Eriksson v Commonwealth Bank of Australia

REASONS FOR JUDGMENT 1 Trevor James Eriksson seeks to have set aside a sequestration order made against him on 6 December 2013 by a judge of the Federal Circuit Court. Mr Eriksson contends that the sequestration order ought not to have been made because he had claims against the respondent ("the Bank") in proceedings in the Supreme Court of New South Wales. 2 Mr Eriksson's appeal to this court is by way of rehearing under s 24(1)(d) of the Federal Court of Australia Act 1976 (Cth): George v Deputy Commissioner of Taxation (2005) 212 ALR 495 at [11]. The nature of an appeal under that section was described by White J in Thredgold v Fyfe Pty Ltd [2013] FCA 1363 at [15]: An appeal under s 24 is in the nature of a re-hearing and not an appeal in the strict sense, nor an appeal de novo … This means that the Court must consider whether the judgment of the Federal Circuit Court is affected by error. In Allesch v Maunz (2000) 203 CLR 172 it was said in the majority judgment of the High Court at 180-1 that the critical feature of an appeal by way of rehearing was that the powers of the appellate court were exercisable only where the appellant can demonstrate that the order subject to appeal "is the result of some legal, factual or discretionary error". Mr Eriksson's grounds of appeal maintain that the learned judge erroneously failed to deal with, or to consider adequately, the claims which Mr Eriksson had made against the Bank in a pleaded case in the Supreme Court of New South Wales. Mr Eriksson conceded that no issue was taken about the Bank being owed a debt and otherwise being entitled to a sequestration order (but for his claim against the Bank). He conceded that there was an available act of bankruptcy but contended that the sequestration order ought not to have been made in the circumstances in which he had a viable claim against the Bank. 3 Mr Eriksson's debt to the Bank arose from a debt facility initially established with the Bank of Western Australia Limited ("BankWest") to Clergate Industrial Estate Pty Ltd ("Clergate") for which he was a guarantor. On 11 June 2008 BankWest offered the directors of Clergate a loan facility for $7,480,000 plus interest, fees, costs and other expenses. The loan facility was provided to assist Clergate with the development of an industrial subdivision of a property comprising some 19.45 hectares. The facility was varied on several occasions but $3 million of the facility was to refinance a then existing debt to Momentum Mortgages Limited on land at 283 Clergate Road, Orange. The facility with BankWest was eventually taken over by the Bank as part of its acquisition of BankWest in 2008. 4 Clergate failed to repay monies owing to the Bank on the facility on the due dates and demands were made for repayment on 24 June 2010. One of the demands on that date by the Bank was to Mr Eriksson under the guarantee he had given for the indebtedness of Clergate. The demands were not met, and on 21 July 2010 the Bank appointed receivers over Clergate and notified Mr Eriksson of that. On 9 September 2010 Clergate commenced proceedings against the Bank and the receivers in which Mr Eriksson participated. On 9 September 2010 Mr Eriksson filed an affidavit on behalf of Clergate in its action against the Bank and the receivers in which he deposed to being the sole director and shareholder of Clergate having established the company in 2008 for the purpose of developing a subdivision of an industrial property. In those proceedings Mr Eriksson instructed experienced counsel to act on behalf of Clergate. It was represented in court on 10 September 2010 by Mr Aldridge SC and on 30 September 2010 by Mr David Knoll AM. The proceeding was the subject of several orders made by consent upon the advice of the legal representatives of the parties over several months in the latter part of 2010. In October 2010 the parties agreed to mediate their dispute by non-court ordered mediation. A mediation agreement was executed by the parties on 1 December 2010 and Mr Ian Callinan AC QC was appointed as the agreed mediator. The mediation was conducted before Mr Callinan AC QC on 2 December 2010 but did not settle on that day. The parties resumed their mediation on 20 December 2010 at which time they agreed in principle to settle their dispute. Mr Eriksson with his solicitor was present at the mediations, and between 10 December 2010 and 24 December 2010 the respective lawyers for the parties negotiated the terms of a deed of release which was entered into by, amongst others, the Bank, the receivers, Clergate and Mr Eriksson. Part of the settlement reached by the parties, including Mr Eriksson, required that Mr Eriksson be joined as a party to the Supreme Court proceedings which were to be settled as provided by the deed of release. 5 The deed of release recited, amongst other things, that, as was the fact, Mr Eriksson had executed guarantees for the indebtedness of Clergate under the finance facility. It contained an admission that Clergate was indebted to the Bank in the amount of $8,497,165.34 and that Clergate had been in default of its facility with the Bank. Mr Eriksson admitted that he was jointly and severally liable with others to the Bank in the amount of Clergate's debt. The deed of release, however, provided that Clergate was to pay amounts totalling $5,850,000 to the Bank by payment of three amounts on three dates by 30 April 2011. The deed of release, therefore, reduced Clergate's debt by some $3 million, and provided also that the Bank would retire the receivers. The parties then sought consent orders in the Supreme Court proceedings, and in February Hammerschlag J dismissed the summons and commercial list statement filed by Clergate by consent "as if on the merits", but ordered that the matter be listed for directions after 30 April 2011. 6 The deed of release was executed on 24 December 2010 and required the first payment of $50,000 by no later than 31 March 2011. A further $450,000 was payable by 31 March 2011 and the balance, $5,350,000, was to be paid no later than 30 April 2011. Clergate made the first of the payments but failed to make the other two. The deed of release provided for what was to happen in the event of a default which included a right for the Bank to obtain judgment against, amongst others, Clergate and Mr Eriksson, with their irrevocable consent for the indebtedness (as defined) to the extent that it was not repaid or reduced. The Bank did not seek to enter judgment immediately upon default but, having given notice of the commission of default, initially sought to recover the amounts due through discussions and negotiations. On 1 June 2010, however, the Bank reappointed the receivers to the property of Clergate and on 11 July 2011 Mr Eriksson was informed by letter that the Bank would be seeking to have relisted the Supreme Court proceedings to enforce the terms of the deed of release. One of the orders sought by the Bank was for judgment in favour of the Bank against Mr Eriksson in the sum of $7,981,620.26. The matter was listed in July and came before McDougall J on 15 July 2011 who ordered, amongst other matters, that judgment be entered in favour of the Bank against Mr Eriksson in the sum of $7,981,620.26. The parties were all represented in the proceeding before McDougall J and the debt was not contested. 7 A bankruptcy notice for $2,784,011.19 was issued on 28 August 2012 but otherwise little else occurred as between the parties in respect of these matters until February 2013. Mr Eriksson did not seek to have the judgment set aside and did not contest his indebtedness to the Bank until after a bankruptcy notice was issued by the Bank and served upon Mr Eriksson. The bankruptcy notice was served upon Mr Eriksson on 18 February 2013. On 11 March 2013 Mr Eriksson commenced proceedings in this Court seeking to set aside the bankruptcy notice. On 17 April 2013 District Registrar Wall dismissed Mr Eriksson's application to have set aside the bankruptcy notice. Before that date, however, Mr Eriksson had filed a summons in the Supreme Court proceedings (which had originally been commenced by Clergate) seeking leave to appeal the orders which had been made by McDougall J. On 8 April 2013 Mr Eriksson had sought to reopen the Supreme Court proceedings seeking a stay of the judgment against him, but that proceeding was discontinued by consent on 22 April 2013. On 20 May 2013, however, Mr Eriksson filed a motion in those proceedings seeking leave to file and serve a cross-claim. On 27 June 2013 Mr Eriksson filed a notice of motion seeking to consolidate the applications in that proceeding with further proceedings involving other third parties and the Bank. On 8 July 2013 Hammerschlag J heard those motions and dismissed them with costs. During the course of argument in those proceedings Hammerschlag J explained that the claims which Mr Eriksson sought to bring against the Bank could not be brought in those proceedings but needed to be brought, if at all, in other proceedings. The following day, on 9 July 2013, Mr Eriksson commenced new proceedings against the Bank in the Supreme Court of New South Wales maintaining the same claims that he had raised in the cross-claim before Hammerschlag J, and which he contended to be a claim that required that the learned judge in the Federal Circuit Court not make the sequestration order which his Honour made. An aspect of Mr Eriksson's claim in the Statement of Claim in the proceedings commenced on 9 July 2013 was that the Bank caused loss and damage by its conduct and practices in relation to Clergate's facility after the Bank's acquisition of BankWest. Mr Eriksson contended in his appeal to this court that many of the facts upon which his Statement of Claim depends were not known to him at the time of executing the deed of release, or at the time of consenting to the orders made by Hammerschlag J in February 2011, or at the time of the orders made by McDougall J in July 2011. 8 The bankruptcy notice issued against Mr Eriksson had been due to expire on 11 March 2013 and was served on Mr Eriksson on 18 February 2013. On 1 May 2013 the Bank filed a creditor's petition numbered SYG905/2013 against Mr Eriksson relating to the judgment debt. On 9 May 2013 Mr Eriksson filed an interim application in the bankruptcy proceeding seeking that the petition be dismissed on the basis of it having been filed irregularly. On 8 July 2013 the hearing before Hammerschlag J was discontinued and on the following day the new proceedings in the Supreme Court of New South Wales were commenced, and grounds of opposition were filed by Mr Eriksson in the bankruptcy proceedings seeking to have the creditor's petition set aside on the basis of the matters raised in the fresh proceedings in the New South Wales Supreme Court. The Bank's petition came on for hearing in the Federal Circuit Court on 15 August 2013 and the sequestration order was made against Mr Eriksson with the reasons and decision delivered by the learned judge on 6 December 2013. 9 Mr Eriksson contended that the decision of the Federal Circuit Court was erroneous on the following grounds, namely: 1 His Honour the Learned Trial Judge erred in making an order sequestrating the estate of Trevor James Eriksson where: (a) The Appellant had a counter-claim, set-off, or cross-demand equal to or exceeding the amount of the judgment debt that he could not have set up for the purposes of section 40(1)(g) of the Bankruptcy Act 1966 (Cth) at the time that the Respondent obtained the judgment upon which it relied for the purposes of the petition; (b) The usual practice of the Court to adjourn the hearing of the petition pending the determination of the counter-claim, set off or cross demand was departed from without adequate or sufficient justification; (c) The Court below failed to deal with a pleaded case by the Appellant in which he sought relief under the provisions of the Contracts Review Act concerning the circumstances as pleaded under which a Deed of Settlement ("the Deed") between the Appellant and Respondent had been entered into; 2 The Learned Trial Judge erred in determining or purporting to determine the aspects of the counter-claim, set-off or cross-demand in so far as they concerned whether or not the Respondent had complied with its own obligations under the Deed. Written submissions were filed, and oral submissions were made, on behalf of Mr Eriksson by his solicitor Mr Trevor Hall. The principal claim for Mr Eriksson was, in short, that he had a claim which was set out in the 9 July 2013 statement of claim which the learned judge in the Federal Circuit Court either failed to consider at all or had erroneously determined. A consideration of his Honour's reasons for judgment does not make out that contention. 10 His Honour's reasons for judgment are not lengthy but adequately reveal the basis upon which Mr Eriksson's claim before his Honour failed. It was, in short, that the deed of release had released the Bank from any claim which might be found in the 9 July 2013 statement of claim. His Honour's reasons for judgment focus upon the terms of the deed of release and the extent to which the deed released Mr Eriksson's claims against the Bank. The parties had been specific in agreeing that what was to be released was to include any claims which Mr Eriksson, amongst others, might have against the Bank in the future in respect to the facts that were not known by, amongst others, Mr Eriksson. Clause 1.1(5) specifically defined "claim" broadly as follows: Claim means any present or future, actual or contingent, claim, cause of action, complaint, liability, cost or expense that any person (whether or not a Party to the Proceeding) has or might have in connection with or arising in any way from the facts or matters referred to or alleged in the Proceeding and in Recitals A and B above, whether or not the facts, matters or circumstances giving rise to that Claim are known to that person or to any other person at the date of this Deed. The learned judge in the Federal Circuit Court considered, rightly, that this clause was significant and in paragraph 15 of his reasons said that the "significance of [the definition of "claim"] becomes relevant when construing later provisions of the Deed". Parties to litigation may release each other in such broad terms (see Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112, 126-9; Karam v Australia and New Zealand Banking Group Ltd [2001] NSWSC 709 at [406]) and that is precisely what the Bank and Mr Eriksson (amongst others) sought to do, and did, with the deed of release in this instance. Similarly, the parties may settle their disputes by releasing themselves from claims based on statutory obligations which a party may not otherwise be able to contract out of, including the provisions of the Contracts Review Act 1980 (NSW): Westpac Banking Corporation v Billgate Pty Ltd [2013] NSWSC 1304 at [575]. His Honour's decision was that Mr Eriksson's claim in the 9 July 2013 Statement of Claim against the Bank had been released by the deed of release and could no longer be maintained against the Bank. 11 Mr Eriksson's Statement of Claim of 9 July 2013 is in two parts which are summarised in paragraphs 7 and 8. His Honour set out those paragraphs in full and observed that paragraph 7 was not only a convenient, but also an accurate summary of the matters pleaded in paragraphs 9 to 41 inclusive. Mr Hall, who appeared for Mr Eriksson both before the Federal Circuit Court and on appeal to this court, went through those paragraphs in oral submissions on the appeal in detail and also accepted that the summary in paragraph 7 was accurate. Mr Hall contended, however, that his Honour had erred because Mr Hall submitted that his Honour had erroneously said that nothing which had appeared in those paragraphs could not have been set up in the proceedings which had resulted in the judgment against Mr Eriksson. Mr Hall emphasised that the matters alleged in Part 1 of the 9 July 2013 statement of claim included matters which had not been known to Mr Eriksson, and could not have been known to Mr Eriksson, before the deed of settlement and, as was contended, before the judgment of 15 July 2011. Implicit in Mr Hall's contention, therefore, is that his Honour had erroneously asserted that the matters alleged in the statement of claim were all matters which were known to Mr Eriksson, whereas some were not. That, however, is not what his Honour said or decided. In paragraph 38 his Honour said: Paragraph 7 [being the summary of Part 1 in the statement of claim] is not only a convenient, but an accurate summary of the matters pleaded in Part 1 paragraphs 9 to 41 inclusive. Regrettably for the respondent, however, nothing said on his behalf demonstrates, to the satisfaction of the Court, that any of the matters pleaded could not have been set up in the proceedings resulting in the judgment against the respondent. Moreover the conclusion that the Deed of Release, upon which the consent judgment was founded, explicitly covers the matters pleaded, is irresistible. It is interesting to note that the majority of the purported facts particularised in Part 1 of the Pleading pre-date the Deed of Release. The last three sentences in this paragraph tell against Mr Hall's contention of his Honour having been in error. The point about the first of those sentences is that his Honour was saying that the matters pleaded were ones which were necessarily discharged as claims which in litigation would have been subsumed by a judgment to which Mr Eriksson had been made, deliberately, a party: See Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. The second of the sentences refers to the broad terms of the release which were expressly made to cover precisely the kinds of things not known at the time the parties were entering into the deed of release. The third sentence notes that the majority of the facts pleaded as the basis of the claim occurred before the deed of release was executed, and, therefore, would be subsumed in any release of causes of action which existed at the time of release. The cause of action pleaded was not, for instance, a new cause of action arising after the deed of release from actionable conduct arising independently of claims sought to be extinguished by the deed of release. 12 The case for Mr Eriksson relied primarily upon the matters pleaded in Part 1 of the 9 July 2013 Statement of Claim but the terms of the grounds of appeal are wide enough to cover potential error, if there be any, in his Honour's treatment of the matters raised in Part 2 of the Statement of Claim, and Mr Hall's submissions were also addressed to them. That part of the Statement of Claim was summarised in paragraph 8 and his Honour said in respect of those claims: 39. Part 2 of the Pleading particularises purported facts pre-dating the Deed of Release, between the Deed of Release and the consent judgment, and then after the consent judgment. Any matters pre-dating the Deed of Release cannot assist the respondent for the reasons articulated in the previous paragraph of these reasons. Moreover, the Court does not accept that anything which the respondent claims to have occurred in the 7 month period between the date of the Deed of Release and the consent judgment either can in theory, or does in fact, vitiate either the Deed or the judgment. The entering of the judgment was, for all practical purposes, a mechanical procedure expressly agreed to in the Deed, and carried out in accordance with the Deed. Paragraph 8 of the Deed is explicit in this regard. The respondents participation or cooperation in the default process was not expected, required or indeed contemplated. The respondents' irrevocable consent is explicitly provided by the Deed itself. The respondent cannot, with respect, complain that he was not given the opportunity to do that which he expressly agreed not to do. Whether or not the respondent was suffering from cancer on the date of entry of judgment is irrelevant, as is whether he was legally represented or not. It is beyond doubt that the respondent was represented at the time of entering the Deed. 40. The respondent also raises in Part 2 of the Pleading some issues about obtaining business records apparently held by the Receivers, but not made available to the respondent thus, he contends, inhibiting his capacity to obtain the finance needed to comply with the obligations imposed on him and Clergate under the Deed. One difficulty with this clause is that by virtue of paragraph 6.2 of the Deed the Receivers had retired on 24 December 2010. Even if the fundamental premise of the allegations were accepted (that is that some act or omission of the Receiver resulted in the respondent or the company or companies he controlled being unable to raise finance) it is hard to see how the applicant Bank can be held accountable for this. 41. Part 2 of the Pleading raises other interesting issues about refinancing of debts, payments to the Bank's solicitors, lost opportunities to refinance as a result of the Bank's conduct, issues about valuations etc., some of which took place before the Deed, some after, and some perhaps even after judgment (it is not clear from the pleadings). On the material before the Court, none of these matters satisfy the Court that these are issues under s40(1)(g). 42. A critical point about which the respondent has failed to satisfy this Court is why, even if all the matters pleaded were genuine, the Court should exercise its discretion in favour of the respondent in circumstances where over 2 years have elapsed since the consent judgment, and the respondent has not been able to successfully vitiate it in any way? The respondents own chronology records the failed attempts to seek leave to appeal the consent judgment, the failed appeal in relation to extending time for compliance with the bankruptcy notice, and the failed attempt to re-open the proceedings in the Supreme Court by way of a cross-claim. Quite apart from the fact that this Court does not accept that the s40(1)(g) threshold (so to speak) has been crossed, there seems no reason to exercise a discretion in the respondents' favour under s52(2)(b). 43. On behalf of the respondent considerable emphasis was placed on the transcript of the proceedings before Hammerschlag J in the Supreme Court of NSW, which proceedings were discontinued and dismissed, immediately before the commencement of the fresh proceedings. Whatever his Honour said to the parties in those proceedings, and whatever his Honour might have meant to convey to the parties through what he said, is irrelevant in the present proceedings. The impression that this Court has formed is that it is possible that those representing the respondent may have misconstrued what his Honour said. This Court doubts, with respect to his Honour, that he meant to tacitly or implicitly endorse the respondents proceedings in any way, or in any context. 44. On behalf of the respondent the Court was referred to the New South Wales Court of Appeal judgment of O'Brien v Bank of Western Australia Ltd [2013] NSWCA 71 as authority for the proposition that suppression clauses within loan agreements preventing a party from suing until amounts owed were paid would not provide a means to overcome and defeat defences raised by a borrower that the debt is not due. The facts in the present case are so different that it is not possible to discern how the Court of Appeal's decision is analogous. The summary judgment appealed from in O'Brien seems much more flawed than the consent judgment in the present case. In any event, if the respondent believes that the decision in O'Brien is so favourable to him, there are other possible alternatives open to him. O'Brien's case does not assist the respondent in the present context. 45. From the reasons articulated in this judgment, this Court does not accept that the creditors petition has been filed for an improper purpose - namely to thwart the fresh proceedings. The decision in Lord & Anor v Rankine & Ors [2010] FMCA 688 does not assist the respondent. If anything, the procedural history as between the parties suggests that if there is any improper purpose it is not with the applicant. 46. Reference to Lipov v Alexander Fraser & Son Ltd (1978) 36 FLR 126 and State Bank of NSW Ltd v Currababula Holdings Pty Ltd [2001] NSWCA 239 does not assist the respondent in circumstances where the procedural history indicates an unsuccessful attempt to seek leave to appeal the consent judgment. 47. Reference to Menzies v Paccar Financial Pty Ltd [2011] FCA 460 (10 May 2011) likewise does not assist the respondent. Apart from the fact that this case is about s49 of the Act, the facts are so materially different to the present ones so that it is unclear how, if at all, the case could be relevant. 48. The High Court's decision in Wren v Mahony (1972) 126 CLR 212 does not assist the respondent's case. There is no question about the power of this Court to go behind a judgment in certain circumstances, even if it will not do so as a matter of course. As these reasons for judgment demonstrate, the facts and circumstances leading up to the Deed of Release, to the date of the consent judgment, and subsequently, do not disclose any basis for going behind the judgment. Mr Hall made reference to the claims in Part 2 of the 3 July 2013 Statement of Claim but could point to no error in his Honour's reasoning or conclusions beyond the submissions he had made concerning paragraph 38 of his Honour's reasons and, perhaps, the separate submission that a party cannot contract out of statutory rights and defences. In that regard Mr Hall relied upon the decision in O'Brien v Bank of Western Australia Limited [2013] NSWCA 71 to which his Honour referred in paragraph 44 as quoted above. His Honour was, however, correct to distinguish the decision in O'Brien from a case in which parties have released each other in the context of legal proceedings in which Mr Eriksson was a party. It may be that Mr Eriksson was a party only for one day but that occurred with deliberation, significance and legal effect. 13 It follows that no error has been shown in his Honour's decision and that the appeal will be dismissed. It is not necessary to consider the ground of appeal apparently raised in paragraph 1(b) as that his Honour erred in departing from what was said to be the usual practice of the court to adjourn the hearing of a petition pending the determination of a counter-claim, set-off or cross-claim. It is unnecessary to consider that ground in any detail because it depends upon establishing the existence of a counter-claim capable of engaging what was said to be the usual practice and, as his Honour correctly found, there was no counter-claim, set-off or cross-demand to be determined such as to engage any discretion. The power to adjourn a petition as considered in Rigg v Baker (2006) 236 ALR 629 at [66]-[67] depends upon there being a "real cross-claim" with some prospect of success, and does not arise where, as here, the Federal Circuit Court considered that there was no real cross-claim. In any event, it cannot be said that any exercise of such a discretion had been exercised "without adequate or sufficient justification", because his Honour explained why the claim in the Statement of Claim did not warrant the orders sought by Mr Eriksson. Furthermore, there was no such usual practice as claimed by Mr Hall on behalf of Mr Eriksson. 14 The orders will be to dismiss the proceeding. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Pagone.