Lloyd Foyster v ANZ Banking Group

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

21004 of 1995 Lloyd Foyster v Australia & New Zealand Banking Group Reasons for judgment

1 HIS HONOUR: On 10 May 1999 I gave judgment in applications by the defendant that these proceedings be summarily dismissed or permanently stayed, and by the plaintiff for leave to file an amended statement of claim: Foyster v ANZ Banking Group [1999] NSWSC 300. That judgment did not resolve all the issues between the parties and the matter came back before me for further argument on 30 July 1999. Senior and junior counsel who represented the defendant on that occasion had not appeared at the earlier hearing. 2 The effect of my judgment was that, of the various claims made or proposed by the plaintiff, the only survivors were the claims in fraud arising from the transactions of 1985 and 1989 (pars 39-42 of the judgment) and the claim arising from the defendant's sale of certain mortgaged property in 1994 (par 45). However, at the resumed hearing counsel for the defendant mounted further arguments in support of the summary disposal of those claims, developed in written submissions and orally. I allowed that course to be taken even though I had not invited further submissions on that matter in my earlier judgment. 3 It was argued that the pursuit of the claims in fraud would be futile because of the effect of s86(1) of the Bankruptcy Act 1966. That subsection provides: 86 Mutual credit and set-off (1) Subject to this section, where there have been mutual credits, mutual debts or other mutual dealings between a person who has become a bankrupt and a person claiming to prove a debt in the bankruptcy: (a) an account shall be taken of what is due from the one party to the other in respect of those mutual dealings; (b) the sum due from the one party shall be set off against any sum due from the other party; and (c) only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be. 4 The purpose and scope of that provision were examined by the High Court in Gye v McIntyre (1990-91) 171 CLR 609 at 617ff. By s231(2) of the Act, it also applies to a person who has executed a deed of assignment under Part X. 5 I received in evidence some documents disclosing the plaintiff's indebtedness to the defendant in the early 1990s. In a verified Statement of Affairs of November 1991 he acknowledged a debt of a little over $9.8 million. In a certified list of proofs of debt prepared by the trustee in October 1992, the debt is shown (in round figures) as $10.8 million. In the 1995 statement of claim (par 29) the plaintiff admits a debt (again in round figures) of $10.5 million as at December 1991, when he executed the deed of assignment. 6 In the 1995 statement of claim, the loss said to have been occasioned to the plaintiff by the alleged fraud of 1985 falls well short of $10 million (see pars 14 & 29). In the proposed amended statement of claim, the loss claimed as a result of the alleged frauds of 1985 and 1989 totals $10 million (pars 14 & 26): still short of the plaintiff's debt to the bank admitted in the existing statement of claim and disclosed in the proofs of debt. Accordingly, said counsel for the defendant, the exercise required by s86(1) of the Bankruptcy Act would necessarily yield a balance in favour of the defendant, so that the claims in fraud must fail: cf Gye v McIntyre. 7 The subsection applied to the deed of assignment executed by the plaintiff as if a sequestration order had been made against him on the date of execution: s231(2)(b). The financial damage claimed as a result of the alleged frauds is said to have been sustained prior to that date. Counsel for the defendant relied upon the following passage in Gye v McIntyre (at 622): Section 86 is a statutory directive ("shall be set off") which operates as at the time the bankruptcy takes effect. It produces a balance upon the basis of which the bankruptcy administration can proceed. Only that balance can be claimed in the bankruptcy or recovered by the trustee. If its operation is to produce a nil balance, its effect will be that there is nothing at all which can be claimed in the bankruptcy or recovered in proceedings by the trustee. The section is self-executing in the sense that its operation is automatic and not dependent upon "the option of either party": see, per Lord Selborne L.C., In re Deveze; Ex parte Barnett [(1874) 9 Ch. App. 293, at 295]. 8 I was referred to the decision of Emmett J in the Federal Court of Australia in related proceedings between the parties: Foyster v ANZ Banking Group Ltd [1999] FCA 1043, although it was not suggested that his Honour's reasoning there would be decisive in the present case. The defendant had issued a bankruptcy notice against the plaintiff in respect of the costs ordered to be paid by Master Malpass when the statement of claim in matter 13286/91 was struck out (see par 10 of my earlier judgment). The plaintiff sought to have the bankruptcy notice set aside on the basis that his claim for damages arising from the 1985 and 1989 transactions amounted to a "counter-claim, set-off or cross-demand" exceeding the amount of those costs: s40(1)(g) of the Bankruptcy Act. 9 The defendant's argument based upon s86 of the Act succeeded before Emmett J. His Honour concluded (at par 36 of the judgment) : … only the balance of the account taken as between the Debtor and the Bank was payable to the Trustee. That is the extent of what could have been assigned by the Trustee to the Debtor. In other words, in so far as there was an assignment of the Trustee's rights in, title to, and causes of action relating to, the dealings between the Debtor and the Bank, that was limited to the balance, if any, after setting off the Bank's claim. In fact, the balance was nil because the Debtor's claim, at its highest, is less than the amount owing to the Bank as asserted by the Debtor himself. 10 In that case, however, it was the plaintiff who bore the burden of satisfying the court that he had a claim meeting the requirements of s40(1)(g). As Emmett J observed (at par 4): Not every claim by a debtor will suffice. A claim made in bad faith would not be good enough. A claim must be more than bona fide . The debtor must satisfy the Court that he or she has a genuine claim. The Court must be satisfied that it has a reasonable probability of success. 11 Before me, of course, the onus is on the defendant to demonstrate that the plaintiff's case is so weak that to allow it to proceed to trial would be futile, applying the familiar principles examined by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. The trustee did not in fact take an account for the purpose of s86 with an eye to the plaintiff's claim for damages. (Indeed, it must be said that the Statement of Affairs makes no reference to any such claim.) In addition, counsel for the plaintiff tendered further material disclosing that in 1994 a number of properties were sold, apparently reducing the debt to the bank below the amount of damages the plaintiff seeks. (As I understand it, it is the sale of this property which gives rise to the claims in pars 27 & 28 of the proposed amended statement of claim.) 12 I can see the force of the defendant's argument based on s86, but I do not consider it unanswerable so as to warrant the summary disposal of the claims in fraud. The matter might well be raised in defence, should the plaintiff's claims proceed, as it was in Gye v McIntyre. One of the matters to be considered would be the status of the sale of property in 1994, given that s86 has effect at the date the deed of assignment was executed. 13 Counsel for the defendant next argued that the plaintiff was estopped from raising the claims in fraud in accordance with the principles enunciated by the High Court in Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589. It was said that the claims should have been advanced in the earlier proceedings commenced by the plaintiff, and it was noted that an application to amend the statement of claim in matter 13286 of 1991 by the addition of the claim in fraud arising from the 1985 transaction was refused by Master Malpass, that decision being affirmed on appeal by Simpson J (pars 9-11 of my earlier judgment). 14 However, the Anshun principle is confined to claims which ought to have been raised in earlier proceedings, those proceedings having been brought to finality. Its primary concern is to avoid conflicting decisions in relation to the same matter: see the joint judgment at 603-4. No such difficulty arises here. As counsel for the plaintiff wryly observed in written submissions, "The procedural meanderings in the present proceedings seem only to have hampered any substantive claim between the plaintiff and the Bank coming to hearing at all." 15 Counsel for the defendant also addressed submissions to the adequacy of the pleading of the claims in fraud and those arising from the sale of property in 1994. This matter had not been argued at the original hearing of the motions and was not touched upon in my earlier judgment. Again, however, I allowed counsel to proceed. The criticisms of the pleadings appear to have substance but the matter was not fully argued. Counsel for the plaintiff should have the opportunity to consider them, and, if thought appropriate, to re-frame the pleadings. This should be a matter for directions, and I shall hear the parties about that. 16 All this, of course, is subject to the question whether the plaintiff has standing to maintain the actions in fraud. Counsel for the plaintiff was unable to produce evidence from the trustee of his intention to revest those rights of action in the plaintiff (see par 42 of my earlier judgment). She foreshadowed proceedings in the Equity Division for rectification of the agreement between the trustee and the plaintiff of July 1993, in the light of the "deed of confirmation" of November 1993 (pars 8 & 26 of the earlier judgment). I am unaware of the progress of those proceedings. 17 Counsel for the defendant also mounted an argument against the joinder of the company as second plaintiff, on the basis that the plaintiff has no viable cause of action in the existing statement of claim. Reference was made to the judgment of Hill J in Australian Competition and Consumer Commission v The News Corporation Limited (1997) 79 FCR 117, especially at 121ff. I have held that the claims in fraud should not be summarily dismissed as matters stand, but the argument may well be sound if the plaintiff cannot acquire the right to pursue them. 18 Should that issue be resolved favourably to the plaintiff, the matters raised in pars 37, 43 and 45 of my earlier judgment remain to be determined. **********

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