Commonwealth Bank of Australia v Heinrich

In this matter, as I do not propose to make the order sought by the CBA at this time, in any event, it is not necessary to do other than note those views. Counsel for the CBA did not put any contention that the Court should not follow them. 9 Certain of the background information is clear. Mr Heinrich ran a farm near Maitland in South Australia. He became dissatisfied with his then banker, and in 1985 became a customer of the CBA. At the commencement of the banking relationship, he signed a mortgage over the farm land, securing amounts advanced and to be advanced to him by the CBA. Thereafter, over a period of several years he received moneys advanced to him by the CBA from time to time under various accounts. It was a time when interest rates were increasing and were at very high levels. Towards the end of September 1992, the relationship between Mr Heinrich and the CBA deteriorated. On 12 October 1992 Mr Heinrich wrote to the CBA directing it to close all his accounts. He requested the CBA to account to him for the moneys then standing to his credit or debit. Subsequent correspondence indicated that he asserted that he was not indebted to the CBA at all, and that the mortgage was 'a fabrication'. 10 The CBA on 26 March 1993 served upon Mr Heinrich notice of demand of moneys which it claimed to be owing to it under the various advances. He did not pay the demanded sum. He continued to dispute that he was indebted to the CBA, and to seek a full accounting. 11 In Supreme Court of South Australia Action No.1648 of 1993 (the debt action), the CBA commenced proceedings against Mr Heinrich to recover the outstanding indebtedness. The debt action initially sought possession of the land under the mortgage, but in the course of the hearing the CBA did not pursue that claim. It pursued only its claim for payment of the unrepaid loans or advances. 12 There were many issues raised by Mr Heinrich in his defence and counterclaim in the debt action. They are described more fully in the judgment delivered in Heinrich v Commonwealth Bank of Australia [2003] FCA 539 (the annulment application) at [22]-[23]. They included that - . Mr Heinrich was not indebted to the CBA as it alleged, or at all; . the judgment in favour of the CBA in the debt action was procured through fraud, by the use of fabricated shadow ledgers; . the alleged indebtedness of Mr Heinrich to the CBA should not be recognised because the financing arrangements between the CBA and Mr Heinrich (including the mortgage) were secured through fraudulent misrepresentations, unconscionable conduct or duress or undue influence on the part of the CBA and its officers; . certain bills of exchange drawn to facilitate advances to Mr Heinrich were invoked; . the CBA's method of accounting was unlawful. 13 Judgment was given in the debt action on 24 February 2000: Commonwealth Bank of Australia v Heinrich [2000] SASC 20 (the debt judgment). The learned trial judge found CBA's claim proved. Her Honour gave judgment for the CBA against Mr Heinrich for $673,358.81. She rejected each of the matters raised by Mr Heinrich in his defence and counterclaim. 14 In the meantime, in Supreme Court of South Australia Action No.1266 of 1998, Mr Heinrich commenced proceedings against the CBA alleging that it breached its taxation and statutory obligations as a banker, and was not entitled to rely upon its 'shadow ledgers' (the shadow ledgers action). It appears from the evidence that the shadow ledgers action was commenced following a letter from the solicitor for the Bank to Mr Heinrich of 25 September 1998 seeking to explain the method of accounting. It said: 'The Bank, for its income tax accounting purposes only, on 15 June 1998 wrote off as at 1 June 1998 the amount of $253,648.06 from your loan account and assessed the account as a deferred interest account, also from that date. It nevertheless maintains that you are legally liable to pay the whole of the debt to it, including the said amount written off in interest accrued in its shadow ledger from 1 June 1998.' The letter asserted that the procedure was in accordance with 'the law and practice of income tax liability'. By consent, on 4 February 1999 that action was dismissed with costs. It was acknowledged at the time that such matters as Mr Heinrich could legitimately allege against the Bank, and which had been alleged in that action, would be raised in his defence or counterclaim in the debt action.

15 The shadow ledgers are the CBA's record of the legal debt outstanding by Mr Heinrich, as distinct from the 'mainframe computer ledger' which apparently records the taxation accounts of the CBA, having regard to prospects of recovery against persons such as Mr Heinrich. In the counterclaim in the debt action, Mr Heinrich sought to revive the allegations of criminal behaviour and avoidance of taxation against the CBA raised in the shadow ledgers action. Those pleadings were struck out by a ruling made on 9 March 1999. Mr Heinrich appealed from the ruling by leave. The Full Court of the Supreme Court of South Australia dismissed the appeal: Heinrich v Commonwealth Bank of Australia [1999] SASC 210. In his judgment, Perry J (with whom Prior and Mullighan JJ agreed) said that the proposed pleadings did not raise any facts which could give rise to a finding of fraud of a kind which could either extinguish the entitlement of the CBA to recover its loan with interest, or which otherwise could support a cause of action for damages on the part of Mr Heinrich. His Honour also made the point that, even if Mr Heinrich were to have been successful in obtaining rescission of the mortgage (an issue which it transpired was not necessary to address because the CBA did not rely on the mortgage as giving it security over the farm property), that could only be granted on condition that he brought to account in the process the money which was due following the advances made by him: see e.g. Bank SA v Ferguson (1998) 151 ALR 729. 16 Subsequently the costs in of the CBA in the shadow ledgers action were taxed and fixed at $41,395.14. An allocator in the sum of $41,395.14 was issued on 7 June 1999. Mr Heinrich sought various orders in relation to that allocator. On 7 August 1999 he applied to set aside the order for costs leading to the allocator, to set aside the allocator, and then to stay the operation of the allocator pending determination of the debt action. On 20 August 1999 Master Burley refused to set aside the order for costs made when the shadow ledgers action was dismissed on 4 February 1999. On 8 September 1999, Master Burley refused to set aside the allocator. On 22 September 1999 Master Burley refused to stay the operation of the allocator. Mr Heinrich appealed from the refusal to stay the operation of the allocator. That appeal was heard by Debelle J. On 30 May 2000, the appeal was dismissed: Heinrich v Commonwealth Bank of Australia [2000] SASC 129.

17 On 6 November 1999 a bankruptcy notice was issued, and apparently served, on Mr Heinrich based upon the debt evidenced by the allocator (the first bankruptcy notice). On 29 November 1999 Mr Heinrich applied to set aside the bankruptcy notice. 18 Action 7213 of 1999 is the application to set aside the first bankruptcy notice. In essence, its grounds were that the debt action had not then been completed, and somehow its final resolution invalidated the allocatur upon which the first bankruptcy notice was based. The application was adjourned from time to time, pending first the judgment in the debt action and then the decision of Debelle J given on 30 May 2000, on appeal from the decision of Master Burley not to stay execution of the allocatur. The application was listed for hearing on 7 June 2000. Debelle J had on 30 May 2000 dismissed the appeal from the decision of Master Burley, so the indebtedness established by the allocatur stood. The application was dismissed with costs, apparently in the light of the judgment in the debt action and the decision of Debelle J. No formal reasons for the dismissal of the application were given, but his Honour said he saw no cause to go behind the decisions of Master Burley and Debelle J. 19 On 29 March 2000 a further bankruptcy notice was served upon Mr Heinrich based upon the debt judgment (the second bankruptcy notice). Mr Heinrich did not comply with the second bankruptcy notice within the time specified so on 19 April 2000 he committed an act of bankruptcy. 20 On 20 April 2000 Mr Heinrich applied to set aside the second bankruptcy notice. The grounds were much the same as those upon which the sequestration order was opposed, and as those upon which the annulment application was pursued. That is, Mr Heinrich alleged the CBA by fraud had secured his business in 1985 and had secured the mortgage, and that the CBA had created and maintained false accounting records relating to his indebtedness including the shadow ledger. Mr Heinrich also sought to demonstrate under s 41(7) of the Act that he had a cross-demand or cross-claim exceeding the amount of the claimed indebtedness. That claim was based upon the same matters as asserted in his counterclaim in the debt action. 21 The application to set aside the second bankruptcy notice came on for hearing before O'Loughlin J on 8 May 2000. Mr Heinrich said then his application was based on fraud by the CBA. He acknowledged having received advances of money from the CBA, but claimed to have repaid all of the money borrowed and the interest agreed to be paid. O'Loughlin J adjourned the hearing, but only after extensive questioning of Mr Heinrich. His Honour's questions and remarks were directed to pointing out to Mr Heinrich the type of evidence he would need to adduce to demonstrate that, notwithstanding the debt judgment, he was not indebted to the CBA because he had repaid all borrowings and interest, and to demonstrate the issue was raised directly in the debt action. Mr Heinrich was also given the further opportunity to adduce evidence to make out his allegations of fraud, and to address the circumstance that as his application to set aside the second bankruptcy notice was made one day after the period within which he was to have complied with it. 22 The application to set aside the second bankruptcy notice was then finally heard on 7 June 2000. Mr Heinrich, it appears somewhat in frustration at his unsuccessful efforts over many years to dispute the claims of the CBA, and in particular in relation to the outcome of the debt action, did not advance further contentions at the hearing. The application was dismissed. O'Loughlin J was satisfied that the act of bankruptcy, namely the failure to comply with the second bankruptcy notice, was committed the day before the application to set it aside. Hence, his Honour considered he had no power to make the orders sought by the application. He did not deal with the issues of fraud or disputed indebtedness raised by Mr Heinrich. As the time for compliance with the second bankruptcy notice had expired the day before the application was made, O'Loughlin J ruled that the act of bankruptcy had been committed on 19 April 2000. 23 A petition for a sequestration order, based upon the act of bankruptcy committed on 19 April 2000, then proceeded to hearing. The petition was opposed on the basis that the Court should go behind the debt judgment. Mr Heinrich sought to revisit the validity of the mortgage, the integrity of the shadow ledgers, and the failure of the CBA to give discovery in the debt action. Judgment was given on 6 September 2000: Commonwealth Bank of Australia v Heinrich [2000] FCA 1255. A sequestration order was made. 24 Mr Heinrich appealed from that decision. The Full Court dismissed that appeal on 28 May 2001: Heinrich v Commonwealth Bank of Australia [2001] FCA 661. It emerged in the course of submissions before the Full Court that the relief which Mr Heinrich then sought included an accounting under s 86 of the Act. The Full Court determined that the appeal was not an appropriate vehicle to seek such accounting. 25 Mr Heinrich did not seek special leave to appeal to the High Court from the decision of the Full Court affirming the sequestration order. He did, however, apply for an order in the nature of mandamus against the judges of the Full Court in High Court Action A 25/2001. On 8 October 2001 that application was dismissed by Kirby J. 26 In his bankruptcy, Mr Heinrich has been the subject of various examination orders. According to the evidence, he has not cooperated fully with the trustee as he has failed to provide a Statement of Affairs. He has failed to provide documents to the trustee as requested. The CBA also alleges he has sought adjournments from time to time of his examinations on spurious grounds, and in some instances he has simply not attended as required. 27 In the meantime Mr Heinrich has not been idle. On 16 December 2001 he served upon the solicitors for the CBA a 'Declaration to Disavow and Declaration of Corruption'. In it he sought a mutual accounting under s 86 of the Act. He denied any indebtedness to the CBA including under the debt judgment. He denied the jurisdiction of the Federal Magistrates Court to order his examination as a bankrupt. He claimed against the CBA a sum in the order of $2.5 million. 28 On 11 January 2002 Mr Heinrich provided solicitors for the Bank with a further document entitled 'Declaration of Further Prejudice and Corroboration against the Defendants by Officers of this Court'. In that document he alleged that the mortgage had been procured by fraud, that the debt judgment had been procured by fraud, and that officers of the CBA had committed various breaches of the Crimes Act 1901 (Cth). He asserted (although there is no evidence before me to support this assertion at all) that in various ways the CBA had made admissions as to those matters. 29 On 21 January 2002 by Complaint and Summons in the Magistrates Court Mr Heinrich alleged that his trustee and the solicitor for the CBA had contravened ss 43 and 44 of the Crimes Act. By Complaint and Summons dated 20 March 2003, he alleged that the solicitor for the CBA, his trustee, and the CBA itself had contravened ss 5, 35, 43 and 87 of the Crimes Act. On 2 May 2002 those complaints were each dismissed with costs.

30 On 13 April 2002 by Information and Summons against the CBA, his trustee, and the solicitors for the CBA, Mr Heinrich alleged various contraventions of ss 35, 43 and 87 of the Crimes Act. It alleges that the CBA gave false certificates in evidence in the debt action contrary to s 87 of the Crimes Act, and that it attempted to pervert the course of justice in enforcing the debt judgment by issuing the second bankruptcy notice and by pursuing the sequestration order. The persons named in that Information and Summons brought proceedings in the Supreme Court of South Australia Action 822 of 2002 (the stay action) seeking a permanent stay of the proceedings extant in the Magistrates Court. On 6 August 2002 Mullighan J on an interlocutory basis ordered that the Magistrates Court proceedings be stayed as an abuse of process until the trial of the stay action: Commonwealth Bank of Australia v Heinrich [2002] SASC 263. I do not have evidence as to the present stage of the stay action. 31 The latest in the series of proceedings which the CBA claims is vexatious on the part of Mr Heinrich is his application to annul the sequestration order made on 6 September 2000 under s 153B of the Act (the annulment application). I heard the annulment application at the same time as the present application, as it seemed to me that the question of whether or not the annulment application had the character of a vexatious proceeding (as asserted by the CBA) required the merits of that application to be addressed. I have given judgment on that application: Heinrich v Commonwealth Bank of Australia [2003] FCA 539. 32 The CBA contends that the annulment application is an abuse of the process of the Court. It contends that the sequestration order and the debt judgment confirmed the debt of Mr Heinrich to the CBA, that the debt was calculated upon the basis of the CBA's records, that the claims of invalidity of bills of exchange was abandoned by Mr Heinrich at the trial of the debt action, and that Mr Heinrich had no locus standi to contest the taxation position of the CBA, and that each of those issues has now been finally and conclusively established in favour of the CBA and cannot now be disputed by Mr Heinrich. 33 As the findings indicate, Mr Heinrich has been determined to owe the judgment debt to the CBA. The judgment in the debt action was reached after a full and extensive trial of the issues. The issues are more fully explained in the annulment judgment. In brief, the learned trial judge rejected the claims of impropriety by the CBA in relation to establishing the initial indebtedness, or the amount of the indebtedness, at October 1992 or at 11 January 2000. Her Honour also rejected the claims of impropriety by the CBA in the conduct of the debt action. 34 In the several proceedings in this Court, culminating in the annulment proceeding, Mr Heinrich has indicated that he does not accept the debt judgment, even though he did not appeal from it. He has sought in the proceedings in this Court to ventilate in substance the matters which he raised in his defence to, and his counterclaim against, the claim of the CBA in the debt action. In the decisions of the Court to which I have referred, he has been unsuccessful in having the Court go behind the debt judgment. The most recent decision in the annulment application also had to address substantially the same issues. The Court in the annulment application was confronted with evidence said to demonstrate fraudulent or improper conduct on the part of the CBA, but upon analysis of the evidence no such finding was made. The Court in that application also had identified that material which was described by Mr Heinrich's counsel as fresh evidence, not previously available to Mr Heinrich, to support the claims of fraudulent or improper conduct on the part of the CBA. Upon analysis, that material was not found to have any real evidentiary significance, or to have been previously unavailable to Mr Heinrich. 35 Order 21 r 2 of the Federal Court Rules requires attention to the proceedings in this Court. The proceedings instituted by Mr Heinrich in this Court in relation to his disputed indebtedness to the CBA are - . the application to set aside the first bankruptcy notice, . the application to set aside the second bankruptcy notice, . the appeal from the making of the sequestration order, and . the annulment application. The issues he sought to raise in each of those proceedings had been substantially the same. Apart from the application to set aside the first bankruptcy notice, which was overtaken by events, the claims in each of those proceedings have been unsuccessful. 36 Sackville J said in Skyring at [54], 389 that it may be appropriate to take account of proceedings in other courts where, for example, they have authoritatively resolved the particular issue against the person instituting the proceedings. In this matter, the judgment in the debt action is of that character. Moreover, it has been referred to by Mr Heinrich in the proceedings in this court for two reasons. First, each of the proceedings in this Court has followed from the judgment in the debt action. Secondly, each of the proceedings in this court has involved the allegation by Mr Heinrich not simply that his indebtedness to the CBA was procured through contumelious conduct on the part of the CBA but also that the judgment in the debt action was itself the consequence of contumelious conduct on the part of the CBA. In my judgment, therefore, I consider it appropriate to have regard to the judgment in the debt action, including the issues which were then litigated and how those issues were resolved. The debt judgment authoritatively resolved adversely to Mr Heinrich each of the issues which he has since raised in the proceedings in this Court. 37 In each of the proceedings in this Court, Mr Heinrich has in one form or another raised some or all of the issues which he raised by way of defence and counterclaim in the debt action, and that the judgment in the debt action was procured through improper means. 38 I accept that he has a genuine belief in the rightness of his assertions on those matters. The exposure of the financial accommodation utilised by him between 1985 and 1992 is not readily apparent from the evidence before me (although I have no reason to find it could not be readily revealed by a comprehensive analysis of the records of the CBA). I accept Mr Heinrich has either not been presented with a comprehensive picture of his financial accommodation during that period, or that the documentation given to him is somewhat hard to comprehend and reconcile. In one or two respects, the material available to Mr Heinrich could understandably give rise to concern on his part, in particular the diary note referred to in [29] in the judgment in the annulment application and the fact that the bank statements thereafter were not sent to him except by addressing them to him at the CBA. However, as I noted at [7], the subjective belief of Mr Heinrich is not relevant to determination of an application under O 21 r 2 of the Rules. 39 It may be accepted that Mr Heinrich may have brought the application to set aside the first bankruptcy notice or the second bankruptcy notice with some cause. As indicated above, however, those applications were dismissed on grounds which did not involve any reconsideration of the issues upon which Mr Heinrich defended the claim of the CBA in the debt action and counterclaimed in the debt action. He raised those issues, but they were not the subject of judicial determination. They first required careful consideration in Mr Heinrich's opposition to the sequestration order. That of course was not a proceeding by Mr Heinrich. They were also pursued on his appeal to the Full Court from the making of the sequestration order. They have also been pursued in the annulment application. 40 I consider the appeal to the Full Court was a proceeding by Mr Heinrich against the CBA. The nature of a 'proceeding' is defined expansively in s 4 of the Federal Court of Australia Act 1976 (Cth), and is expressly said to include an appeal. I have reservations about whether the annulment application is a proceeding 'against any person' for the reasons identified by Finkelstein J in Horvath v Pattison and discussed in [9] above. However, as I then indicated, I do not consider that the CBA has shown that, by reason of the appeal or the annulment application, Mr Heinrich falls within O 21 r 2 at this time. They are the only two proceedings in which his claims against the CBA, reflecting his defence and counterclaim in the debt action, have been adjudicated upon in proceedings brought by him. Consequently, I am content to assume at present and in the absence of argument that the annulment application is a proceeding by Mr Heinrich against the CBA. 41 It remains to explain why I do not consider that either or both of the appeal and the annulment application bring Mr Heinrich within the scope of O 21 r 2. 42 In my judgment, the appeal from the making of the sequestration order was instituted by Mr Heinrich without any reasonable cause. The issues he raised as to his indebtedness to the CBA had been decided against him in the debt action. They had been raised, and rejected, in his opposition to the making of the sequestration order. As appears from the reasons for judgment of Branson J (with whom Heerey and Lindgren JJ agreed) in the Full Court, the thrust of the contentions by counsel for Mr Heinrich then was to pursue an order for an account under s 86 of the Act rather than to sustain the grounds of appeal challenging (again) the existence of debt to the CBA and the propriety of its conduct of the debt action. The limited focus on those issues by counsel on behalf of Mr Heinrich no doubt reflects the fact, as found by the Full Court, that there was little merit in the appeal on those matters. 43 The annulment application is the first of the proceedings by Mr Heinrich in the Court against the CBA in which the issues as to his indebtedness to the CBA, and its conduct of the debt action, have been fully explored and determined. They have been resolved against him. The evidence relied upon to demonstrate fraudulent conduct on the part of the CBA in relation to the existence and level of his indebtedness from time to time was found not to make out those claims. The attacks upon the conduct of the CBA in the debt action, including in relation to its discovery and in relation to the means by which it proved his indebtedness, failed. There were a few pieces of evidence which (as the judgment in the annulment action shows) could understandably have caused Mr Heinrich to wonder about the integrity of the CBA's records (see at [29-39], but overall the evidence pointed firmly to the integrity of those records. That is, of course, consistent with the judgment in the debt action. In my view, the annulment action was brought without any reasonable ground. It is hard to discern any evidence there adduced which was not previously available to Mr Heinrich during the debt action. The debt action carefully addressed the same issues, and on much the same evidence. The application for the sequestration order by the CBA, by reason of Mr Heinrich's opposition, also addressed the same issues, and also on much the same evidence. There was, therefore, little if anything new to justify the institution of the annulment application on the basis it proceeded. 44 However, it is upon the requirement that the proceeding be instituted 'habitually and persistently' that, in my view, the present application fails. It is not presently clear to me that Mr Heinrich has habitually and persistently done so. His proceedings have been partly responsive (the applications to set aside the two bankruptcy notices). He did not appeal from the decisions refusing to set aside the first bankruptcy notice or the second bankruptcy notice. He appealed from the making of the sequestration order, but I note the timing of that application was dictated by the Rules. The only proceeding which is entirely within his initiative, in terms of timing, is the annulment application. 45 At this point, I do not conclude that Mr Heinrich has as a matter of course, or almost automatically, instituted proceedings whenever the circumstances provide the opportunity to do so. It has not been shown that the proceedings he has instituted in the Court have been done 'habitually'. When one has regard to the proceedings in other Courts, the conclusion that he has habitually and persistently instituted proceedings without reasonable cause in relation to his indebtedness to the CBA would, I think, be more readily reached. But O 21 r 2 of the Rules requires that characterisation to be made in respect of the proceedings in this Court. At this point, I do not consider the institution of proceedings in this Court does have the necessary character of habitual. The appeal was instituted in September 2000, and judgment was given on 6 May 2001. No further proceeding was issued in the Court to raise the indebtedness to the CBA until the annulment application made on 4 September 2002. It was made by Mr Heinrich in person, and his evidentiary material was in part an attempt to present that which he claimed presented the issue of his indebtedness to the CBA in a fresh light, and with allegedly fresh evidence. The refinement of his position with the assistance of counsel revealed that there was little, if any, fresh evidence but I do not think Mr Heinrich sought to mislead the Court about that. As best I can, in the absence of oral evidence, and based upon Mr Heinrich's extensive affidavits, I understand he was giving his 'best shot' in a final attempt to demonstrate that he was not indebted to the CBA, consistent with a belief on his part to that effect. I suspect, although the circumstances would have to be determined at the time, that further proceedings by Mr Heinrich in this Court raising the same issues and in the absence of significant fresh evidence which he could not previously have been able to obtain with the expenditure of all reasonable effort might be imbued with habitual character. 46 The other descriptor of the proceedings used in O 21 r 2, namely persistence, is one which I consider has now been met. Mr Heinrich has, with determination, and it may fairly be said with a degree of stubbornness and in the face of the consideration of much the same material by the trial judge in the debt action, and by judges of this Court in his appeal from the sequestration order and in the annulment application continued with further proceedings. 47 On my findings, the CBA has satisfied me on each of the elements in O 21 r 2 other than that, to this point and presently culminating in the annulment application, Mr Heinrich has habitually brought proceedings in this Court which are vexatious. The decision in the annulment application has addressed afresh the matters he has now raised in several proceedings in this Court, and in other courts. It is to be hoped that Mr Heinrich now accepts that, whatever belief he may hold about the conduct of the CBA or his indebtedness to the CBA, the complaints he has on those matters have been the subject of final and authoritative judicial determination. Whilst it is important to recognise and give effect to the fundamental principle that every person has a right of access to a court to seek remedies in consequence of alleged infringement of that person's rights, there is a legitimate countervailing policy. It is expressed by Sackville J in Skyring at [52] as protecting the community and the Court from unwarranted usage of the Court's time and resources and to protect those who face actions which lack substance from loss: Sackville J at [67], 392 added: 'The cost to the court system and the community of litigants who refuse to accept that a point has been decided authoritatively against them, or who are otherwise determined to pursue hopeless courses in the courts, can be very high. Such litigants are often immune to costs orders and exempt from paying the court fees which other litigants must meet.' 48 I do not propose to make the orders presently sought under O 21 r 2 by the CBA. I will hear the parties as to any other orders which should be made. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.