Rigg v Commonwealth Bank of Australia

REASONS FOR JUDGMENT 1 Before me is a motion brought by Mr and Mrs Rigg to stay a sequestration order made against them on 16 July 2001 by Madgwick J or, to the extent that there is a difference, some or all of the proceedings or steps which would follow out of the making of that sequestration order. The basis on which such a stay is sought is that they were denied discovery of documents by Madgwick J at the hearing and the use of evidence served and filed in the Court, presumably on behalf of the Commonwealth Bank (the "Bank"), the petitioning creditor, or perhaps in reply to evidence filed by the Bank. 2 The parties to the present motion have a long and protracted history of litigation. It has been summarised for me by counsel for the Bank, and in terms which counsel for Mr and Mrs Rigg has agreed accurately enough summarised the substance of the litigation. The agreed position appears to be as follows. 3 In 1989 three proceedings were commenced by Mr and Mrs Rigg or an associated company in the Supreme Court of New South Wales. The first, number 1544 of 1989, was brought by Mr and Mrs Rigg against the Bank in relation to a bill facility agreement and sought, amongst other things, a declaration that they owed no money to the Bank. In that proceeding the Bank cross-claimed for monies said to be owed to it under the bill facility and a guarantee totalling something in the order of $1.2 million. 4 The second proceeding, which was number 1598 of 1989, was brought by an associated company seeking similar relief to that which had been sought by Mr and Mrs Rigg. The third proceeding, which was number 4009 of 1989, was brought in the Equity Division of the Supreme Court of New South Wales by the Bank against Mr and Mrs Rigg seeking possession of a property which the parties refer to as the South Nowra Building World. 5 The Bank sought summary judgment on its cross-claim in the first proceeding. On 19 April 1999, Young J gave judgment in favour of the Bank on the cross-claim for approximately $1.2 million. Ultimately, an appeal to the New South Wales Court of Appeal from his Honour's judgment on 24 October 1989 was dismissed. Shortly thereafter, apparently on 23 November 1989, a settlement was reached between the Bank and Mr and Mrs Rigg. It involved also the discontinuance by the associated company of its proceedings. 6 Under the agreement for settlement, essentially, Mr and Mrs Rigg and the company agreed to pay to the Bank an amount in the order of $980,000, of which $380,000 was to be paid on 16 January 1990 and the balance on or before 16 October 1990. The Bank agreed under the settlement to set aside the judgment it had obtained before Young J. The Bank had also obtained an order for possession in the third proceeding and the settlement apparently stayed the Bank entering into possession under that order. 7 As it happens, Mr and Mrs Rigg apparently defaulted on the settlement and paid no monies under it. Around 1994, the South Nowra Building World property was sold and the proceeds applied in reduction of the amounts owing to the Bank. There was also an argument between the parties as to whether the Bank breached its duty or was otherwise negligent in respect of that transaction. 8 In 1993 the Bank then commenced proceedings to enforce the settlement which had been reached between the parties, being the $980,000 together with interest. Those proceedings were apparently hotly contested. They extended over some five days before Brownie AJ with senior and junior counsel briefed. In a cross-claim, Mr and Mrs Rigg sought to argue that time was not of the essence so far as the terms of the settlement were concerned and that there was an implied term of it that the Bank would co-operate with Mr and Mrs Rigg essentially in restructuring their financial situation. They also alleged mis-management by the Bank of the sale of the property. Ultimately, judgment was given by Brownie AJ for the Bank in a sum in excess of $1 million and the cross-claims brought by Mr and Mrs Rigg were dismissed. 9 An appeal was then brought to the New South Wales Court of Appeal from the judgment of Brownie AJ and that appeal was dismissed on 18 July 2000. An application for special leave to appeal to the High Court was likewise unsuccessful. 10 It is common ground that a general order of discovery was given in the Supreme Court proceedings and that at least substantial numbers of documents were made available following inspection of discovered documents. 11 In due course the Bank issued a bankruptcy notice based upon the judgment which it had obtained from Brownie AJ. An application was then filed by Mr Rigg and ultimately heard by Hely J seeking an extension of time for compliance with the bankruptcy notice. The ground of that application appears to have been that there was still at that time proceedings pending in the Supreme Court (the appeal from the judgment of Brownie AJ) notwithstanding that an application to Meagher JA for a stay of the proceedings in that Court pending the resolution of the appeal had been unsuccessful. 12 Although there was some suggestion that an attempt had been made to raise in the proceedings relating to the bankruptcy notice the issue of whether underlying the judgment of Brownie AJ there was a true debt, it seems clear enough from the judgment of Hely J that ultimately that matter was not dealt with in argument before his Honour. 13 The petition relevant to the present proceedings was filed by the Bank on 31 July 2000. In a "Notice of Intention to Oppose" the petition which was filed on 30 March 2001, at the request of the Bank which sought additional information concerning the grounds of opposition, it was said amongst other things that it was to be argued that the judgment of 24 October 1989 (in fact that was the date the Court of Appeal gave judgment but perhaps the reference was intended to be to the judgment of Brownie AJ) was obtained by fraud, by the Bank withholding documents, the Bank altering documents and the Bank drawing documents with intent to deceive. There are other grounds of opposition which, to say the least, may be thought to be peculiar, involving, inter alia, alleged attempts by the Bank to mislead the Parliament and the Chief Justice of the Court of Appeal (presumably the President of the Court of Appeal or perhaps the Chief Justice of the Supreme Court) and an argument which turned on whether the Bank or its officers were officers of the Commonwealth. 14 For present purposes, it was clear at least from the time the grounds of opposition were made known that the issue of fraud by the Bank was to be raised on the hearing of the petition. No doubt the reason why fraud was pleaded in that document is to be found in the general case law concerned with the circumstances in which this Court, acting as a Court in Bankruptcy, will go behind a judgment debt to ensure that there exists what is often referred to as a "real debt". The case law shows that where the parties have, as in the present case, litigated the substantial indebtedness between them in a contested hearing it would be a rare case indeed in which the Court would permit a debtor to explore in bankruptcy proceedings the issue of whether there was really a debt. The exception to that principle has often been said to be that the judgment, despite a contested hearing, was obtained by fraud. 15 As the dates I have already mentioned make clear, the proceedings on the petition took a rather leisurely course. No doubt that was not assisted by the fact that in January of this year a motion was filed by Mr and Mrs Rigg seeking trial by jury, issue of subpoenas and what was said to be "explicit discovery associated to the original documents referred to in the four (4) volumes filed in this matter and attached to our affidavit filed 4th September, 2000 and memoranda directly associated to those documents". 16 The issue of whether the matter should proceed to trial by jury was dealt with by Beaumont J in a judgment dated 27 April 2001. Not surprisingly, the application was dismissed. His Honour did not, however, deal with the question of subpoenas. On 3 May 2001, Madgwick J made orders ex parte granting leave to Mr and Mrs Rigg to issue certain subpoenas. On 9 May 2001, the Bank filed a notice of motion seeking a stay of those orders and determination of the question whether subpoenas should be issued. This motion was, after some attempts to obtain orders from Branson J as duty judge on 9 and 10 May 2001, adjourned before Madgwick J. Ultimately, the question of whether subpoenas were to be permitted to be issued was left in abeyance on agreement between the parties that Mr and Mrs Rigg would not seek to issue any further subpoenas to produce documents without giving the Bank's solicitor three days' notice. 17 The Bank's motion (together with a second motion filed by the Bank on 15 May 2001) came before Madgwick J on 29 May 2001. At that time, his Honour directed Mr and Mrs Rigg to provide certain particulars and provide a list of the categories of documents which they claimed had not been discovered in the Supreme Court proceedings brought in 1993 (that is to say, in respect of the settlement) and in respect of which they sought discovery in the petition proceedings. On that day, his Honour also fixed for hearing the petition on 16 July 2001 with a final directions hearing to be held on 3 July 2001. The Bank took the view that Mr and Mrs Rigg were in default in notifying categories of documents in accordance with the directions. Ultimately the matter came for directions before Madgwick J on a date earlier than his Honour had fixed, namely 29 June 2001, when counsel for Mr and Mrs Rigg indicated that his clients sought the documents listed in a draft subpoena. 18 His Honour took the view that the description of the documents in the subpoena was not comprehensible and asked counsel for Mr and Mrs Rigg to settle and sign any further documents which in essence, presumably, were to be documents detailing the category of documents required on discovery expressed in a way which would be intelligible. The matter was listed again for directions before Madgwick J on 9 July 2001 although it seems that the issue of discovery did not arise on that day. It did, however, arise in a motion brought by Mr and Mrs Rigg that was filed and served on or about 12 July 2001, shortly before the hearing, and which was listed for hearing at the same time as the petition. That motion sought discovery and an adjournment of the hearing to a date after discovery had taken place. 19 That was the situation when the petition came before his Honour on 16 July 2001. His Honour refused the adjournment sought and refused to grant discovery. Obviously the grant of discovery and the issue of the adjournment were closely connected with each other. In the course of his Honour's judgment, his Honour said: "... there is nothing before the Court to suggest anything other than that all the documents which give rise to the debtors' suspicions or claims of seriously untoward behaviour by the bank were discovered in the proceedings before Brownie J. Further, there is much to make me believe that such discovery was precisely the source of the documents now relied upon by Mr Rigg to sustain his allegations." 20 After making some comments as to how the matter arose, his Honour pointed out in his judgment that Mr and Mrs Rigg were in default of the orders for particulars made on 29 May 2001. In parenthesis, I should say that counsel for Mr and Mrs Rigg denies they were in default. His Honour pointed out that he had indicated on 9 July 2001 that he would make no further directions and that the matter was to be heard on the day set. His Honour then concluded, on the basis, at least, of such evidence as was before him, and, indeed, apparently there was virtually none, that there was no reasonable prospect of demonstrating fraud or, for that matter, that the sale of the property the subject of the security held by the Bank had been at an undervalue. His Honour re-iterated that there was no evidence of any document that could be useful in a way that would assist Mr and Mrs Rigg and that no basis had been made out to his Honour for an order for discovery which his Honour, accordingly, declined to make. In the circumstances, the ordinary matters required to be proved before the making of a sequestration order were proved without contest and a sequestration order was made. 21 There is agreement between the parties, notwithstanding the provisions of ss 37 and 52(3) of the Bankruptcy Act 1966 (Cth) (the "Bankruptcy Act"), that the Court has power to stay all proceedings under a sequestration order in aid of an appeal to the Full Court. The source of power so to do is said to arise under s 24 of the Federal Court of Australia Act 1976 (Cth). Other relevant matters, no doubt, are O 52 r 17 and perhaps also s 30 of the Bankruptcy Act. It would be possible to argue that having regard to the provisions of the Bankruptcy Act, which prohibit the Court from suspending the operation of a sequestration order or from staying proceedings under a sequestration order for a period exceeding 21 days, that the Bankruptcy Act discloses a legislative policy requiring at least the prima facie position to be that no stay be ordered unless the particular circumstances of the case suggest otherwise. 22 However, that is not a matter which has been argued before me and I do not propose to consider it further. It does not seem to have been the approach taken by Carr J in Coleman v Lazy Days Investments Pty Ltd (1995) 55 FCR 297 where his Honour effectively applied the ordinary principles of stay to the question of staying proceedings under a sequestration order without consideration of any special situation that might arise in bankruptcy. 23 Counsel for Mr and Mrs Rigg has put before me the matters which it is sought to agitate in the appeal from Madgwick J's judgment. The appeal is likely to be heard in the November Full Court sittings. In essence, the argument sought to be advanced before the Full Court will be that Madgwick J erred in not giving discovery. There are references to the rights of corporations to claim privilege which seem to be somewhat extraneous to the point. In addition, it is said that there is a new argument, not agitated before his Honour, which Mr and Mrs Rigg wish to submit to the Full Court. So far as I have been able at all to understand the point, it seems to be suggested it has something to do with the principle that historically fraud did not, procedurally, need to be pleaded nor particularised, a principle which, if it existed, has long ceased to have application in modern pleading. It is said that the rules requiring fraud to be pleaded do not apply, having been in some way or other displaced by the Bankruptcy Act. If I have inadequately stated the point, so be it. Whether or not to give leave to deal with that new argument is a matter for the Full Court to determine. 24 I should say, as indeed counsel for the Bank submitted, that the issue whether to grant discovery is a matter of practice and procedure and it will be for Mr and Mrs Rigg to demonstrate in the Full Court appeal that his Honour in some way made an error of principle and that there was prejudice to them. 25 It is invidious always for a single judge to have to form a view on the prospects of success of a matter to be taken on appeal. I do find that the issue is not frivolous and do not find that the appeal has been brought other than bona fide. However, it is obvious enough that there is a real difficulty in the path of Mr and Mrs Rigg in succeeding in the appeal, particularly as no error of principle is apparent from my reading of his Honour's reasons. 26 The only prejudice that was sought to be put to me in support of granting a stay was said to be that there was a prospect that the right to appeal the sequestration order might be negated by the provisions of the Bankruptcy Act if the sequestration order was not stayed. However, s 60 of the Bankruptcy Act does not have that effect and counsel for Mr and Mrs Rigg ultimately conceded that. Hence, so far as the case for stay is concerned, I have before me merely the fact that an appeal has been lodged against the making of the sequestration order which, while not totally hopeless, could not be said to have great prospects of success. No discretionary matters to support the grant of a stay have been advanced. Counsel for the Bank points out that no attempt has been made before me, or for that matter before Madgwick J, to put to the Court details of the financial position of Mr and Mrs Rigg. That is undoubtedly so. 27 If the sequestration order itself was stayed, assets of the debtors would not then vest in the Trustee in Bankruptcy. If the sequestration order is not stayed then property of the bankrupts would vest in the Trustee in Bankruptcy by virtue of the provisions of the Bankruptcy Act. This could, on the one hand, cause prejudice to the debtors who might be unable to access bank accounts but, on the other hand, provides some security to creditors in so far as the assets could then not be dissipated. 28 Counsel for the Bank submits that I should take into account the following matters as discretionary matters in refusing the stay. Firstly, it is said there is no prejudice to Mr and Mrs Rigg in the bankruptcy continuing. I am not sure that that is quite so in the sense that at the very least there are procedural matters that are required to be dealt with once a sequestration order has been made, such as, for example, the filing of a statement of affairs. Secondly, it is said that in any event there would be no great delay before the hearing and determination of the Full Court appeal. Thirdly, it is noted that the petition itself has already been delayed a considerable time. Fourthly, it is said - and there is some significance in this - that bankruptcy is not just a private matter between creditors and debtors, it is a matter which involves the public interest. 29 An aspect of the public interest is that the affairs of a bankrupt are placed under the supervision of the Court as also, to some extent it can be said, are the conduct and trade dealings of the bankrupt. Bankruptcy operates also for the benefit of debtors in releasing them from all liabilities subject, of course, to the rateable distribution of such assets as they have among creditors. It is pointed out by counsel for the Bank that there is no evidence one way or the other as to whether there are other creditors and that there is an interest, presumably the public interest, in having the ordinary procedures in bankruptcy proceed so as to determine not only what assets Mr and Mrs Rigg have but also what creditors they may have. 30 In reply, counsel for Mr and Mrs Rigg points out that at least at some stage in the proceedings in the Supreme Court Mr and Mrs Rigg had sworn on oath that they were pensioners. It is conceded that whatever may have been the situation at that time there is no evidence in this Court before me on that matter one way or the other. Despite not advancing any discretionary factor which might found a ground for granting a stay, counsel for Mr and Mrs Rigg nevertheless says the present is a case where it is appropriate to grant a stay. He submits there is no need for some extraordinary factor to be advanced in favour of a stay being granted. 31 I am of the view, and for the reasons which counsel for the Bank has submitted, that Mr and Mrs Rigg have not demonstrated any reason why this Court should intervene to grant a stay. It appears that there is little or no disadvantage to them, especially where they have not sought to put any evidence before the Court as to their financial position, and that their appeal will in no way be prejudiced by the grant of a stay. The public interest does not support, in the present case, the granting of a stay. In fact, if anything, it points in the opposite direction. I would accordingly dismiss the motion. 32 I would order the applicants to the motion to pay the respondent Bank's costs. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill.