Commonwealth Bank of Australia v Doggett

1. The respondents' application seeking the setting aside of the orders made by Registrar Caporale on 16 February 2017, namely that their estates be sequestrated under the Bankruptcy Act 1966 (Cth) and that the applicant creditor's costs, including reserved costs, be taxed and paid from the estates of the respondent debtors in accordance with the Bankruptcy Act 1966 (Cth), be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

O'CALLAGHAN J: 1 On 16 February 2017, a Registrar of this Court made a sequestration order in respect of the estate of each of the respondents, Mr Doggett and Mr Sullivan. The respondents now seek review of the Registrar's order pursuant to s 35A of the Federal Court of Australia Act 1976 (Cth) and r 3.11 of the Federal Court Rules 2011 (Cth). 2 Such a review is conducted de novo: see, by way of example only, Martin v Commonwealth Bank of Australia [2001] FCA 87; 217 ALR 634. It follows that the Court now begins afresh and exercises for itself any discretion exercised by the Registrar. The hearing de novo involves the exercise of original jurisdiction and the petitioner, in the case of a bankruptcy petition, must start again, call witnesses and make out the petitioner's case: Harris v Caladine (1991) 172 CLR 84 at 124 per Dawson J; Totev v Sfar (2008) 167 FCR 193 at [14]-[15] per Emmett J. 3 Section 52(1) of the Bankruptcy Act 1966 (Cth) (the Act) provides: 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. 4 Section 52(2) of the Act provides: 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. 5 The applicant has brought creditor's petitions for the making of orders for the sequestration of the estates of Mr Sullivan and Mr Doggett. 6 The creditor's petitions (each dated 14 September 2016) are founded on the failure by Mr Doggett and Mr Sullivan to comply with bankruptcy notices issued by the applicant in July 2016 and served on the respondents in August 2016 respectively. At no stage have the respondents challenged the bankruptcy notices or pointed to any deficiency in them. 7 The bankruptcy notices claimed a total amount of $4,113,967.63, being a judgment debt of $3,499,439.89 plus interest of $614,527.74. The judgment debt arose from a judgment of the Supreme Court of Victoria in Commonwealth Bank of Australia v Doggett and Anor [2014] VSC 423 (the Supreme Court proceeding). The respondents unsuccessfully appealed: see Doggett and Anor v Commonwealth Bank of Australia (2015) 47 VR 302. 8 The applicant has adduced the evidence required by s 52 of the Act. An affidavit verifying the creditor's petition by Robert Ralston sworn 14 September 2016 was in evidence. Service of the petitions was proved by affidavits of Kathleen Ben Yair sworn 3 November 2016 and by Katherine France dated 8 November 2016. And the fact that the debts on which the petitioning creditor relies are still owing was established by an affidavit of Robert Ralston sworn 7 August 2017. Mr Ralston deposed that the respondents owe the applicant the amount of $4,113,967.63 as at 4 July 2016, pursuant to a judgment obtained by the applicant against the respondents in the Supreme Court proceeding, as claimed in the bankruptcy notice. In addition, Mr Ralston deposed that the respondents owed the applicant the further amount of $371,978.75, being the amount of penalty interest accrued to the date of his affidavit. An affidavit of Mr Gorton sworn 7 August 2017 was also before me, which confirmed that no debtor's petition has been filed in the meantime. 9 None of these matters was in dispute. 10 The applicant therefore has a prima facie right to a sequestration order because proof of the matters required by s 52(1) has been satisfied. 11 The respondents bear the onus of satisfying the Court of the matters referred to in s 52(2). The respondents, for reasons I explain below, must be taken to rely upon s 52(2)(b), namely, that there was a "sufficient cause" why the sequestration order ought not be made. They do not claim that they are "able to pay [their] debts" - nor could they, because their Statements of Affairs, which were also in evidence, disclose that they are insolvent, whether or not the debt owed to the applicant is brought to account. That evidence is contained in an affidavit of Brendan Robert Watkins sworn 21 April 2017. 12 The applicant filed and served written submissions dated 12 May 2017. After protracted delays, the respondents filed joint written submissions on 4 August 2017. The matter came on for hearing on 8 August 2017. Counsel for the applicant made additional oral submissions, as did each of the respondents (who appeared in person). The respondents also relied on affidavits of their own, each affirmed 8 February 2017. 13 Much of the respondents' affidavit material and their submissions contain outlandish and inadmissible assertions about the conduct of the applicant, for which there is no evidence. The affidavit material, and the submissions, do no more than seek to argue with conclusions of fact and law made by Hargrave J in the Supreme Court proceeding, which were affirmed on appeal by the Court of Appeal, on the basis of documents (mainly correspondence), which were in evidence, or formed part of the court book in that proceeding. 14 In Wren v Mahony (1972) 126 CLR 212, Barwick CJ (with whom Windeyer and Owen JJ agreed) said (at 224): Lord Esher in emphasizing that the Bankruptcy Court did not go behind a judgment as a matter of course but only if appropriate circumstances were shown to exist, said in Re Flatau ; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD, at pp 85-86 : "There is no statute which imposes any such obligation on the Court of Bankruptcy. Section 7 [of which s. 52 (1) is a counterpart] does no more than give a discretion." His Lordship, in using this expression, was not intending, in my opinion, to weaken the emphasis he had always placed on the need for the Court of Bankruptcy to be satisfied of the existence of the petitioning creditor's debt. Rather, if one reads all his expressions in the several cases I have cited, he was pointing out that the Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt particularly where it resulted from a fully heard contest between parties but that it always had the power to go behind the judgment and if the case was a proper one, should do so. 15 In Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28, the plurality said (at [68]): For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. [Citations omitted.] 16 In this case, no such occasion to investigate the judgment debt arises. The respondents have not demonstrated that this is a proper case to exercise the Court's discretion to go behind the judgment in the Supreme Court proceeding, which followed a 12-day hearing, after which the Court appointed amicus curiae to argue a point of law, and which the respondents then unsuccessfully appealed to the Court of Appeal. Although the respondents were self-represented at trial, through the Victorian Bar pro bono scheme, they were represented by experienced commercial counsel on appeal (Mr M Gronow and Mr C Micallef). Accepting the fact that a judgment obtained after a contested hearing is not a necessary bar on its own to going behind the judgment (see Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28), in this case, for the reasons given below, there is no conceivable basis now to go behind the judgment, and the respondents did not articulate any such basis. 17 For many years, the respondents were property investors. Starting in 2004, they started buying investment properties on the Gold Coast in Queensland, in particular purchasing a significant number of apartments in an apartment complex known as "Trickett Gardens". The purchases were funded by money borrowed from the applicant. By late 2007, the respondents had purchased seven of the 33 apartments in the complex. In November 2007, again with the assistance of finance from the applicant, the respondents' company, Dogvan Pty Ltd, purchased the management rights for the apartment complex, and the apartment that went with those rights, for a total of $1.5 million. The respondents guaranteed the monies borrowed, secured by mortgages over the other units that they owned in the complex. The relevant bill facility, which had a limit of $1,630,000, was fully drawn down on 15 August 2008. In June 2008, the respondents bought in their own names two further apartments in the apartment complex. 18 The global financial crisis intervened, which adversely affected occupancy rates and rentals for the apartments in the complex. The management rights business was undercapitalised and could not trade profitably because, among other things, unlike the previous owners, the respondents did not operate the business themselves and needed to employ a salaried manager at a cost of around $80,000 per year. As a consequence, Dogvan Pty Ltd did not have sufficient funds to meet the first bill rollover in September 2008. 19 The applicant provided assistance and relief of one sort or another, including increasing the limit on the bill facility, increasing the limit on Dogvan's overdraft, extending the expiry dates of the bill facility and entering repayment plans in relation to temporary overdraft extensions. 20 It is fair to say that the respondents were, and have been since that time, unhappy with the applicant. They have made extensive complaints in relation to their dealings with the applicant. Following an exchange of correspondence, in April 2010, the respondents signed a letter compromising their claims against the applicant in return for the applicant making various payments, reducing charges and otherwise ameliorating the respondents' financial obligations. 21 The management business never traded profitably, and it was not long before the applicant appointed receivers and managers to Dogvan Pty Ltd and receivers of the respondents' units in the apartment complex under powers contained in mortgages securing their portfolio loan facility. After sale of the secured assets, a shortfall of approximately $3,100,000 remained. 22 The applicant commenced proceedings in the Supreme Court of Victoria in 2011, alleging that the respondents borrowed a total of $2,595,574 as guarantors under guarantees given in respect of Dogvan Pty Ltd's liabilities, and $507,637 for the balance of a portfolio loan facility which had funded their personal purchases of units in the apartment complex. 23 The trial of the proceeding came on before Hargrave J on 15 October 2013. The respondents did not dispute their debt to the applicant. The issues at the trial before Hargrave J primarily concerned counterclaims made by the respondents. The counterclaims alleged that: the applicant had engaged in misleading or deceptive conduct on the basis of an alleged representation that the future cash flows of the respondents and the proposed management rights for the apartment complex would be sufficient to service the proposed loan facility; the circumstances of the loan involved unconscionable conduct by the applicant; the applicant owed the debtors a duty under cl 25.1 of the Code of Banking Practice (the Code) to exercise the care and skill of a diligent banker in assessing the loan application and forming an opinion about their ability to repay the loan; the applicant breached its duty under the Code; and the compromise agreement entered into between the applicant and the respondents in April 2010 (the compromise agreement) was unenforceable because it was procured by duress. 24 McLeish JA summarised the outcome of the proceeding before Hargrave J on appeal in Doggett and Anor v Commonwealth Bank of Australia (2015) 47 VR 302 as follows (at [95]-[97]): The relevant aspect of the counterclaim for present purposes is an allegation that the Bank owed the appellants a contractual obligation to exercise the care and skill of a diligent and prudent banker in assessing Dogvan's loan application and forming an opinion about its ability to repay the loan. The obligation is said to arise under cl 25.1 of [the Code]… The trial judge upheld the argument that cl 25.1 gave rise to the obligation for which the appellants contended. He further held that the Bank had breached that obligation in the manner in which it went about evaluating the ability of Dogvan to repay the amounts that would fall due under the bill facility. He concluded that the loss caused by that breach wholly extinguished the Bank's claims under the guarantees and that its remaining claim under the portfolio loan facility was to be set off in the amount of $80,000, representing additional losses incurred in the management business attributable to the Bank's breach of cl 25.1. However, the judge also held that the compromise letter of 6 April 2010 operated wholly to defeat the appellants' claims pursuant to cl 25.1. In doing so, he rejected an argument by the appellants that their signing of the compromise letter had been vitiated by economic duress. Judgment was therefore entered in favour of the Bank for the full amount of the indebtedness claimed, including interest. 25 The respondents' appeal was dismissed, and the respondents' application for special leave to appeal to the High Court was dismissed on 15 June 2016. 26 The lengthy affidavits filed in the proceeding in this Court, together with written submissions, go to, and only go to, the substance of the allegations made by the respondents in the Supreme Court proceeding, all of which were dismissed. 27 Turning to the affidavit material filed by the respondents, the litany of complaints includes the following: (1) "They assured us repeatedly that the loan was affordable and the loan was approved in July 2008 yet in September 2008 [we] were horrified to discover in the very first week that the loan was actually twice the amount that we could afford"; (2) A bank representative stated that "the bank would not loan you the money unless you were able to pay back the loan and could afford it - [we] believed that she was correct as [she] was an educated specialist in this field of finance employed by the Commonwealth Bank of Australia. With this advice, we proceeded to move forward"; (3) "The contracts arrived two weeks late … There was no opportunity for our lawyers to review these contracts over the weekend … The contracts were scattered and unable to be understood by the average person"; (4) "We went forward on the CBA advice from [the bank representative] and the loan was approved - based upon the information required by the CBA. And as [the bank representative] stated that the CBA would not have loaned us the money unless we could afford it"; (5) "We demanded that the CBA fix the debt issue and they continually refused to repair the damage caused by their misconduct"; and (6) "We were always led to believe that the loan was affordable". 28 The respondents also contend that they were pressured into entering into the compromise agreement, that they did not "have their say" at trial and that all of their conduct in relation to the applicant was founded on duress because of the financial pressure they were experiencing at relevant times. 29 It is these complaints, and various different versions of them, and summaries of a vast number of documents that were in the court book before Hargrave J, that is the evidence upon which the respondents rely in this Court, and to which they referred at length in their written and oral submissions. They were the claims that the Supreme Court decided adversely to the respondents. All of the material before me, including the affidavits upon which the respondents rely, and their written and oral submissions, provide no basis for this Court to reconsider the findings made in the Supreme Court proceeding. The simple fact of the matter is that the respondents seek to make the same complaints in this Court that they did in the Supreme Court proceeding. They raise no new evidence or complaint before this Court. The written and oral submissions also make warrantless and scandalous assertions about the applicant and its employees, including that they are "corporate criminals"; that the compromise agreement "was fabricated and committed under a fraudulent intention"; that the approval of the loan application was "fraudulent"; and that the applicant and the Financial Ombudsman's Service "both acted unconscionably and in a colluding manner to close down our claims before we were able to find out the truth". There was not a shred of evidence to support those assertions. 30 There is another point that I should mention. In their written submissions the respondents rely on cl 25.2 of the Code. That clause provides as follows: With your agreement, we will try to help you overcome your financial difficulties with any credit facility you have with us. We could, for example, work with you to develop a repayment plan. If, at the time, the hardship variation provisions of the Uniform Consumer Credit Code could apply to your circumstances, we will inform you about them. 31 That provision of the Code was not mentioned during the course of the Supreme Court proceeding. It does not create any positive obligation on the applicant and cannot possibly be the source of any legal rights in the respondents against the applicant. 32 In any event, the respondents did not dispute the applicant's submission that, on their own evidence, they are insolvent, even if one is to disregard their debt to the applicant. 33 The respondents also purported to file and serve, by email to my Associate, further lengthy (nine pages, single spaced) written submissions after the hearing. They did not seek, nor were they given, leave to file anything. 34 In Carr v Finance Corporation of Australia Limited (1981) 147 CLR 246 at 258, Mason J (as his Honour then was) said that "[t]he impression, unfortunately abroad, that parties may file supplementary written material after the conclusion of oral argument, without leave having been given beforehand, is quite misconceived. We have to say once again, firmly and clearly, that the hearing is the time and place to present argument…". 35 More than 20 years later, McHugh J repeated Mason J's admonition in these terms in Eastman v Director of Public Prosecutions of the Australian Capital Territory (2003) 214 CLR 318 at [27]-[31]: On 28 March 2003 after I had circulated my reasons in this appeal to other members of the Court, the appellant informed the Registry that he had withdrawn his instructions to the senior counsel who had represented him on the hearing of the appeal. He also forwarded to the Court a seven page document that he described as "Appellant's Supplementary Submissions". I have had no regard to these "submissions". They should not have been forwarded to the Court. The Rules of the Court gave no authority for them to be forwarded. Nor did the Court give leave to the appellant to file them. If leave had been sought, I would have refused it. If the Court gave leave, it would have to give leave to the other parties in the appeal to file replies - with consequent delay in the business of the Court. Parties to matters before the Court need to understand that, once a hearing in the Court has concluded, only in very exceptional circumstances, if at all, will the Court later give leave to a party to supplement submissions. Parties have a legal right to present their arguments at the hearing. If a new point arises at the hearing, the Court will usually give leave to the parties to file further written submissions within a short period of the hearing - ordinarily seven to fourteen days. But a party has no legal right to continue to put submissions to the Court after the hearing. In so far as the rules of natural justice require that a party be given an opportunity to put his or her case, that opportunity is given at the hearing. … Once the hearing has concluded, the workload of the Court makes it impossible for the Court to give leave to file further submissions - with all the attendant delay in the Court's business by a fresh round of submissions. Efficiency requires that the despatch of the Court's business not be delayed by further submissions reflecting the afterthoughts of a party or - as perhaps is the case in this appeal - some dissatisfaction with the arguments of the party's counsel. (Citation omitted. See also Re Application by the Chief Commissioner of Police (Vic) (2005) 79 ALJR 881 at [22], [53]-[54]). 36 In 2011, the New South Wales Court of Appeal in Bale v Mills (2011) 81 NSWLR 498 at [57] again reminded "the profession and [the] public generally … of the correct position that has been stated, over and over again, by courts", in the following terms: The parties here, and their legal representatives, may perhaps be forgiven if there was any lack of clarity in the leave granted by the President. It is useful, however, to remind the parties (and through the publication of these reasons the profession and public generally) of the correct position that has been stated, over and over again, by the courts. The High Court, intermediate courts of appeal and other courts have deprecated in strong terms the filing of material after an appeal without, or outside, any leave given … (Citations omitted.) 37 In Frugtniet v Law Institute of Victoria Ltd [2012] VSCA 178 at [47], the Victorian Court of Appeal suggested that "[i]t appears that the practice in the Federal Court may be different" with respect to the filing without leave of submissions or other material after the hearing of a proceeding. The Court of Appeal cited two cases for that proposition - Jackson v Conway [2000] FCA 1530 per Branson J and Spalla v St George Motor Finance Ltd [2004] FCA 554 per Ryan J. Nothing in those cases should be read to suggest that the practice in the Federal Court is any different to that laid down on many occasions by the High Court and more recently by the New South Wales Court of Appeal in Bale v Mills (2011) 81 NSWLR 498. The Victorian Court of Appeal in Frugtniet v Law Institute of Victoria Ltd [2012] VSCA 178 was, with respect, incorrect to suggest otherwise. As Branson J said in Jackson v Conway [2000] FCA 1530 at [29], in the paragraph cited by the Court of Appeal in Frugtniet v Law Institute of Victoria Ltd [2012] VSCA 178, "[i]t is quite wrong for a party to place a judge in the embarrassing position of receiving in his or her chambers unauthorised supplementary submissions". The "practice" in this Court is identical to that followed by all trial and appellate courts in this country. 38 For those reasons, I have had no regard to the unauthorised supplementary submissions purportedly filed by the respondents in this proceeding. 39 The respondents' application is dismissed. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Callaghan.