National Australia Bank Limited v Moore

REASONS FOR JUDGMENT 1 By its application filed on 27 July 2012 the applicant bank seeks final orders that it be granted leave pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth) to proceed against the first, second and third respondents in Supreme Court of New South Wales Proceedings No. 2011/281981; and/or Supreme Court of New South Wales Court of Appeal Proceedings No. 2012/81032. 2 Section 58(3) provides: 58(3) 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. By s 58(5), nothing in s 58 affects the right of a secured creditor to realize or otherwise deal with his or her security. 3 The second and third respondents, Mark William Pearce and Andrew John Heers, are the trustees of the estate of the first respondent, Ms Patricia Helen Moore. 4 I am satisfied that each of the respondents has been served. The matter was also called outside the Court and there was no appearance by any of the respondents. So far as concerns the second and third respondents, on the basis that the applicant is not seeking its costs of the application against them, there is evidence that they do not intend to appear at the hearing of the application and that they do not oppose the application. 5 The broad chronology of events is as follows. 6 In May 2002 a division of the applicant bank lent $636,800 in the form of a reducible mortgage loan to Mr Michael Leo Clowes and the first respondent. The purpose of the loan was to allow Mr Clowes and the first respondent to acquire 9000 shares in Jefferson Pty Ltd (Jefferson), so as to entitle them to absolute and exclusive use of a unit at a property in Double Bay, Jefferson being the registered proprietor of the property. The shares were held jointly by Mr Clowes and the first respondent. The security for the loan provided to the applicant was the original share certificate and a mortgage and charge of shares in the company title unit. 7 In December 2002, the applicant bank lent a further $20,000 to the first respondent and to Mr Clowes. This took the form of a Peak Performance Equity Mortgage Loan executed by them on 18 December 2002. 8 In October 2005, the applicant provided further financial accommodation in the amount of $705,000 to refinance the May 2002 loan. The October loan was in the form of a Homeside Plain and Simple Home Loan executed by the first respondent and Mr Clowes on 26 October 2005. 9 Mr Clowes and the first respondent defaulted under the December 2002 loan and under the October 2005 loan. 10 The applicant bank commenced proceedings in the Supreme Court of New South Wales on or about 1 September 2011. Those proceedings were heard by Gzell J on 31 January 2012. Neither Mr Clowes nor the present first respondent appeared before Gzell J. 11 Following the hearing of the Supreme Court proceedings but before judgment, the first respondent filed a debtor's petition with the Official Receiver and on or about 2 February 2012 became bankrupt. 12 As I have indicated, the second and third respondents were appointed as trustees of the first respondent's bankrupt estate. 13 Judgment was given in the Supreme Court proceedings on 14 February 2012. Justice Gzell determined that Mr Clowes was liable to the applicant bank for the amounts outstanding under the loans but that the loans were not secured by a mortgage in favour of the applicant over the 9000 shares in Jefferson. Justice Gzell also ordered Mr Clowes to pay the costs of the applicant bank. In light of her bankruptcy, no orders were made against the first respondent before me, Ms Moore. 14 On 13 March 2012, the applicant bank filed a notice of appeal. Presently the only parties to the Court of Appeal proceedings are Jefferson and Mr Clowes. The Court of Appeal proceedings are next listed for directions on 22 August 2012. No hearing date has yet been set. 15 There has been correspondence between the applicant bank and the second and third respondents but those respondents, the first respondent's trustees, have not confirmed that if the applicant bank were successful in the Court of Appeal proceedings against Mr Clowes, they would consent to and cooperate fully with the sale of the shares. As I have said, the second and third respondents do not oppose the present application. 16 The applicant bank accepts that the Supreme Court and Court of Appeal proceedings fall within s 58(3). I proceed on the basis that leave is necessary. 17 The relevant principles in relation to the grant of leave under s 58(3)(b) of the Bankruptcy Act are sufficiently set out for present purposes in Allanson v Midland Credit Ltd (1977) 30 FLR 108 at 114-115 per Bowen CJ, Riley and Deane JJ; Westpac Banking Corporation v Ollis [2007] FCA 1194 at [18]-[19] and Stoker (Trustee), in the matter of Starr (Bankrupt) v Starr [2011] FCA 746. 18 The applicant bank submits that leave should be granted for the following reasons. 19 First, the first respondent and her trustees are necessary and proper parties to the Court of Appeal proceedings. I accept this submission. I was referred in this context to the Uniform Civil Procedure Rules 2005 (NSW) r 51.4(1)(a). 20 Second, it is in the interests of justice that the question of the applicant bank's mortgage over the shares be determined in relation to the first respondent at the same time as the Court of Appeal determines that question in relation to Mr Clowes. I accept this submission. Reference was also made to the prospect of the present notice of appeal being amended if the present respondents were joined in the appeal. There is also an issue of the practical inutility of the applicant bank obtaining relief in respect of half the shares only, where it is the entirety of the shares which gives a right to occupy the unit. 21 Third, the proceedings in the Court of Appeal should resolve the controversy about whether the present applicant is a secured creditor within s 58(5). I accept that, for present purposes, complicated issues may arise and it is appropriate for leave to be granted, particularly because the Court of Appeal proceedings are on foot and those proceedings are an appeal from proceedings commenced before the first respondent was made bankrupt. 22 Fourth, the applicant submits that there will be no relevant disadvantage to any other creditors. I accept that this is so in relation to the shares, the persuasive factor being that if the applicant bank is a secured creditor then the Court of Appeal proceedings are well adapted and appropriate to determine that question and so to determine that question does not give the applicant an advantage which it does not have; rather that court will make an order establishing what the parties' rights and liabilities are, or are not. 23 Last, the applicant draws attention to the fact that the trustees of the first respondent do not oppose leave being granted. This is relevant although a relatively minor factor in comparison with the preceding considerations. I note there is no indication from the first respondent one way or another. As I have said, she has been served but has not appeared.