Grounds 1, 5, 6 and 7
23 Grounds 1, 5, 6 and 7 of the notice of appeal each involves the approach his Honour took to the decision of the Supreme Court dismissing the application to set aside the default judgment in the Bank's favour and of the Court of Appeal refusing leave to appeal against that decision. Foster J saw those decisions as disclosing the "reality of the matter" that, despite BMG's best efforts, the default judgment had not been set aside because the Supreme Court and the Court of Appeal decided that BMG had no arguable defence to the Bank's claims (at [80]).
24 In Richardson v Leonard Cohen & Co [2008] FCA 1392 Gilmour J considered a similar issue albeit in the context of the making of a sequestration order. At [12]-[14] Gilmour J summarised the relevant principles as follows:
[12] The Court, considering the petition, may, in its discretion, accept a judgment as satisfactory proof, or not, of the petitioning creditor's debt. Such a judgment is prima facie evidence of the antecedent debt. The discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner: Wren v Mahony (1971) 126 CLR 212 at 224-5 per Barwick CJ with whom Windeyer and Owen JJ agreed.
[13] The Court will not go behind a judgment as a matter of course, but where a judgment is obtained by default the Court in bankruptcy will more readily look behind the judgment than it would if the judgment were obtained following a hearing on the merits: Wolff v Donovan (1991) 29 FCR 480 at 486 per Lee and Hill JJ. At 487 their Honours said:
[T]he true position is that there is a shifting onus. Once the judgment is proved, and it is prima facie evidence of the existence of the underlying debt, there is a tactical onus on the debtor to show that there are circumstances which make it appropriate to go behind the debt to see whether the judgment was in truth and reality a true debt. The overall onus of proof of the existence of a real debt underlying a judgment, however, remains always with the petitioning creditor.
[14] It is not necessary for a respondent debtor to prove that they are not, in truth and reality, indebted to the petitioning creditor. All that is required of a respondent debtor was to show that there was "substantial reason for questioning whether there is … a debt": Joosse v Deputy Commissioner of Taxation (2004) 137 FCR 576 at 579 [6] per North and Finkelstein JJ.
25 Having regard to these principles Gilmour J (at [21]) was satisfied that it was open to the primary judge in that matter not to go behind the judgment.
26 We consider that the same conclusion applies to the present case. Foster J accepted that he had power to go behind the judgment of the Supreme Court. His Honour considered that BMG's broad contentions in the matter before him were the same as or similar to those considered and rejected by McCallum J in the Supreme Court. On this basis, his Honour concluded that the judgments of the Supreme Court and the Court of Appeal disclosed the lack of an arguable defence. It was open to Foster J to reach this conclusion. No error is apparent in his Honour's approach to the relevance of the decisions of the Supreme Court and Court of Appeal.
27 In its written submissions BMG said that the primary judge erred in not applying the reasoning in Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130; [2004] NSWSC 527 at [22] that "(a)lthough the mere assertion that a debt is denied will be insufficient, evidence in the form of conclusions as to primary facts which would be inadmissible as proof of the relevant facts either pursuant to the opinion rule in s 76 of the Evidence Act 1995 (NSW), or under s 135 of the Evidence Act, may be admissible as evidence that there is a dispute as to the existence or amount of the debt, and as to whether that dispute is genuine".
28 We can see no basis for the submission that the primary judge adopted an approach contrary to that described in Tokich Holdings at [22]. Although his Honour did not refer to Tokich Holdings, the principles extracted in [63]-[66] of the reasons for judgment are consistent with the approach in that case. Indeed, at [70] the primary judge expressly found that BMG's submissions did "not rise above the mere assertion of a dispute". In Tokich Holdings at [22] White J said that such a mere assertion is insufficient to establish a genuine dispute.
29 A similar response must be given to the submission that the decision of the Court of Appeal refusing leave to appeal supports a finding of the existence of a genuine dispute about the debt. The Court of Appeal did not acknowledge the existence of a genuine dispute. It noted that BMG's submissions alleged that the Bank had prevented BMG from obtaining refinancing by demanding exorbitant fees (at [14]) and then observed that this allegation lacked any detail and did not disclose a defence to the claim, as it "at most may, if properly articulated as it is not at the moment, form the basis of some claim against the bank" (at [15]). The allegation in the submissions in the current appeal also lacks detail and has not been properly articulated. It does not rise above mere assertion. The Court of Appeal's observations about the position being the same before it do not support BMG's case about the existence of a genuine dispute. Foster J's conclusions are not affected by any error in this regard.
30 We can also see no basis for the claims of error by the primary judge by reason of the Bank apparently having served its evidence after 3 October 2008 and having sought more adjournments than BMG. Even if these claims were supported they relate to the procedural history of the case and not the merits of the substantive claim by BMG that a genuine dispute existed as to the debt. In this regard, it is relevant to note, as the Bank did in para 8 of its written submissions, that (consistent with the position in the Supreme Court) BMG did not dispute the contractual entitlement of the Bank to charge default interest and late payment fees but contended that the Bank had acted harshly and unfairly. The former proposition is apparent from the primary judge's observations in [67]-[68]. The primary judge rejected the latter proposition in [108].
31 BMG's submissions particularised in ground 7 of the notice of appeal and based on IFA Homeware Imports,are also misplaced. The primary judge, at [101]-[103], explained why the reasoning in IFA Homeware Imports has no application to the present case. The section on which the decision in IFA Homeware Imports depends expressly excludes debts which are judgment debts. The present case, unlike IFA Homeware Imports, involves a judgment debt. It follows that Foster J was correct to conclude that the reasoning in IFA Homeware Imports is inapplicable in the present case.
32 BMG's submissions about the statutory demand being issued for an improper purpose and thus constituting an abuse of process are equally ill-founded. The matters to which BMG referred in support appear to relate to the sequence of events which the primary judge considered in detail in that part of the reasons dealing with the alleged offsetting claim (at [81]-[99]). In those paragraphs the primary judge provided cogent reasons for rejecting BMG's contentions that the Bank sold the property at less than its true value or acted contrary to an arrangement to forebear from exercising its rights with respect to the property. We can see no error in his Honour's reasons in this regard and no evidentiary basis which would support contrary findings as urged by BMG. Specifically, Mr Watts' apparent "strong belief" that the Bank had acted improperly is not evidence establishing that to be so. As the primary judge found in [98] of his reasons, the Bank "exercised its rights to the full but the mere fact that it has done so does not give rise to any cause of action". Nor, might it be said, does it give rise to any sustainable claim of the Bank having acted for an improper purpose or in abuse of process. Insofar as this claim of improper purpose related to other matters as summarised by the primary judge in 59 of the reasons for judgment, his Honour was correct to reject the claim (at [105]) as one not supported by evidence or argument.
33 BMG's written submissions, presumably as part of the abuse of process claim, allege that the Bank "blocked" a refinancing proposal with the Commonwealth Bank and issued the default notice "out of sheer vendetta". Part of the context of these claims is BMG's assertion that it had complied with all of the Bank's conditions of the forbearance as identified in the letter from the Bank's solicitors of 19 July 2005. The primary judge was aware of the letter of 19 July 2005 (at [17]). The Bank commenced the proceedings in the Supreme Court after this date, on 22 July 2005. It obtained judgment in its favour. The primary judge recorded the various communications between the parties for the following two years and, in so doing, found that: - (i) the conditions of the Bank's offer of 11 September 2006 were not met (at [28] and [94]), (ii) BMG had not obtained refinancing as foreshadowed in the email from Mr Watts of 14 March 2007 (at [32]), and (iii) the conditions imposed by the Bank in its communications with BMG and its representatives in January and March 2007 were never met (at [96]). In these circumstances the submission that BMG complied with the requirements of the communication from the Bank's solicitors of 19 July 2005 is of no assistance to BMG. First, the primary judge describes the letter as offering to defer taking legal proceedings if conditions are met. Second, the Bank took legal proceedings thereafter presumably on the basis that it was not satisfied that the conditions had been met. Third, even if that is not so, nothing suggests that the Bank was bound not to take proceedings.
34 To the same effect we do not accept the submission that the Bank breached an agreement represented by its offer of 11 September 2006. Foster J (at [94]) found that a number of the conditions of the agreement were not satisfied, including the fact that a contract for sale was not exchanged within the required time. This finding was correct on the evidence. The Bank was entitled to take possession of the property when it did. Its actions in so doing cannot legitimately be described as unjust and unreasonable in any legal sense.
35 Against this background it can safely be said that nothing supports the allegation that the Bank "blocked" a proposed refinancing arrangement. As the primary judge found at [98] the Bank exercised its full rights but it had no obligation to do otherwise. It did not "block" any alternative arrangements sought to be made as the correspondence of 17 January 2007 described by the primary judge in [29] discloses. Nor is the evidence capable of supporting any inference that the Bank issued the statutory demand as part of a vendetta. The submission simply lacks any evidentiary foundation.
36 BMG's references to the Supreme Court judgment having been obtained "clandestinely" cannot be accepted in the face of the sequence of events which the primary judge recorded (at [18]-[20]). BMG's calculation of the debt owed to the Bank ($22,800.43) disregards the primary judge's calculations of the debt at [115]-[116]. As his Honour found (at [116]) the debt exceeded the amount claimed in the statutory demand, it followed that the misstatement of the debt could not be considered as causing any substantial injustice to BMG (at [117]). We cannot see any error in this reasoning process.
37 A separate aspect of BMG's submissions is that the statutory demand relates to an amount said to be the balance of the debt outstanding pursuant to a judgment entered against BMG in the Supreme Court proceeding. As the Supreme Court ordered BMG and Mr and Mrs Watts to pay the Bank $1,028,725.29 and the Bank received $1,005,924.86 (including $993,480.06 from the sale of the property and $12,444 in interest payments) BMG said that the balance of the debt outstanding pursuant to the Supreme Court's judgment was only $22,800.43. The statutory demand, however, was for $122,570.17. These submissions are a variant of those of BMG made to Foster J referred to at 59 of the reasons for judgment. Foster J dealt with the amount of the debt at [106]-[116]. His Honour rejected the Bank's claim for inclusion of late payment charges after entry of the Supreme Court judgment based on covenants in the loan agreements (at [109]-[112]). However, his Honour also recognised that the Bank's claimed debt included interest charges after the date of entry of the judgment as allowed by the Supreme Court (at [113]). The "debt outstanding pursuant to" the Supreme Court judgment, as his Honour recognised, includes statutory interest on the judgment debt. Such interest is payable unless the Supreme Court orders otherwise (s 101(1) of the Civil Procedure Act 2005 (NSW)). McCallum J in the Supreme Court did not order otherwise. Accordingly, the primary judge's calculation of the debt in [115]-[116] of the reasons (that is, an amount of approximately $135,000) is of the debt outstanding pursuant to the Supreme Court judgment. It also follows from this analysis that, contrary to BMG's further submission, the primary judge did not include an amount of $68,605 in late payment penalties in the "judgment amount".
38 Another claim by BMG is that Foster J erred in rejecting the submission that the Bank sold the property at less than its true value. According to this submission the Bank "played foul" in respect of the three valuations it obtained before the sale. The submission identifies no basis for the allegation. No such basis is apparent. The valuations are identified in the reasons for judgment at [34]. BMG called no expert evidence to the contrary (see the reasons at [35]). The primary judge properly rejected the unsupported allegations about a sale at less than true value at [88]-[90]. Insofar as these claims referred to the valuation of the property in the amount of $1,250,000 at the time of purchase which the primary judge is said to have ignored, the valuation relates to the date 4 December 2003. The three valuations the Bank obtained before exercising its power of sale relate to the value of the property at July 2006, November 2006 and January 2007. The contract for sale is dated 2 April 2007. In these circumstances the relevance of the valuation from 2003 for the purpose of the loans is not apparent. We cannot see any error in his Honour's analysis at [88]-[90] about the value issue merely because there is no reference to the 2003 valuation.
39 Contrary to BMG's submissions Foster J did not err by failing to understand the allegation that the Bank acted unethically and unconscionably by selling the property to the same purchaser as proposed by BMG. As Foster J recorded at [33], the buyer was prepared to pay a maximum of $1,000,000 at the date of sale. Before that the property was passed in at auction on 1 July 2006 (at [22]). BMG also did not manage to achieve an unconditional contract for sale of the property for $1,075,000 (see the reasons for judgment at [25]). This is so despite the fact that BMG had the period between the date of the alleged offer by the purchaser recorded in [24] (being November 2006) and the date nominated by the Bank of 19 March 2007 in which to achieve the sale (at [31]). BMG did not manage to arrange an unconditional sale in this period. The sale at $1,000,000 was above the highest value provided to the Bank by three valuers. From this it followed that BMG's claims of unethical and unconscionable conduct have no proper evidentiary foundation. The primary judge, moreover, did not misstate the law with respect to a mortgagee's power of sale in [86]-[87] of the reasons for judgment. The statements in those paragraphs are orthodox.
40 Orthodox too, and contrary to the alleged error particularised in ground 6 of the notice of appeal, is the primary judge's approach to determining the existence of a genuine dispute. The primary judge did not make an impermissible "extended enquiry" about the debt in order to determine the existence of a genuine dispute (Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 463 citing Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 294-296). The primary judge was required to analyse the facts in order to determine whether the asserted dispute could be described as a "genuine dispute" consistent with the principles relevant to the assessment of that question set out in [63]-[66] of the reasons for judgment. As his Honour found at [70], BMG's claims about a dispute did not rise above mere assertion which is insufficient to meet the statutory test of a genuine dispute. Further, and as his Honour found at [106]-[116] the balance of the debt outstanding pursuant to the judgment entered against the company on 3 April 2006 in the Supreme Court of New South Wales in proceedings no 13204 of 2005 exceeded the amount of the statutory demand. This was so despite his Honour having rejected the Bank's calculation which included amounts payable pursuant to the loan agreements but not the judgment (see at [111]-[112]).
41 The discussion above covers the various matters included within grounds 1, 5, 6 and 7 of the notice of appeal. For the reasons given we do not accept that these grounds or any of the particulars to them provide a basis for challenge to the decision and orders of the primary judge.