Queensland, seeking possession of part of the secured lands.
On 21 April 1999, Spender J ordered that both Federal Court actions be transferred to the Supreme Court. The Perdon action became proceedings S4715/99 and the Rogers’ action became proceedings S4714/99. The Debtor says, and urged upon me the relevance of his submission, that it was intended that both the Perdon and Rogers’ actions be consolidated and heard together. No order was so made by Spender J.to this effect
The Creditor says that the alleged facts recited in the Statements of claim filed in both actions were virtually identical. The Creditor now disputes this to be the case, although a letter from the Creditor’s Solicitors of 2 November 1999 says in part:
“As you are aware the principal debtor, PERDON PTY LTD, is conducting action number 4715/99 against the same defendants as have been joined by Mr and Mrs Rogers. The principal debtor has now filed and served the amended Statement of claim on your Town Agents and will be proceeding to comply with the order of Derrington J. The action brought by the guarantees, Mr and Mrs Roger’s, depends on the actions brought by the principal debtor, Perdon Pty Ltd and duplicate almost all the issues in that action. It seems therefore appropriate that the above referred action should be stayed to await the outcome of the action brought by Perdon Pty Ltd.”
The Creditor brought an application in the Supreme Court seeking an order in Action 4715/99 (the Perdon Action) for summary judgment and, in the alternative, to strike out the Statement of Claim and alternatively, for security for costs. On 21 March 2000, Wilson J delivered her reasons for entering judgments for the Creditor against Perdon, with costs. This order was the subject of an appeal which, when this matter was before me on 13 June 2001, was still pending. By order of the Queensland Court of Appeal, made 14 June 2001, the appeal filed by Perdon Pty Ltd was struck out for want of prosecution.
The Judgment against the Creditor, which founds the said Bankruptcy Notice arises from an order for indemnity costs made against the Debtor by Douglas J on 1 June 2000. In that application, (that the Debtor brought in the Roger’s action), the Debtor sought that a Solicitor employed by the firm acting for the Creditor, be dealt with for contempt. The costs were assessed by Senior Deputy Registrar McNamara at $4,527.45. That order has not been appealed.
The alleged cross-demand
The Roger’s Action does not amount to a set off or cross-claim to the debt founding the Bankruptcy Notice, arising as indicated by a costs order in interlocutory proceedings.
It seems to me that the Applicant can only succeed if he can satisfy me that he has a cross-demand that is bona fide and real and can demonstrate that he has a reasonable probability of success (see Re:JAMES : Ex parteCARTER HOLT HARVEY ROOFING AUSTRALIA (AUST) PTY LTD (1993) 46 FCR 183 & 188-9)
Whilst I am not required to conduct a mini trial, the consideration
“involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor and the justice of allowing the bankruptcy proceedings to go ahead or requiring the to await the determination of the claim.” (see GUSS v JOHNSTON (2000) 74 ALJR 884)
In respect of these factors:
a)Bona fide and real: Although the Rogers action has been stayed, the claim has been properly pursued and represents a view of the Debtor as to the conduct of the Creditor and its agents and Solicitors. To that extent it was made bona fide at the same time as the Perdon action.
b) Merit and prospects of success
The Debtor says that his action survives an allegation that because of the judgment of Wilson J, there is an absolute certainty of failure of his action. His basis for this submission is that:
i)The Creditors have not filed a defence to the action;
ii)The Rogers action is not identical to the Perdon action;
iii)He has produced evidence, in the form of an affidavit of GARY MERVYN JOHN O’NEILL (the Debtor’s solicitor retained to explain the guarantee), that had he been aware of the existence of an “Interest Guarantee Scheme”, he would have sought further information before giving pre execution advice to the Debtor, as guarantor. The Debtor relies upon this alleged non disclosure by the Creditor to establish a basis for his claim that the Creditor acted in a manner which misled and deceived him, and that he was the victim of fraudulent misrepresentations, unconscionable conduct, negligence and or breach of contract in entering into the guarantee.
The Creditor says in response, apart from a general denial that no such conduct was perpetuated by or on behalf of the Creditor, that:
(a)It was not necessary for the Creditor (as Defendants in the Rogers action) to file a defence as the action was stayed pending the result of the summary judgment application in the Perdon action.
(b)The Roger’s claim depends entirely upon identical allegations that were made in respect of the Perdon action by the Plaintiff. In so far as allegations of misleading and deceptive conduct, breach of contract and the like in respect of the principal arrangements under the security are concerned, then the Wilson J decision deals with these claims having any basis. The Creditor submitted that:
“There is no allegation (let alone evidence to support) any separate representation contract or duty owed to the debtor personally as distinct from having been made in the course of his representing, and in his capacity as director of Perdon.”
Conclusions
The failure of the Creditors to file a defence to the stayed Roger’s action does not amount to an admission of the Debtor’s claim or support the Debtor’s claim of prospects of success. The parties clearly agreed to run the principal Perdon action as a form of “test case” on the issues, as is clear from the Debtor’s Solicitors letter of
2 November 1999.
Perdon was unable to satisfy a test of “triable issues” before Wilson J after a strenuously defended action for Summary Judgment by the Creditor. If Perdon could not meet that test, which is similar, if not somewhat lower than the test of “reasonable prospects of success or merit”, then I must regard the Rogers’ action as having no prospects where it is based on the same facts and allegations (see generally the Reasons for Judgment of Wilson J, in particular page 14, lines 35-45; page 16, lines 15-60; page 17, lines 1-60).
At 2 November 1999, the then Solicitors for the Debtor confirmed the principal debtor Perdon had filed and served an Amended Statement of claim. The reasons of Wilson J do not refer to any argument raised or pleaded by Perdon, that in some way the company was misled and deceived by an alleged failure of the Creditor to reveal the so called “interest guarantee scheme”. The amended statement of claim was not in evidence before me. The statement of claim in respect of the Rogers’ action (Exhibit GR10 to the Affidavit of Gregory Rogers sworn 8 June 2001) refers to the “interest guarantee scheme”. It follows that the existence of the “interest guarantee scheme”, if not known at the time of the advance to Perdon (and execution of the guarantee by Roger’s) was certainly an issue of concern at the time the Perdon & Roger’s actions were commenced. Even though I have not seen the Amended Statement of Claim I can reasonably infer from the comments made on 2 November 1999 that:
“the actions brought by the guarantors, Mr and Mrs Roger’s, depends on the action brought by the principal debtor, Perdon Pty Ltd and duplicates almost all the issues in that action” (my emphasis).
That the existence of the “interest guarantee scheme” was an issue relied upon by him in the Perdon action and was not capable of assisting Perdon in meeting the “triable issue” test.
As a result I am not satisfied that the Debtor has a claim with a reasonable prospect of success. Even if the issue of the “interest guarantee scheme” was not raised in the Perdon action, the Debtor has not satisfied me that this raises an issue which is likely to be of relevance to the action by the debtor, for damages or other relief. The “interest guarantee scheme” operated for the benefit of investors whose funds were loaned to Perdon. Payments under the scheme (which was essentially a form of insurance for investors), were only made when default by the borrower occurred. Wilson J found such defaults had occurred because the company had “overcommitted itself”. The Debtor says the existence of the “interest guarantee scheme” meant control of actions on default moved from the Creditor to the “insurer”. Even if that was the case, actions under the security would only be subrogated to the “insurer” and would not create any additional rights.
For the reasons set out above, the debtor has not satisfied me he has a cross-demand within the meaning of s 40(1)(g) which has reasonable prospects of success.
For these reasons, the Debtor’s application to set aside the Bankruptcy Notice must fail.
In view of the relative small amount of the judgment debt involved I wish to give the Debtor an opportunity to consider paying the debt and thus avoiding being put in a situation of having committed an Act of Bankruptcy, which inevitably flows from pronouncement of my intended order to dismiss the Application. Such a matter confronted Drummond J in HENDERSON ex parte HENDERSON v McCAFFERTY & ORS (2000) FCA 1511 (which was followed by me in TOSSWILL v APERFIELD PTY LTD (2001) FMC 16). I propose to again follow that approach, namely to defer pronouncement of any order which I think must be made, dismissing the Application, until 2.00 pm on 11 September 2001.
I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
Date:
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