Commonwealth Bank of Australia v King

MAXWELL PRENTICE AS TRUSTEE OF THE BANKRUPT ESTATES OF GREGORY KEITH KING AND KELLY ANN KING

JUDGE: YATES J DATE: 15 JULY 2011 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 There are presently two applications before the Court. 2 The first is an application that leave be granted under s 58(3)(b) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) to the applicant, the Commonwealth Bank of Australia (the Bank), to proceed against the first and second respondents in a proceeding commenced in the Supreme Court of New South Wales as Case No. 2011/115363 (the Supreme Court proceeding). It is convenient to refer to this as "the principal application". 3 The second is an interim application for orders that (a) personal service on the first and second respondents of the principal application, and the affidavit of Adam Preston Young sworn on 18 May 2011 in support of the principal application, be dispensed with, and that (b) those documents be taken to have been served on the first and second respondents on 7 July 2011. 4 The first and second respondents did not appear on the hearing of the applications. The third respondent, who is the trustee in bankruptcy of the first and second respondents, did appear and raised no opposition to the orders as finally sought by the Bank on each application.

background 5 The facts alleged by the Bank are as follows. 6 The first and second respondents are husband and wife. They had a number of accounts with the Bank, including a home loan account. The repayment of the home loan account was secured by a mortgage over property at Caringbah. The property at Caringbah was sold and the proceeds of sale were paid into a term deposit account with the Bank. The term deposit account operated as security in respect of the home loan account. The proceeds on maturity of the term deposit were used to substantially repay the home loan. The balance (which has been described as "a slight shortfall") was paid through arrangements made by the second respondent. At that time the Bank, in error and by mistake, treated the home loan account as one which permitted the first and second respondents to redraw on that account. 7 Over a short period of time the first and second respondents did in fact redraw a sum in excess of $616,000 on the home loan account, which they transferred to one or more of their other accounts with the Bank. Thereafter they transferred these funds to an account held by the first respondent's parents with Westpac Banking Corporation (Westpac). Approximately $160,000 remains in that account, the balance having been transferred by the first respondent's parents to a mortgage account held by them with Westpac. 8 On 24 February 2011, after the events I have described, the second respondent presented her own petition under s 55 of the Bankruptcy Act, which was accepted. On 25 February 2011 the first respondent similarly presented his own petition, which was also accepted. As a consequence the second respondent became bankrupt on 24 February 2011 and the first respondent became bankrupt on 25 February 2011 .

the supreme court proceeding 9 The Bank commenced the Supreme Court proceeding on 8 April 2011 against the first and second respondents (as, respectively, the first and second defendants) and against the first respondent's parents (as third and fourth defendants). The Bank also joined Westpac as the fourth defendant in the proceeding. At that time the proceedings had been commenced urgently without leave under s 58(3)(b) of the Bankruptcy Act having been sought and obtained. 10 The Bank alleges that it has a proprietary interest in the amounts held by the first respondent's parents in their bank accounts with Westpac, which find their source in funds transferred by the first and second respondents from the Bank. It alleges that this interest exists whether the funds were transferred as a consequence of fraud or mistake. In either event, the Bank alleges that it did not intend that funds should be redrawn by the first and second respondents from the home loan account and that these funds were received by the first and second respondents, and subsequently the first respondent's parents, in circumstances in which the funds were, as a matter of law, impressed with a trust in favour of the Bank: Westpac Banking Corporation v Ollis [2007] NSWSC 956; see on appeal Shields v Westpac Banking Corporation [2008] NSWCA 268, especially at [19]. 11 The Bank claims, as final relief: (a) declaratory relief that the first respondent's parents hold in trust for the Bank the amounts they have received from the first and second respondents in the period 13 January 2011 to 31 January 2011 as a result of transfers from a particular account with the Bank, as well as the balance standing in a particular account maintained by the first respondent's parents with Westpac; (b) declaratory relief that certain property is charged in favour of the Bank "as to so much as may be found owing"; (c) an order that the first and second respondents, and that the first respondent's parents, pay the Bank certain amounts or "such other amounts as may be found owing"; (d) certain injunctive relief; and (e) ancillary relief, including costs and interest. 12 On 15 April 2011, Ball J made a number of interlocutory orders in the Supreme Court proceeding, including interim injunctions in relation to funds in certain accounts held by the first respondent's parents with Westpac.

the interim application 13 Order 7 r 10 of the Federal Court Rules provides: Where for any reason it is impractical to serve a document in the manner set out in the Rules, but steps have been taken to bring the document to the notice of the person to be served, the Court may order that the document be taken to have been served on that person on a date specified in the order. 14 There is evidence before me that, in June this year, attempts were made by the Bank to personally serve the first and second respondents with the principal application and Mr Young's affidavit in support. Without descending to detail, it is sufficient for me to record that those attempts revealed that the first and second respondents no longer live at the address thought to have been their place of residence in Sydney and that they currently reside at a distant but unknown location. 15 In an email dated 1 July 2011, in which the first respondent referred to the Bank's attempts to effect service of certain documents on him and the second respondent (now known to be documents in the Supreme Court proceeding), the first respondent said: As you are aware due to the threats on my family we are unable to advise our location. Due to this we are happy to take delivery of the papers by email or mail as you have previously organised below. Please let me know if this is possible to save considerable time and cost to myself. 16 The reference in this email to "mail as you have previously organised below" was to the sending of mail to a particular post office box address. 17 There is evidence before me of a telephone conversation between Mr Young and the first respondent on 1 July 2011 in which the first respondent indicated, first, that certain documents (including the principal application and affidavit in support) should be sent to either the first respondent's email address or the post office box he had previously indicated and, secondly, that he had spoken to the third respondent and was aware that the principal application related to leave to proceed against him and the second respondent in relation to the Supreme Court proceeding. 18 On 4 July 2011 Mr Young sent copies of certain documents (including the principal application and supporting affidavit) via email to the first respondent's email address with the request that copies of the covering letter be signed by each of the respondents, confirming that he or she had received the principal application and affidavit in support and did not wish to be heard or appear when the principal application came before the Court for hearing. 19 Signed copies of that confirmation from each respondent are in evidence. 20 In these circumstances I am satisfied that it has been impractical for the Bank to personally serve the first and second respondents with the principal application and supporting affidavit, but that steps have been taken to bring those documents to their attention. I am also satisfied that the first and second respondents received copies of the principal application and supporting affidavit on a date before 7 July 2011 and, being aware of the hearing of the principal application, have elected not to appear or otherwise to be heard on that application. I will therefore make an order under O 7 r 10 deeming the principal application and supporting affidavit to have been served on them on 7 July 2011.

principal application 21 Section 58(3) of the Bankruptcy Act provides: Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor: (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or (b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding. 22 The Supreme Court proceeding is undoubtedly a "legal proceeding in respect of a provable debt" for the purposes of s 58(3)(b). 23 Although in the principal application, as filed, the Bank sought a general grant of leave to proceed against the first and second respondents in the Supreme Court proceeding, it now seeks a conditional grant of leave in the following terms: Leave be granted to the Applicant pursuant to section 58(3) of the Bankruptcy Act 1966 (Cth) to proceed against the first and second respondents in proceedings commenced in the Supreme Court of NSW, Equity Division, Case no: 2011/115363 subject to the following conditions: (a) The applicant in the Supreme Court proceedings will not oppose the third respondent being joined in the Supreme Court proceedings at any time; (b) The applicant will notify the third respondent of any settlement proposed between the parties in the Supreme Court proceedings and will not finalise any settlement without giving the third respondent 14 days notice prior to the settlement being effected; and (c) The applicant will keep the third respondent informed of progress in the Supreme Court proceedings. 24 As I have noted, the third respondent does not oppose the granting of leave on these conditions. The first and second respondents have indicated that they do not wish to be heard on the question of leave generally. 25 The Bank has advanced a number of reasons why leave, on these conditions, should be granted. First, although the Bank is claiming a judgment sum against the first and second respondents in the Supreme Court proceeding, that claim is one of some complexity, both of fact and law, which would be more appropriately dealt with by the Supreme Court in a contested hearing with the benefit of the court's processes and the laws of evidence rather than by the third respondent, as trustee, acting administratively, using the machinery available to him under the Bankruptcy Act in respect of the lodgement of proofs of debt. Secondly, the first and second respondents are, in any event, necessary parties in the Bank's claims against the first respondent's parents. The Bank's claims against the first respondent's parents could not properly proceed in the absence of the first and second respondents as parties in the Supreme Court proceeding. Thirdly, the leave that is sought is conditional leave, the terms of which have been discussed and agreed with the third respondent, who otherwise raises no objection to leave being granted. Finally, the first and second respondents themselves do not oppose the granting of leave. 26 In all the circumstances I am satisfied that this is an appropriate case for the granting of leave under s 58(3)(b) of the Bankruptcy Act. I accept that the claims are complex claims of the kind that would be better and more comprehensively dealt with in a contested trial in the Supreme Court rather than by the third respondent as trustee. I also accept that the Bank's claims against the first respondent's parents could not be resolved in the absence of the first and second respondents as parties to the Supreme Court proceeding. These considerations plainly support the granting of leave under s 58(3)(b): Allanson v Midland Credit Ltd (1977) 16 ALR 43 at 48; Westpac Banking Corporation v Ollis [2007] FCA 1194 at [18]. In adopting this course the Bank will not be preferred over other creditors. Any money judgment obtained by the Bank against the first and second respondents in the Supreme Court proceeding will rank with other debts proved or to be proved in each bankruptcy. Finally, I am reinforced in my view that leave should be granted by the lack of any opposition by the respondents. 27 I have noted that the Supreme Court proceeding was commenced against the first and second respondents at a time when they were bankrupts, without prior leave having been obtained. On the face of the evidence, I accept that the proceeding was commenced in circumstances of urgency, seeking injunctive relief to prevent the further disposition of the funds which the Bank claims. The terms in which I propose to grant leave will extend to all steps taken to date in the Supreme Court proceeding against the first and second respondents. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.