Rogers v Law Coast Mortgages Pty Ltd
[2003] FMCA 422
•24 September 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ROGERS v LAW COAST MORTGAGES PTY LTD & ORS | [2003] FMCA 422 |
BANKRUPTCY – Application to set aside bankruptcy notice on the basis of alleged ‘counter-claim set-off or cross-demand’ under s.40(1)(g) – not satisfied the debtor has a claim with a reasonable prospect of success – application dismissed.
| Applicant: | GREGORY ERIC ROGERS |
| Respondents: | LAW COAST MORTGAGES PTY LTD KIM CHRISTIE |
| File No: | BZ 199 of 2000 |
| Delivered on: | 24 September 2003 |
| Delivered at: | Brisbane |
| Hearing Date: | 30 August 2002 and written submissions on 6 September 2003 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Applicant: | Self represented |
| Counsel for the Respondents: | Mr Conrick |
| Solicitors for the Respondents: | McColm Matsinger |
ORDERS
The application to set aside Bankruptcy Notice QN751/00 is dismissed.
The applicant shall pay the respondents’ costs of and incidental to this application (including reserved costs, if any) as agreed and failing agreement as taxed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BZ 199 of 2000
| GREGORY ERIC ROGERS |
Applicant
And
| LAW COAST MORTGAGES PTY LTD KIM CHRISTIE ALAN CHARLES PARRY IAN CHARLES GRIFFITHS CHRISTINE MATSINGER MALCOLM DONALD McCOLM |
Respondents
REASONS FOR JUDGMENT
Introduction
The Applicant seeks to set aside Bankruptcy Notice QN751/00 dated 16 October 2000 (“the Notice”) on the basis that he has a “counterclaim, set off or cross demand” within the meaning of s.40(1)(g) of the Bankruptcy Act 1966. The Application is opposed by the Respondent.
This matter was re-heard by me as a result of a decision on appeal made by Finn J on 5 March 2002 (see Rogers v Law Coast Mortgages P/L (2002) FCA 181). Clearly the hearing was in all respects a hearing de novo. Whilst in these reasons I have not included as background the factual history and much of the procedural history from my earlier judgment in this matter (see Rogers v Law Coast Mortgages [2001] FMCA 64) I adopt the history recited as still uncontroversial.
Background
For the sake of completeness, I observe that Finn J provided the following background to the dispute:
“ in 1997 a company of which Mr Rogers was a director, Perdon Pty Ltd (“Perdon”), borrowed money from Law Coast for property development purposes. Law Coast was the vehicle through which a firm of solicitors conducted a solicitor’s mortgage lending business. Mr Rogers and his wife (also a director) provided personal guarantees of the loan. The loans were secured by mortgages over the property to be developed.
In April 1998 Perdon defaulted on an interest payment. On 4 January 1999 both Perdon and Mr Rogers commenced actions in the Federal Court seeking relief from the mortgage and personal guarantees respectively. The following day Law Coast commenced Supreme Court of Queensland proceedings seeking possession of the mortgaged lands.
The Federal Court proceedings were subsequently cross-vested to the Supreme Court. On 21 March 2000 Wilson J of that Court gave summary judgment dismissing Perdon’s action against Law Coast on the basis it did not disclose a triable issue. An appeal to the Court of Appeal from that decision was struck out on 14 June 2001 for want of prosecution. Mr Rogers’ own claim is yet undetermined.
It was an application made in Mr Rogers’ own action that gave rise to the order on which the relevant bankruptcy notice was founded. He sought unsuccessfully to have dealt with for contempt a solicitor in the employ of the firm instructed by Law Coast in the various litigations mentioned above. In dismissing that application a judge of the Supreme Court made an order for indemnity costs against Mr Rogers. Those costs were later assessed and the assessment was not challenged. The bankruptcy notice was subsequently issued and the application to have it set aside was filed on 18 December 2000.”
The Appeal before Finn J succeeded as the learned Appeal Judge found my discretion had miscarried by not allowing the Applicant an adjournment of the “hearing” on 7 August 2001. Whilst the Respondents asserted to Finn J that a re-hearing would be futile as the result would be the same in any event, Finn J made the following observations:-
“I am by no means satisfied on the material before me that the same result necessarily would be reached on a re-hearing…….I refer in particular to the inferences drawn about a document in the Perdon Case that was not in evidence before the Magistrate. Further, I am far from satisfied that such evidence as may be likely to be given by the Solicitor, Mr O’Neill, would, if permitted to be given, be as unhelpful as the Respondents suggest.”
Evidence on the re-hearing
Subsequent to the successful appeal and leading up to the day of the ultimate re-hearing on 30 August 2002, an interlocutory application for discovery was made by the Applicant. The Respondents opposed the application for discovery on the basis that applications for discovery had been made to the Supreme Court and refused. Registrar Baldwin on 16 April 2002 rejected the Application for discovery on the basis that the documents sought by the Applicant “have not been shown to be relevant to any issue in these proceedings.”
An Application for review was filed and heard by me and on 17 May 2002. I gave reasons why, in my view, further discovery of documents was re quired in this Court and in short, found that the interests of justice required the Respondents to produce documents in the possession and control of the Respondents relating to the arrangement with MORTGAGE MANAGERS PTY LTD. In particular I ordered the Respondents to produce:
“(a) drafts and executed copies of the Deeds of Income Guarantee, Network Agreement and Monitoring Agreement with Mortgage Income Management Pty Ltd;
(b) letters to investors which relate to, or inform those investors of, the nature of the income guarantee arrangement;
(c) details of all payments received and the manner of distribution of any benefits received under the terms of the Deed of Income Guarantee either by the respondents or investors.”
Further Affidavits were file by the parties and a voluminous number of documents produced.
Before hearing the cross-examination of the Applicant and Mr Michael Ridge, Solicitor for the Respondent, who eventually provided an array of business records and a background to the dispute, I was required to determine some preliminary points. The Transcript of the proceedings on 30 August 2002 deal with my reasons for :
a)allowing the Applicant to rely on Mr Gary O’Neill’s Affidavit filed 28 August 2002, even though regrettably (and relevantly in my view) Mr O’Neill was not available for cross-examination. Mr Rogers informed me Mr O’Neill was at a Law Conference and could not attend. It had been filed late, however I allowed the Applicant to rely on the Affidavit, with the weight to be attached to the evidence being a matter for me.
b)the Applicant complained that he had been prevented by the Registrar from issuing relevant subpoena. He identified that he would have issued subpoena against:
Christopher Barford
Queensland Law Society
Paul Box (solicitor for Law Mortgage Management)
Messrs Drake & Dwyer (of LMM)
Queensland Bar Association
I was not satisfied that the hearing should be adjourned or that all the alleged subpoena would be directed to relevant matters before me.
c)the Applicant asserted that the use by the Respondents of a “knowledge and belief” Affidavit was unfair to him and meant he did not have the opportunity to test the “best evidence” that could be offered by the Respondents. I allowed the Respondents to rely on Mr Ridge’s Affidavit and he was the subject of cross-examination.
d)although the Applicant drew to by attention what he says was a delay in the Respondents filing final submissions (and also the delivery of those submissions by e-mail to him and upon his Solicitors on the record, Messrs Cranston McEachern), this was satisfactorily dealt with by allowing the Respondent an opportunity to file his submissions after the hearing which he did, dated 6 September 2002.
Applicant’s submissions
In his two written submissions filed 26 August 2002, and dated
6 September 2002, the Applicant makes the following submissions:
a)The purpose of the Bankruptcy Application is to prevent him pursuing the hearing in the Queensland Supreme Court and Court of Appeal.
b)The best evidence for the “human respondents” would have come from themselves but they have chosen to rely upon an information and belief affidavit which cannot be properly tested by cross-examination. As a result the Court should presume that evidence from the Respondents themselves and their employees would favour the Applicant.
c)Although the Applicant “freely consented to become a guarantor”, such consent was made in ignorance of the true facts which the Respondents “willingly chose” not to disclose. These facts are the existence of the LMM Network Agreement and the Loan Monitoring Agreement. Such conduct on the Respondent’s behalf amounts to misleading and deceptive conduct.
d)The fact that Perdon Pty Ltd was unsuccessful in defending an application for summary judgment before the Supreme Court of Queensland, are irrelevant to the issue of whether the Applicant has a reasonable probability of success in his personal action.
e)The effect of the agreements are that when default by the Mortgagor Perdon Pty Ltd occurred, the rights of the Respondent under the security was “transferred to a secret third party” who was “aggressive” and “would enforce rights more strenuously.”
f)The Respondent’s actions were “unconscionable conduct…….using position of advantage in commercial transactions to detriment of client and guarantor of client’s obligations.”
Respondent’s submissions
In their two written submissions filed 28 April 2002 and 2 July 2002, the Respondent says:
a)The Applicant’s claim, as originally framed, namely that he is a director of Perdon Pty Ltd was misled and deceived in entering into a guarantee given by him, depended entirely upon the identical allegations of fact relied upon by Perdon.
b)The Applicant’s present attempt to articulate a claim maintainable by himself personally has initially failed, with the amended Statement of Claim struck out on 18 March 2002. That order is subject to appeal and the Applicant “remains convinced that it articulates a comprehensible claim referrable to his personally not to wrongs allegedly done (but found by judgment not to have been done) to his company.”
c)The amended (but struck–out) Statement of Claim,
i)seeks to re-litigate the alleged infringement of rights owed to the company Perdon.
ii)complains of the non-disclosure of the Network Agreement and Loan Monitoring Agreement
iii)Raises issues of the alleged agreement to fund construction; failure to pay interest; and that Perdon Pty Ltd was not in default.
The claims by Perdon as Mortgagor have been determined and do not raise separate causes of action for Rogers to pursue personally.
d)The Respondents, who at all times were bare Trustees for the investors, were under no obligation to expose the existence of the Agreements to the Guarantor.
e)No breach of Law Society Rules is established and even if a breach were established, no cause of action arises for the benefit of the Applicant, as Guarantor.
f)The Applicant’s own solicitors (at the time) sought the Debtor’s Action be stayed because it raised the virtually identical issues that were raised in the company’s action and the outcome of the plaintiff’s action depended upon the fate of the company’s action.
g)I should give the affidavit of the solicitor, Mr O’Neill no weight as his evidence was critical and he was required for cross-examination.
Analysis
Mr Rogers, a self represented litigant has experience as a Police Officer and fraud investigator which enabled him to quite competently conduct enquires, cross-examination and prepare detailed affidavits and submissions.
I have formed the view that, whether consciously or otherwise, the Applicant has sought to re-litigate in this Court the failed actions of Perdon Pty Ltd in the Queensland Supreme Court.
That is not the purpose of these proceedings. It is absolutely clear Mr Rogers holds the view he, and his now de-registered company, have been victims of a conspiracy perpetrated upon him by the Respondents and various of their associates.
His success and the award of compromised damages, in an apparent negligence action against the Loan Broker/Financial Advisor Barnes Mortgage Management is not, in my view, an indication of the probable success of his current stayed action in the Queensland Supreme Court.
The Bankruptcy Notice is founded on a relatively small indemnity costs order made by Douglas J on 1 June 2000 and assessed by the Senior Deputy Registrar at $4 527.45. If that order had been satisfied, then there seems no other basis for the Bankruptcy Notice. It is a mystery to me why the Applicant chose the path of litigation over some years (particularly since the Perdon actions have finished) rather than to pay this relatively small sum some time ago.
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 parte Carter 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)
I am satisfied that the action commenced in the Queensland Supreme Court, although stayed at this time, was a bona fide claim made at the time of the Perdon action.
I am satisfied that any attempts by the Applicant to rely, as he has, on the lack of liability attaching to the principal Debtor Perdon Pty Ltd, is flawed and has been conclusively, for the purposes of these proceedings, been dealt with by the Supreme Court. The Mortgagee has entered into possession. In this regard, it hardly needs mention to note that there is no evidence that any interest payments have been made on the outstanding mortgage debts for some years.
It seems to me that, as a result, the only basis relied upon and pleaded which the Applicant may be capable of arguing a prospective action against the Respondents under the guarantee is because of:
a)the non disclosure to him of the existence of the Deed of Income Guarantee (see Exhibit MR113 to affidavit of Ridge sworn 4 April 2002)
b)the adverse effect upon him of the enforcement of the Deed of Income Guarantee.
Quite properly, the Respondents say that they do not cavil with the general proportion that:
“a person, including a director of a corporation, who is induced by fraud, misrepresentation or misleading and deceptive conduct in breach of the Trade Practices Act etc to provide a guarantee to that corporation may seek relief in respect of damages caused to that person being damages independent of and separate from the damage caused to the corporation. Such relief might include relief from liability on the guarantee. Such action is independent of any right of action that the corporation may have.”
Nothing in my view, supports the position of the Applicant, from the mere failure to file a defence to the Applicant’s claim in the Supreme Court. That action was initially stayed, and subsequently the Statement of Claim was struck out.
In short, the evidence of Mr Rogers is that contained at paragraphs 13 to 16 of his Affidavit filed 22 April 2002 that:
“13. The Applicant claims that he would not have guaranteed the loan had the defendants made disclosure as to the unusual secretive and non open manner of their conduct of their mortgage practice.
14. Had the defendants not concealed their secret deeds the solicitor who explained the terms and conditions of the loans would have given different advice to that which he gave. Consent to the guarantee was not made with complete disclosure.
15. The applicant would have withdrawn from the loan and refused to guarantee a loan from the defendants had they not concealed their conduct. Such concealment is contrary to the Trade Practices Act.
16. The applicant would have refinanced the loan had the defendants not made early promises of use of money. The interest payable, if any, should be calculated having regard to ongoing deception which caused the applicant to continue the loan and guarantee with the defendants beyond the time when it was possible to escape.”
In circumstances where the evidence satisfies me that the company Perdon Pty Ltd was in dire need of bridging finance (see Exhibit MR63 to the affidavit of Ridge) and a loan approval was urgently procured (see Exhibit MR 64 to affidavit of Ridge), I do not accept this evidence of Rogers that at the time he would not have allowed Perdon to proceed with the loan. It is clear that the execution of personal guarantees was a fundamental condition of the loan approval. Failure to do so could, on the evidence, have meant Perdon Pty Ltd could not complete its contract.
The evidence of O’Neill was critical and remains untested. In his Affidavit sworn 20 August 2002, Mr O’Neill says in respect of the Deed of Income Guarantee that:
“ a. Had I been aware of the existence of this document I would have insisted on perusing it before I allowed by client to enter in the loan agreement and provide personal guarantees.
b. I could not have advised my clients of this Deed as it was not in my possession at the time I provided advice concerning the loan.
c. I observe that Clause 4.1 of the Deed gives control of the loan to the interest guarantor.
I would have asked for more information at to the identity of the guarantor, the nature and effect of this document, the identity of the directors and agents of the guarantor before allowing my clients to sign the Loan Agreement or provide personal guarantees.
I would also seek information as to the circumstances under which the control of the loan and security offered for the loan would pass to the guarantor.
d. I note that Clause 3.1 provides that the mortgagee assigns to the guarantor the rights of the mortgagee to receive all interest at the higher rate payable by the borrower.
I would have sought more information before allowing my clients to enter a loan or provide personal guarantees.
e. I note that the Deed provides in Clause 2.1 for benefits to the lenders and makes no provision for the investors to acknowledge that the interest earned on their investments is used to provide a benefit to the lenders.
I would have sought more information before allowing my clients to execute the Loan Agreement and provide personal guarantees.”
The existence of the Deed of Income Guarantee (coupled with the Network Agreement and Monitoring Agreement) did not impinge upon the obligations of Perdon Pty Ltd under the security. If default occurred, as it did by Perdon, then the Mortgagee was entitled to call upon the security by seeking possession (which it did) and the protection offered to it by the third party income guarantor. I agree with the submissions of the Respondent that the agreement is a “form of insurance provided by the interest guarantor to Mortgagee”.
Whilst I apply little weight to the untested evidence of O’Neill, the Solicitor merely says he would have “sought more information before allowing his clients to enter a loan and provide personal guarantees.” He does not say, having now had the benefit of viewing the Deeds (and for that matter the other agreements), that he would have advised Rogers not to sign them had he perused the documents.
Furthermore the Applicant has not satisfied me that the Respondents were under any obligation at the time of the advance to Perdon or under any continuing obligation, to disclose the third party arrangements. He should have anticipated (and he said in evidence that Barford made it clear) that if Perdon defaulted he could be called upon to pay interest and otherwise remedy the default, at the higher rate of interest.
As a result I am not satisfied that the Debtor has a claim with a reasonable prospect of success and as such the debtor has not satisfied me he has a cross demand within the meaning of s.40(1)(g) of the Bankruptcy Act 1966.
The Application to set aside the Bankruptcy Notice must fail. Costs should follow the event. I will so order.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
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