Commonwealth Bank of Australia v Heinrich

"… 4. breach of conditions of agreement and contract made to transfer respondent's business prior to and on 14 June 1985; 5. forgery of mortgage number 7051412 wrongfully obtained on about 17 and 21 June 1985 dated 28 June 1985; 6. forgery of bank related transfer documents obtained on 14 June 1985 dated 28 June 1985; 7. fabricated bank statement; 8. fabricated off balance sheet shadow ledgers; 9. Recently discovered witness corroborating applicant's evidence to certain time and events of material facts; 10. Respondent's Statement of Claim calculated to 30 July 2000 in the sum of $2,247,947.48; 11. Damages 12. costs …" The supporting affidavit accepts that the judgment was obtained, but denies the debt to which it relates.

background 5 The matter has a long history. 6 On 28 June 1985 the respondent mortgaged his farming property at Maitland ("the property") to secure monies advanced to him by the bank from time to time. On 26 March 1993, the bank gave to the respondent notice of default in respect of that borrowing. The debt action was then commenced to recover monies allegedly advanced and not repaid. 7 On 10 September 1998, in the Supreme Court of South Australia ("the second action") the respondent sued the bank for damages for engaging in misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth). On 4 February 1999, by consent, that action was dismissed. The issues still then sought to be raised by the respondent in the second action were to be included in his defence and counterclaim in the debt action. The respondent was ordered to pay the bank's costs of the second action. Those costs were duly taxed. On 7 June 1999, an allocatur was issued for costs in the sum of $41,395.14. The respondent, on 7 August 1999, applied to set aside the order for costs, or to set aside the allocatur or to stay the allocatur. On 20 August 1999, Judge Burley refused the application to set aside the order for costs. On 8 September 1999, Judge Burley refused the application to set aside the allocatur. On 1 October 1999 Judge Burley refused to stay the allocatur. An appeal from that third decision only of Judge Burley was instituted on 18 October 1999. That appeal was dismissed on 30 May 2000. On 15 December 1999, well out of time, the respondent purported to make a further application to set aside the decisions of Judge Burley of 20 August 1999 and 8 September 1999. 8 If the purpose of those various applications in the second action was to defer any action by the bank based on the costs allocatur in the second action until the debt action was heard, those steps proceed to be effective. On 6 November 1999 the bank served a bankruptcy notice based on the costs allocatur in the second action on the respondent ("the costs bankruptcy notice"). On 29 November 1999 the respondent applied in this Court to set aside the costs bankruptcy notice. The hearing of that application was adjourned to await judgment in the debt action. As noted, the judgment was delivered on 24 February 2000. Ultimately the hearing of the application to set aside the costs bankruptcy notice was fixed for 8 May 2000, as it was then anticipated that the respondent would be served with a further bankruptcy notice based on the judgment. It was further adjourned to 7 June 2000. It was heard with an application to set aside the judgment bankruptcy notice. On that date, it was dismissed. 9 The bank has not, however, (yet) petitioned for a sequestration order against the respondent on the basis of any act of bankruptcy in failing to comply with the costs bankruptcy notice, or on the basis of the debt constituted by the costs allocatur in the second action. 10 In the meantime, in the debt action on 28 February 2000, after intermittent hearings extending between February 1999 and January 2000, judgment was entered for $673,358.81 as at 11 January 2000, together with interest under the agreement evidenced in writing in the document registered as Memorandum of Mortgage No 7051412 bearing date 28 June 1985 ("the mortgage"). The counterclaim of the respondent against the bank was dismissed. The respondent was ordered to pay to the bank its costs of the debt action. 11 Following the judgment, the bank served on the respondent on 19 April 2000 a bankruptcy notice based on the judgment ("the judgment bankruptcy notice"). 12 On 20 April 2000, the respondent applied to this Court effectively to set aside the judgment bankruptcy notice, although it also referred to the costs bankruptcy notice. As noted above, the earlier application to set aside the costs bankruptcy notice proceeded in tandem with this fresh application. The application claimed that each of the bankruptcy notices were based upon "continuing frauds" of officers of the bank. Those frauds were said to include fraudulent transfer of the respondent's business from the ANZ to CBA, and fraudulently obtaining the mortgage, as well as the matters specifically asserted in the notice opposing the present petition. That application also claimed that "in equity" the bank is estopped from enforcing the judgment because it was obtained by fraud. It further claimed, in a non specific way, that the respondent had been denied the opportunity to argue at the trial of the debt action and on the second action (notwithstanding that the order dismissing the second action was made by consent, and at a time when he was represented by counsel) that his right to be heard had not been recognised. Despite those claims, and in particular that the trial of the debt action had miscarried in some way, the respondent has not appealed from the judgment in the debt action. 13 One document filed in the application to set aside the judgment bankruptcy notice is a "Notice of demand" of 20 April 2000 as an exhibit to an affidavit of the respondent of 27 April 2000. I suspect that it most clearly indicates the respondent's position, as I understood him to explain it to me, on the hearing of this application. The respondent in that notice asserts that · on 14 June 1985, he transferred his banking relating to his farming business to the bank following discussions with an officer of the bank · the only property that he agreed to provide to secure the advances to be made by the bank was a property at Aldgate plus the farming plant and equipment, and not the property · the monies to be advanced were upon fixed simple interest terms, and that · contrary to the agreement, the bank on and from 26 June 1985 (a) took security over the property, and (b) imposed interest calculated at fluctuating rates, so that, at 18 April 2000, the bank was indebted to the respondent for $2,177,467.81 calculated (but not explained in the notice) as follows · wrongfully charged interest $673,358.81 · loss of contributions to certain superannuation funds $124,229.00

· loss of Aldgate property sold on 29 June 1992 $475,000.00 at $210,000 "indexed"

· loss of rental from Aldgate property "indexed" $132,600.00

· loss of "Hackham property sold on 27 August 1992 $ 67,000.00 at $39,000 indexed

· loss of rental from Aldgate property "indexed" $ 65,280.00

· loss of fishing industry income from 1991 $640,000.00.

14 However, despite the relative clarity of the issues identified in that document, the respondent argued a range of wider issues on the application to set aside the judgment bankruptcy notice. He put before the Court part of the transcript in the debt action and in the second action. He also put before the Court a "bundle of documents" which, he claimed, demonstrated that the monies advanced had been repaid and which also comprised

"[documents] showing unsolicited account numbers created by the [bank] in the name of the [respondent] - material alterations by the [bank] to conceal facts and information to the prejudice of the [respondent] …" The respondent claimed to have repaid all the borrowing and agreed interest. 15 The two applications then came on for further hearing on 7 June 2000. At that point, the costs allocatur in the second action establishing a liability of the respondent to the bank was not the subject of any extant appeal in the Supreme Court, and the judgment given on 24 February 2000 in the second action was also not the subject of any extant appeal in the Supreme Court. 16 The oral submissions put by the respondent were, so far as my reading of the transcript of that hearing discloses, that: · he was wrongly denied the opportunity to adduce accounting evidence at the hearing of the first action, and · he had repaid all the advances and agreed interest. 17 O'Loughlin J dismissed both applications with costs. The effect of those orders was that the time for compliance with the costs bankruptcy notice expired on 7 June 2000: s 41(7) of the Act. His Honour saw no reason to go behind the costs allocatur, or the decisions of Judge Burley and on appeal Debelle J in relation to it. He also ruled that, in respect of the judgment bankruptcy notice, there was no sufficient reason shown to go behind the judgment. In addition, he found that the application to set aside the judgment bankruptcy notice was a day late, and that the act of bankruptcy had therefore been committed on 19 April 2000. That is, his Honour decided to dismiss the application to set aside the judgment bankruptcy notice on the merits, as well as finding that it was out of time.

should there be a trial before a jury of any questions of fact? 18 The Court has a wide discretion under s 30(3) of the Act. There is no entitlement to a trial by jury of any question or questions of fact: Hubner v Australian and New Zealand Banking Group Ltd (1999) 88 FCR 445 at 450 per Cooper, Kiefel and Tamberlin JJ; Hubner v ANZ Banking Group Ltd [2000] FCA 140 at [4-6] per Drummond, Dowsett and Katz JJ ("Hubner") where their Honours also refer to earlier legislative expressions of s 30(3) of the Act and cases concerning them. 19 The respondent contended in a written submission that s 30(3) was beyond the power of the Parliament of the Commonwealth for a variety of reasons. As I understood the submission, it was first submitted that no such discretion as that in s 30(3) could be granted because it "undermines or perverts" the Constitution. The argument appeared to be that, as both criminal and civil proceedings were said to be tried by jury up to the time of the Commonwealth of Australia Constitution Act 1900 (UK), there was enshrined in law the right to trial by jury in all proceedings, at least until the Parliament of the United Kingdom passed some enactment which empowered an Australian Parliament to abolish trial by jury in particular proceedings. It was, as I understood it, an element of that argument that the word "Court" could only mean a court which exercised its jurisdiction by providing for trial by jury in all proceedings, whether criminal or civil. I do not accept that argument. Section 5 of the Commonwealth of Australia Constitution Act (UK) provides, inter alia, that all laws made by the Parliament of the Commonwealth under the Constitution shall be binding on the courts, judges, and people of every State and of every part of the Commonwealth, notwithstanding anything in the laws of any State. Under the Constitution, the Parliament of the Commonwealth is clearly empowered under s 51(xvii) to make laws with respect to bankruptcy, and under s 51(xxxix) to make laws incidental to the execution of that power. The extent of the power in s 51(xvii) of the Constitution was considered by the High Court in R v Davison (1954) 90 CLR 353 and in Storey v Lane (1981) 147 CLR 549. In R v Federal Court of Bankruptcy; ex parte Lowenstein (1938) 59 CLR 556 at 575 the Court said that those powers included the power to create courts with jurisdiction in bankruptcy matters and to prescribe the powers and procedures of those courts. I see no reason why the Parliament of the Commonwealth, having regard to those matters, does not have the power to enact s 30(3) of the Act. 20 It was also argued, as I understood it, that the discretion granted by s 30(3) of the Act is beyond power because it is inconsistent with the Constitution. However, I am unable to see how s 128 of the Constitution which was said to somehow support that proposition has anything to do with it; it deals with the mode of altering the Constitution. 21 The respondent further argued that s 30(3) of the Act was inconsistent with (he presumably meant impliedly repealed by) the Human Rights and Equal Opportunity Commission Act 1986 (Cth), Sch 2 which is the English text of the International Covenant on Civil and Political Rights of 1966. A similar contention was put, and rejected, in Hubner (see at [8-11] by the Full Court). Hubner on that point followed an earlier decision of the Full Court (Cooper, Tamberlin and Kiefel JJ) in Taylor v Deputy Federal Commissioner of Taxation (1999) ATC 4,268. I am bound to follow those decisions, and with respect I agree with the reasons given by their Honours. It follows that that contention is rejected. 22 Both Hubner at [12-16] and Taylor at 4,274 also rejected the argument advanced in similar terms by the respondent that, before Federation, a debtor (and all persons) had the right to a trial by jury of a matter such as a creditor's bankruptcy petition, and that s 118 of the Constitution precluded the Commonwealth Parliament from passing an enactment which removed that right. In Hubner, their Honours described that argument as "hopeless" at [15]. Again, I am bound by the decisions of the Full Court to reject that contention, but I also with respect share and adopt the reasons given by the Court in Hubner for so doing. 23 If s 30(3) of the Act is within power, the respondent did not make any submission as to why the Court should exercise its discretion under s 30(3) to order a jury trial. The written submission that he handed up did not deal with that question. In Re Shields; ex parte Australia and New Zealand Banking Group Ltd (1994) 51 FCR 308, Einfeld J said at 309 that in bankruptcy proceedings jury trials will be the exception rather than the rule. His Honour added: "A jury trial involves a great deal of expense and time both to the parties and the Court, as well as considerable inconvenience to the members of the community who constitute the jury. The use of juries in civil matters has steadily declined during this century and is now largely reserved for those areas where serious imputations are to be made against the character of a party. Like divorce, bankruptcy is no longer regarded as such a matter. In the absence of some very compelling special circumstance, the intention of Parliament is clearly that bankruptcy proceedings be heard by a judge." 24 Despite the absence of submissions on the topic, I have considered that one factor relevant to the application is the respondent's claim to have lost confidence in the Courts fairly adjudicating upon his claim. I have also had regard to the nature of the allegations made by the respondent. I do not think that those matters provide the very compelling circumstances which Einfeld J regarded as necessary to take the exceptional step of ordering a jury trial. Even if the discretion is to be exercised with no particular hurdle such as "compelling circumstances" to be overcome before an order for a jury trial is made, I am firmly of the view that the balance lies clearly in refusing the application. The first matter is simply that I do not consider that the respondent has shown any real foundation for the Court going behind the judgment. I have explained my reasons for that conclusion below. I consider that the respondent would need to demonstrate some reasonable prospect of the Court, by a jury trial, securing an answer to a question or questions favourable to the respondent before being satisfied that it would order a trial by jury in relation to that question or questions. In addition, the respondent's claims of the bank fraudulently altering its records to establish a liability against the respondent where none existed, or that he was in any event no longer indebted to the bank, are each matters which required (as one of his other complaints acknowledges) a detailed and careful and informed analysis of the bank's records and of his own records. They are not simply matters dependent upon the assessment of the reliability of one oral assertion over another. Such issues, at least in a proceeding such as the present, are more suitably determined by a judge. The fact that, in other respects (for example, what was represented to the respondent by the relevant officer of the bank in June 1985) there may be questions which involve direct issues of credit does not tilt the balance in favour of the application. Furthermore, the picture which the respondent seeks to present is a complex one, with a series of interrelated steps. I do not think it would be appropriate to refer to a jury the duty to answer one or more of those steps, without considering the whole picture. I have also had regard to the desirability of these proceedings occurring expeditiously, and without the additional time and expense to the parties and to the Court which a jury trial on certain fragmented questions of fact would result in. 25 Accordingly, for those reasons, I refuse that application.

consideration of the petition 26 The matters required by ss 47 and 52(1) of the Act and the Bankruptcy Regulations have been established. The evidence also satisfies me that, if the judgment stands as a debt owing by the respondent to the bank, he is unable to pay his debts: s 52(2)(a) of the Act. 27 The remaining issue is whether the Court should go behind the judgment in circumstances where the respondent has committed an act of bankruptcy by failing to comply with the judgment bankruptcy notice (the act of bankruptcy relied upon in the petition). It is clear that the Court has power to do so in appropriate circumstances: eg. Wren v Mahony (1972) 126 CLR 212 at 225 per Barwick CJ. The Court has a discretion to accept the judgment as satisfactory proof of the bank's debt. It is not a matter of routine that the Court will go behind the judgment debt: Makhoul v Barnes (1995) 60 FCR 572 at 581. One circumstance in which the Court will go behind the judgment is when it is established that the judgment was tainted and affected by fraudulent conduct: McDonald v McDonald (1965) 113 CLR 529 at 540-542. 28 In my judgment, the respondent has already had a proper opportunity in the debt action to litigate the issues he now seeks to argue. I have carefully considered the reasons for decision given in that matter. The course of events, and the issues raised, emerge clearly from those reasons. So too does the opportunity given to the respondent to litigate his claims. 29 The bank presented as a witness the officer who was manager of the branch at Kadina and who dealt with the respondent at the time he decided to transfer his banking business to the bank in 1985 and for a few years thereafter. It also called the senior loans officer at that branch from about December 1986 to April 1989. It is clear that the respondent, through his counsel, firmly attacked the credibility of the branch manager. The bank also called a credit management officer who certified the debt including interest to 1 November 1999 at $660,643.08. The respondent's counsel consented to the tender of that certificate, and did not challenge in cross-examination the evidence of the credit management officer. 30 In the course of the hearing, the respondent's counsel sought leave to "re-plead all of the pleadings in terms of fraudulent conduct". That was but a step in an unfortunate pleading history, described in the reasons for decision. That application was refused. An appeal from that refusal was dismissed. The Full Court noted that the proposed new factual allegations related only to the circumstances in which the mortgage was executed. The bank had by then eschewed reliance upon the mortgage, so the Full Court held that in any event the respondent would have to repay the loan and interest even if he established that the mortgage was fraudulently procured: see Bank SA v Ferguson (1998) 151 ALR 729. 31 The respondent, at an adjourned hearing, sought to call expert evidence critical of the interest rates charged by the bank from time to time. That application was refused. No expert's report had been provided to the bank, as directed and in accordance with r 38 of the Supreme Court Rules (SA). The hearing had already been adjourned on a number of occasions. It had by then, been running on and off for some eleven months. 32 As described by the learned trial judge, the respondent's defences ultimately were that the advances and the mortgage were void, and that he should recover the interest paid of $388,213.55 and losses of $26,000 on the sale of the Hackham property and of $19,260 on the sale of the Aldgate property due to the bank's conduct. He claimed also that the loan accommodation, as well as the mortgage, was procured by the unauthorised alteration of documentation or by duress or undue influence. He also counterclaimed for $1,700,000 damages and for other relief. No evidence was called in support of a number of issues raised in the defence and counterclaim. 33 The learned trial judge regarded the respondent as not a reliable witness, so her Honour approached his evidence with particular caution. She found that the loan agreement was in terms based upon a fluctuating interest rate, and included that the property be provided as security for advances to be made by the bank (although her Honour was unable to find that the mortgage was in fact signed on 28 June 1985 although it bears that date.) Her Honour specifically rejected the allegations of fraudulent conduct or of any improper conduct on the part of the bank or its officers. Although uncertain when the mortgage was signed, she found that it had been signed by the respondent to give security over the property. She further found that the advances were upon a fluctuating interest rate, and not a fixed interest rate. There was no evidence to establish that the bank had charged an excessive amount by way of interest or other charges. She further found that, in the evidence, there was no basis at all to justify the counterclaim of $1.7 million, and virtually no evidence to support the claimed losses flowing from the sale of the Hackham property or the Aldgate property or to establish the amount of those losses as claimed. She rejected the defences of duress or unconscionable conduct. 34 In particular, her Honour found that in June 1985 the respondent agreed to borrow moneys from the bank, and to repay those monies. The indebtedness as claimed by the bank from time to time was acknowledged in the financial and taxation records of the respondent. There was no evidence that the interest or bank charges were excessive, or beyond what had been agreed. There was no evidence of repayment. 35 In this matter, the judgment was entered after a full hearing of all the issues. He was represented by counsel at the hearing. There is no appeal from the decision and the time for any appeal has expired. The respondent has already failed to satisfy O'Loughlin J on the material then before the Court on his applications under s 41(7) of the Act that he has a counterclaim set off or cross-demand against the bank within the terms of s 40(1)(g)(ii) of the Act. See generally Corney v Brien (1951) 84 CLR 343; Re Kleiss; Ex parte Kleiss v Captain Snooze Pty Ltd (1996) 61 FCR 436. He has also failed to satisfy O'Loughlin J that the judgment bankruptcy notice should be set aside on the basis, inter alia, that the Court should go behind the judgment debt. 36 The issues which the respondent seeks to raise in opposition to this petition are essentially the same issues as he had the opportunity of raising in the debt action, and then in the application to set aside the judgment bankruptcy notice. At the hearing of the debt action, he consented to the certificate of the outstanding debt by a credit management officer of the bank. In that action, despite extensive amendments to the pleading, he did not allege in the pleadings that he had repaid in full the amounts advanced to him by the bank, and he did not claim in his evidence that he had repaid in full the monies advanced to him by the bank. He did not identify any transaction recorded in his bank statements or other records which may have been a repayment of monies advanced and which was not accounted for by the bank. He led no other evidence of repayments made by him to the bank. His affidavit of 27 July 2000, described as his "affidavit objecting petitioners claim", is a recital of claims already made in other proceedings, and rejected after a full hearing on those claims. In particular, the claims that the officers of the bank had committed "forgery and frauds" to establish the bank's claim were carefully considered by the trial judge in the hearing of the debt action, and were rejected. I have also considered the respondent's written submission of 28 August 2000, as well as his affidavits sworn on 20 April 2000 and on 5 June 2000 in the application to set aside the judgment bankruptcy notice and his affidavit sworn on 29 November 1999 in the application to set aside the costs bankruptcy notice. Although all those documents are expressed in somewhat different terms, and do not entirely overlap, I am not persuaded that they disclose any significant reason to go behind the judgment. They raise the same issues as the respondent raised in that proceeding, apart from the issue as to the payment of the debt in full. That issue was an issue which the respondent chose not to litigate in the debt action. His claim on that score is not that he has repaid the bank all the monies, including interest, which it claims to be owing and which is the subject of the judgment. It is that he has repaid all the monies, including interest, which he acknowledges to have been due to the bank. The judgment, however, found that his claim as to the terms of the advances was incorrect. I am also not persuaded that, within that material, there is any evidence which was not available to the respondent to adduce at the trial. His affidavits are really re-expressions of the claims then made, and of the material which he then relied upon, at least in so far as that material touches directly upon the liability which the judgment established. 37 For those reasons, in my judgment, there is no sufficient reason shown for the Court on the hearing of this petition to go behind the judgment. The act of bankruptcy alleged has been committed, and the respondent still owes the bank the judgment sum. In other respects, the matters required by the Act and the Bankruptcy Regulations to be proved by the bank are established. There are no other matters which, in my discretion, warrant the Court to make the order sought. 38 It was unclear whether, in addition, the respondent sought the adjournment of the petition whilst a Senate Committee of Inquiry into the Corporations and Securities Law, to which the respondent has made submissions about the bank, completes its Inquiry. I do not consider that circumstance justifies the adjourning of the petition.

orders 39 Accordingly, I make a sequestration order against the estate of the respondent. I note that the date of the act of bankruptcy is 19 April 2000. I order that the bank's costs, including reserved costs, be taxed and paid in accordance with the Act. I appoint Alan Geoffrey Scott, registered trustee in bankruptcy, as trustee of the estate of the respondent. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate: Dated: 6 September 2000 Counsel for the Applicant: J Lunn

Counsel for the Respondent: The Respondent appeared in person