Wright v St George Bank
[2011] FMCA 130
•24 January 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WRIGHT v ST GEORGE BANK | [2011] FMCA 130 |
| BANKRUPTCY – Application to set aside bankruptcy notice – application for special leave to High Court pending on original judgment – prospects – principals relevant to consideration – set off counterclaim or cross demand that could not have been set up in original action – unrelated right of action. |
| Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(7) Judiciary Act 1903 (Cth), s.35A Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), 3.02(1), 3.03 |
| St George Bank Limited v Wright and Ors [2009] QSC 337 Wright & Ors v Westpac Banking Corporation [2010] QCA 190 Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 |
| Applicant: | RONALD JOHN WRIGHT |
| Respondent: | ST GEORGE BANK – A DIVISION OF WESTPAC BANKING CORPORATION ACN 007 457 141 |
| File Number: | BRG 1274 of 2010 |
| Judgment of: | Burnett FM |
| Hearing date: | 24 January 2011 |
| Date of Last Submission: | 24 January 2011 |
| Delivered at: | Brisbane |
| Delivered on: | 24 January 2011 |
REPRESENTATION
| The Applicant appeared on his own behalf |
| Counsel for the Respondent: | Mr D. Savage SC |
| Solicitors for the Respondent: | Gadens |
ORDERS
That the application filed 22 December 2010 be dismissed.
That the applicant pay the respondent's costs of and incidental to the application to be assessed on the standard basis.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 1274 of 2010
| RONALD JOHN WRIGHT |
Applicant
And
| ST GEORGE BANK – A DIVISION OF WESTPAC BANKING CORPORATION ACN 007 457 141 |
Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
On 27 July 2010 the Court of Appeal Queensland in Wright & Ors v Westpac Banking Corporation [2010] QCA 190 dismissed an appeal by the debtors and others against orders made at first instance in the Supreme Court, being an order made on 26 October 2009 that there be judgment for the creditor against due to the debtors and other defendants in the amount of $47,763,997.46. I will, relevantly, expand upon that proceeding shortly. Subsequently, a bankruptcy notice issued upon the creditor’s application. The notice demanded payment of a debt amount of $19,128,798.68. That sum represents the difference between the judgment sum noted above and an allowance of approximately $28 million credit. No issue has been taken with the form of the bankruptcy notice or the arithmetic associated with its reckoning.
Each of the applicants who are judgment debtors seek to have the bankruptcy notices issued against them set aside. In each instance, the bankruptcy notice was served upon each of the applicant debtors on 1 December 2010. Accordingly, these applications have been made within the compliance period provided for under the Bankruptcy Act 1966 (Cth). The applications, however, are bereft of particulars, the applications simply seeking orders in these terms: that bankruptcy notice 539/10 that concerns Ronald John Wright, and bankruptcy notice 5387/10, which concerns Nerida Valerie Wright, which were each served on 1 December 2010, be set aside. A copy of the bankruptcy notice accompanied each application.
The particulars of the basis of each applicant’s claim are not provided for in the material provided by the debtor in support as required by the rules, in particular, Federal Magistrate Court (Bankruptcy) Rules 2006 (Cth) 3.02(1) and/or 3.03. As best as I could ascertain by inquiry of the applicant debtors, the grounds advanced are these, and this is in no particular order: First, an application has been made by the debtors for special leave to the High Court to appeal the decision of the Court of Appeal. Second, the issue of the bankruptcy notice in each instance constitutes an abuse of process. Third, the debtors maintain a counter-claim set off or cross-demand of the kind referred to in s.40(1)(g), that is, one which could not have been set up in the original action; and finally, that the bankruptcy notice claims for a sum exceeding the amount due, the debtors having given notice that they dispute the notice on that ground. As I have earlier noted, no issue appears to have been taken in respect of the form giving rise to any particular ground of objection.
Dealing first then with the special leave point. It is accepted that an application for appeal has, or can have, the same effect as a proceeding to stay or set aside a judgment. In considering an application in this context, the Court is always reluctant and conscious of the need to avoid second‑guessing the outcomes of appeals and the use of appeal Courts. However, in considering the exercise of the discretion in respect of these matters, a Court must consider and assess the relevant prospects of a debtor’s appeal and, of course, whether or not the appeal is bona fide.[1]
[1] Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at 270-272.
It is well settled that there is a general discretion conferred to the Court, which is a discretion at large, but it is one that must be exercised having regard to relevant factors which broadly are accepted to involve a consideration of these matters: first, whether there is an arguable case on appeal; second, whether a stay of execution has been sought or obtained; third, prejudice to, or prospective prejudice to the debtors; fourth, whether or not undertakings have been given or conditions can be imposed in relation to, for example, the non-disclosure of assets by the debtor; and, finally, prejudice to the creditor.
The original judgment – that is to be seen in the decision of St George Bank Limited v Wright and Ors [2009] QSC 337 – was obtained following an application brought by the creditor for summary judgment. The action included not only the creditor as applicant plaintiff and the current applicant debtors as respondents, but also other persons who had signed the relevant guarantees, the subject of the proceeding. There were also two other parties noted on the record. They were Elliott & Harvey Securities Proprietary Limited and Michael Harvey, a solicitor and principal of that company. They were relevantly identified in the Court heading as Defendants by Counter-Claim.
Although it is apparent from its judgment, the underlying facts have some complexity based upon the contentions put and the actual scheme underlying the securities. Stripped to its essence, the applicant debtors had guaranteed the borrowings of an entity, Ron Barr Enterprises Proprietary Limited, a company then controlled by the male applicant debtor, which borrowings were to be employed in a large scale property development on the Gold Coast. From the reasons of McMurdo J, it is apparent that there was little debate before him about the debtors’ culpability under the guarantee. The focus of debate turned upon the status of the complex set of borrowings and the creditor’s failure to provide them in terms that were contended for by the debtors. This failure was said to cause default, and giving rise to the debtors’ obligations under the guarantee.
An overall summary of the facts is, in my view, best contained in the judgment of Holmes JA in the appeal decision of Wright & Ors v Westpac Banking Corporation (supra) where at paras [2] to [9] her Honour provided a succinct summary of the complex facts underlying the transactions in issue here she stated:
“[2] Ronbar was the developer of a large commercial and residential development at Miami on the Gold Coast, the “Miami One” project. It had previously financed the project through borrowings from Perpetual Nominees Limited and Elliott Harvey Securities Limited. The Elliott Harvey Securities loan, of $38,437,000, was due for repayment in mid-2007. At that stage, residential buildings 3 and 4 in the Miami One project were substantially complete; building 2 was some way off completion; construction of building 1 was yet to commence. Elliott Harvey Securities reached an agreement with Ronbar that the latter would borrow $24,500,000 from another lender, which would then take first mortgage on the project, those funds to be used to repay part of the principal outstanding to Elliott Harvey Securities. On receipt of the $24,500,000, Elliott Harvey Securities Limited would make another facility of $22,500,000 available to Ronbar, enabling construction of building 1. The arrangement proposed would, however, leave a shortfall of $6,170,000 to be met from Ronbar’s own resources. It was anticipated that Ronbar would raise those funds by way of mezzanine financing.
[3] St George agreed to refinance Ronbar’s development of the project by discounted commercial bills in two tranches. For each tranche, a “facility limit” was prescribed: for the first tranche, it was $21,187,500; for the second, $27,423,000. Requests for drawdowns were to be made in writing, with details provided the day before the drawdown date. The first tranche was designed to pay out the moneys owed to Perpetual Nominees Limited. The second tranche is the one with which this appeal is concerned. It was to be the source of the repayment of funds to Elliott Harvey Securities.
[4] The facility agreement provided for a “loan to valuation ratio” (LVR) for each tranche. In respect of tranche 2, the relevant clause was as follows:
“LVR - Tranche 2 Initial funding position is not to exceed 70% LVR based on the Valuation amount (ex.GST) of the residual residential unit and office unit stock held as security.”
The “residual residential unit and office unit stock” consisted of buildings 2, 3 and 4 in the Miami One project, together with three apartments in another, separate development undertaken by Ronbar. There was further provision for a change in the LVR for tranche 2:
“65% Sales Trigger The LVR position for Tranche 2 is to be reduced from unit sale proceeds to below 65% within 90 days of initial drawdown. If not achieved, the client is to make a principle [sic] reduction to the facility to reduce the LVR to below 65% within the following 7 days.”
[5] The agreement contained, as a “pre-condition” to use of the facility, this requirement for valuation reports:
“Valuation reports from Savills and Colliers are to be assigned to the Bank for mortgage security purposes and must state that they have been provided on an ‘In-One-Line’ basis.”
Colliers International, the valuers who provided the necessary reports for Ronbar, had previously valued the buildings in the Miami One project on an “as if complete” basis; that is, the market value of the buildings, if their construction were satisfactorily completed. That process gave a valuation of $39,176,364, of which 70 per cent was $27,423,000, the upper limit of the finance offered under tranche 2. For the purposes of the facility agreement, Colliers produced a valuation report treating the Miami One project buildings on an “as is market value ‘in one line’” basis; that is, as if the buildings were sold in their present incomplete state, on a single title, “in one line”, to an investor. On that basis, the valuation was $26,100,000.
[6] St George acted on the “in one line” valuation in deciding how much to advance under tranche 2. Taking the value of the Miami One Project buildings together with that of the apartments, which were valued at $7,800,000, the total value of the “residual residential unit and office unit stock” was $33,900,000, of which 70 per cent was $23,730,000. That amount was drawn down on 27 September 2007. (The figure included some withholdings, about the propriety of which there was argument before the primary judge, but not here.) It was not, patently, enough to provide the sum of $24,500,000 of which Elliott Harvey Securities required repayment. The learned judge found that Ronbar’s agent had been advised of the amount of the initial advance by letter before Ronbar and the appellants signed the facility offer on 19 September 2007, respectively as borrower entering the agreement and as guarantors acknowledging its terms.
[7] Over the next seven months, further sums were disbursed, bringing the total advanced to $25,994,350.80. Some of the funds were paid direct to Elliott Harvey Securities, while other payments went towards work on building 2. It was a condition of the facility agreement that building 2 be completed, with certification that it was to the standard outlined in the Colliers valuation. Another clause of the facility agreement dealt with what was to happen on completion of buildings 2, 3 and 4:
“On completion of building works, but no later than 31 October 2007, the Borrower must provide to St George Bank a certificate from all relevant authorities that the works have been completed in accordance with all the requirements of those authorities.”
No certificate answering that description was put into evidence. It was not clear when building 2 actually was completed, but it was probably early December 2007. A quantity surveyor’s report dated 3 December 2007, recommending payment of a progress claim, said that the project
“has now been completed with only minor rectification works requiring completion before the Certificate of Practical Completion is issued.”
St George paid the final progress payment on 12 December 2007.
[8] On 10 December 2007, the “relationship manager” for St George, Mr Morley, sent an e-mail to a Mr Kent, the property finance manager for a firm of mortgage brokers through whom Ronbar had sought finance. The e-mail detailed the payments which had been made to the builder to date and contained the following note:
“Once the titles have been created, a further $3,693,000 is available.”
In fact a lesser amount of $1,950,000 was released by St George on 24 January 2008, after titles had issued for the separate lots in the three buildings. According to the affidavit of a St George officer, that figure was arrived at on this basis: the bank was now able to use the “as if complete” valuations, because the development was completed, but the lower, 65 per cent LVR had come into effect, because more than ninety days had passed from the initial drawdown. The total amount available under the facility (65 per cent of the “as if complete” valuations at $39,176,364) was now $25,464,636.00.
[9] Ronbar defaulted in repayment of the funds advanced under the facility agreement. It is in liquidation. The appellants did not meet St George’s demand for payment under their guarantee of Ronbar’s obligations.”
From a review of the judgment of the Court of Appeal, it seems apparent that from very early in the appeal, the debtors’ arguments on appeal departed significantly from the grounds that had been advanced in its notice of appeal as the debtors, who appeared in person, pursued matters that they considered relevant.
In any event, the Court of Appeal resolved the questions before it, noting that in many instances the debtors’ complaints were founded upon false premises, which it then explained, or on a misapprehension by the debtors of McMurdo J’s reasons. The Court also pointed out other difficulties with the appeal from the debtors’ perspective which went to the material. Significantly, the appeal did not turn on any fine point of law.
On 21 January 2010 the debtors then filed an application for leave to appeal to the High Court. Putting aside the matters that were raised by Mr Savage of Senior Counsel concerning the form and process of that application, in particular, the fact that the application is well outside the time allowed under the rules by a factor of almost six months, and that it will be heard on the papers, bearing in mind the High Court’s practice direction in relation to self-represented litigants, the application has otherwise other fundamental deficiencies in that on its face it appears to seek to re-litigate the issues agitated before McMurdo J and the Court of Appeal.
It is well settled that the High Court, as the ultimate Appeal Court, will only grant special leave in certain circumstances which include the High Court’s need to have regard in particular to whether the proceeding involves a matter of public importance, whether it is required to settle differences among various Courts, and that the interests of justice require the consideration of the High Court. Those matters, among others, are particularised in s.35A of the Judiciary Act 1903 (Cth).
It seems plain from the application for special leave that the application in its present form, and in particular having regard to the judgment the subject of the appeal, does not appear to fall within the class of cases which the High Court is likely to entertain. And accordingly it seems from my perspective that the prospects of the application for special leave are poor if not remote.
Next is the question of whether a stay has been sought or obtained. A stay was sought but has not been successfully obtained by the debtors.
Then there is the question of the prejudice to the debtor. It seems in the context of the present circumstances that it is unlikely that the debtors are able to maintain a serious claim to prejudice. Although the debtors clearly have committed an act of bankruptcy there is nothing to suggest that the commission of an act of bankruptcy in this instance will give rise to any prejudice to the debtor. The debtor’s rights in relation to any matters it wishes to claim of course being preserved to the hearing of any subsequent creditor’s application for sequestration should that follow.
Insofar as other matters were raised by the debtors concerning the manner in which the receiver, for instance, has prosecuted the company’s claims, they are not matters which I feel ought be determined by this application. Insofar as consideration has to be had to whether or not undertakings have been given or conditions can be imposed, for instance for the non-disposal of assets by the debtor, that matter clearly does not arise in this instance for as the debtor has confessed before me today, he simply has no assets, and so in those circumstances it would be unrealistic to expect that any conditions could be imposed.
So far as prejudice to the creditor is concerned there are to be considered the following matters: first the creditor as a party holding the benefit of a judgment, is entitled to enforce it without delay. Furthermore, for a party seeking to deprive a judgment creditor of the benefit of its judgment, it is incumbent upon that party to demonstrate special circumstances, for instance to justify the stay of execution. That matter has already been resolved against the debtor on an earlier occasion, and it follows that in this instance it would seem that there can be no justification for denying the creditor its rights insofar as the bankruptcy notice is concerned, for like reasons.
It follows that insofar as the first ground advanced on behalf of the applicant is concerned the application fails.
The next ground advanced by the applicant debtor is that the application being pursued by the creditor constitutes an abuse of process. It is undoubted that the Court does have an implied jurisdiction to set aside a bankruptcy notice if its issue constitutes an abuse of process. The Court’s jurisdiction in that regard will only arise if it is apparent that the purpose of the bankruptcy notice is to put pressure on the debtor to pay a debt, rather than to invoke the Court’s jurisdiction in relation to insolvency. It is upon that basis it could be said that the issue of a bankruptcy notice constitutes an abuse of process. That assessment is undertaken at the time of the issue of the bankruptcy notice.
It is of course not an abuse of process if the creditor genuinely intends to pursue the matter, if there is default in compliance with the notice, there being no evidence of collateral purpose or undue pressure. In this instance the debtor’s complaint is the creditor is pursuing the application simply to have them removed from the scope of other proceedings so as to enable the receiver, appointed under other security, and the creditor to ride roughshod over their rights, and sell them up without regard to their rights. The debtors say that as long as they remain involved in the administration of their affairs a better outcome can be achieved for all, bearing in mind that there are numerous other creditors in the form of investors whose interests they, that is the debtors, are more likely to seek to protect.
That may be so and that may be a well held belief by the debtors but the fact remains that there is a sizable debt. Even on the debtor’s best case, and allowing for the set off when considered against the admissions by the debtors that they have no assets, and the obvious inference to be drawn from the debtor’s statement that they are pensioners, it is plain that they have no cash flow. They are, by any measure, clearly insolvent and against that background it is difficult to see how it can be seriously contended that the conduct of the creditors in this instance constitutes an abuse of process. I do not accept the debtor’s contention in respect of that matter.
The third matter concerns a s.40(1)(g) counterclaim set off or cross-demand. The debtors contend that they have a counterclaim set off or cross-demand which could not have been raised in the original action. Although there was indeed a counterclaim raised in the original action against both the creditor and Elliott & Harvey Securities Proprietary Limited, in more recent times further actions have been instituted against Elliott & Harvey Securities and others associated with it, which the debtors, I apprehend, say would satisfy the requirements of s.40(1)(g).
In the debtor’s defence to the creditor’s initial action in the Supreme Court, they alleged that there was a breach of the agreement in calculating draw downs to be paid to Ron Barr Enterprises Proprietary Limited, a company which was controlled by the male debtor, and that they were responsible for various misleading representations and unconscionable conduct. The debtors also claimed against Elliott & Harvey Securities Proprietary Limited alleging a breach of contract and misleading and deceptive conduct. The creditor was also a third defendant in the proceedings against Elliott & Harvey Securities Proprietary Limited, though the counter-claim, did not assert any facts or claims for relief which did not appear in the guarantor's defence to the claim.
Summary judgment was given in favour of the creditors on both this claim and the counterclaim whereby McMurdo J dismissed the debtor's claim against the creditor and against Elliott & Harvey Securities Proprietary Limited. The debtors now seek to prosecute a further unrelated action against Elliott & Harvey Securities Proprietary Limited. However, it appears from proceedings which have been filed and included in the material that is in fact not the case. The claims which the debtor rely upon are in fact claims asserted on behalf of Ron Barr Enterprises Proprietary Limited. Putting aside the debtor's authority to bring such proceedings, it is plain that notwithstanding those matters of authority they have no personal entitlement to the fruits of the litigation if the proceedings were successful.
So irrespective of the prospects of the applicant in those proceedings and the sums claimed if successful and ultimately recovered such success would not accrue to the debtors any immediate right entitling a set off against the creditor, at least for the purposes of s.40(1)(g). While it may be the fact that if the debtor's wishes came to pass, their circumstances might be ameliorated by the netting out of all those matters, that will not afford any remedy to them such as to engage any entitlement, pursuant to s.41(7) of the Act. That ground also fails.
Finally, then, there is a question of the defect in the statement of the sum due. The last ground advanced by the debtor is that the sum specified in the bankruptcy notice says the amount due to the creditor exceeds the amount in fact due. The allegation is contained in an affidavit filed by the debtors asserting that the creditor entered into a further credit contract with the receiver of Ron Barr three months before the Supreme Court delivered judgment for the creditor. The debtors contend that the moneys advanced pursuant to the further credit contract may have been included in the judgment debt and that the loans are unenforceable as the debtors were not given notice of them.
Notwithstanding the material in support of the allegation – and there is some question as to its admissibility – the evidence of the bank which was made from an informed, rather than a speculative perspective, is that there was no such advance. In his affidavit Douglas Cameron clearly explained that a loan was provided by the creditor to the receiver/manager of Ron Barr to assist in the completion of the project, but he positively swears that the further loan was not included in the judgment debt on which the bankruptcy notice is based. That, of course, is entirely consistent with the judgment of McMurdo J. I do not accept the evidence demonstrates that the bankruptcy notice overstates the amount due.
Generally, so far as the application is concerned, I need make a number of other observations. There have been a series of plenary complaints made by the debtors relevant to the conduct of the administration by the receiver/manager of Ron Barr and the effect that conduct has had upon the debtor's liability. I have made no findings in respect of those allegations and I will not do so. If there are other complaints to be advanced as to grounds, which enliven rights and remedies on the part of the debtors, they are matters best raised in the creditor's application for sequestration, if one follows an act of bankruptcy. They are not, in my view, matters that can be commented upon in the context of this application.
It follows that I do not consider the applicant has any prospects in his appeal. I am not satisfied that the bankruptcy notice constitutes an abuse of process. There is, in my view, no basis for a s.40(1)(g) set off and, finally, the bankruptcy notice, in my view, is in a proper form and claims in its demand for the payment of the correct sum. The application is dismissed.
The respondent seeks costs of the application. The applicant advances only one ground against an order for costs which would be in the usual course and that is that the applicant is impecunious. That, unfortunately, is not an appropriate ground to resist an application for costs in the appropriate circumstances. The application has been wholly unsuccessful. The application, from my view of the material, has little, if any, prospects at its inception. In my view the applicant should pay the respondent's costs.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Burnett FM
Date: 17 March 2011
0
4
3