JUDGMENT NO. suc S53. 77 CATCHWORDS BANKRUPTCY - finality of judgment - whether debtor had a counter-claim, set-off or cross-demand of a kind referred to in section 40(1)(g) - alleged breach of duty by respondent in exercise of its power of sale - whether order reflected intention of the Court. Bankruptcy Act 1966 - section 40(1)(g) Property Law Act (Qld) - section 85(1) di 7 ul Vogweil v. Vogwell (1939) 11 A.B.C. 83 Re Brink, Ex parte Commercial Banking Co. of Sydney Ltd (1980) 30 ALR 433 Ebert v. The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 Gikas & Ors v, Papanayiotoy & Anor [1977] 2 N.S.W.LR. 944 Wren v. Mahony (1971) 126 CLR 212 Simon v, O'Gorman Pty Lid (1979) 27 ALR 619 Re Fraser; Ex parte Central Bank of London [1892] 2 QB 633 Colin John Donki vy AGC (Advances) Ltd QN 443 of 1994 14 DEC 1994 AUSTRALIA PRINCIPAL UPTC STAT U 44 4 RE: COLIN JOHN DONKIN Debtor EX PARTE: AGC (ADVANCES) LTD Applicant JUDGE MAKING ORDER: Kiefel J DATE OF ORDER: 2 November 1994 WHERE MADE: Brisbane THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicant pay the respondent's costs of and incidental to the application to be taxed. NOTE: Settlement and entry of orders 1s dealt with in Order 36 of the Federal Court Rules. VISIO BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND 44 4 RE: COLIN JOHN DONKIN Debtor EX PARTE: AGC (ADVANCES) LTD Applicant CORAM: Kiefel J PLACE: Brisbane DATE: 2 November 1994 REASONS FOR JUDGMENT On 24 December 1991, judgment for $3,800,640.84 was entered for the respondent against Mr Donkin and his wife. The judgment followed the determination of Mr and Mrs Donkin's claims concerning the extent of advices given by the respondent at the time a loan was taken by them in foreign currency and the steps thereafter taken, or not taken, by the respondent to reduce the risk to which they were exposed and of a claim by the respondent for monies due under the loan agreement. A bankruptcy notice has issued against Mr Donkin, in which the sum of $1,272,844.88 is said to be due under the judgment, the net proceeds of the sale of some assets having been applied. Drummond J has (on 24.8.94) determined the question as to whether the affidavits filed by Mr Donkin within the time required by s. 41(7) were sufficient to effect the extension of time there referred to. No issue was taken on this application to receipt of further matenal filed by the applicant. Mr Donkin seeks declarations that he has a counter-claim, set off or cross-demand as referred to in s. 40(1)(g) Bankruptcy Act 1966 equal to or exceeding the amount of the judgment debt and being a counter-claim, set off or cross-demand that he could not have set up in the action in which the judgment was obtained. The respondent has foreshadowed a motion to strike out the application. The applicant's claims are founded upon two bases. The first concerns alleged breaches of duty by the respondent in the exercise of its power of sale and the second raises questions concerning the judgment itself. A third ground, relating to the circumstances surrounding a loan for the purchase of a vessel, the "Denison Star', was not pursued. Breach of Duty of Mortgagee The applicant's case 1s substantially that referred to iu the statement of claim annexed to his affidavit and sworn to be correct. In it he alleges that the respondent exercised its power of sale in September 1989 and that in August 1990 it appointed a receiver and manager. The sale of the Heritage Tavern and the Flamingo Nightclub was completed on 3.6.93 for $1.9m and of the Crown Hotel on 28.10.92 for $185,000.00. Save for the claim relating to the respondent's alleged duty to provide 'risk management' of the loan throughout the period, it was accepted that the claims may not have been brought in the onginal proceedings. The question which arses, however, 1s as to the sufficiency of the applicant's matenal and as to whether it could "satisfy" the Court that such a claim or cross-demand exists, within the meaning of s. 40(1)(g). The court in these proceedings is concerned with the question whether the bankruptcy proceedings ought to continue before the claim is determined and thus whether the claim is one proper to litigate: Vogwell v. Vogwel] (1939) 11 A.B.C. 83, 85 and Re Bnnk: Ex parte Commercial Banking Co. of Sydney Lid (1980) 30 ALR 433, 438. The level of "satisfaction" which must be held concermmng the claim, in addition to fulfilling the requirement that the claim sound in money to the requisite amount (Brink 439; Vogwel] 85) necessarily then requires more than general assertions of such a claim and mere statements as to how it might be made out: (Ebert v. The Union Trustee Co of Australia Lid (1960) 104 CLR 346, 350). Whilst the evidence disclosed at this point may not extend to all that which would be adduced on a tnal of the claim (Ebert 350) and will vary depending upon the nature of the claim put forward, it must be sufficient to show that there is some substancz in it (Vogwell, 86), or as this requirement was later described, a prima facie case must be shown (Ebert, 350), one in which it could be at least said that the debtor has a fair chance of success (Brink, 439). It may be accepted that the respondent owed a duty to the applicant to take reasonable care to ensure that the properties were sold at the market value (see s. 85(1) Property Law Act (Qid)), although it may not have beéh under a duty as onerous as that alleged in the statement of claim. The question here is not however one as to the content of the duty relevant to such a claim, but the detail provided as to how any duty 1s said to have been breached. A valuation by a Mr McDonald dated 10.11.89 is annexed to the applicant's affidavit. At that date, that valuer was of the opinion that the Heritage Tavern and the nightclub were worth $4.1m. No valuation of the property at the date of the sale 1s referred to and it is not asserted by the applicant that the sale was at a price less than the property was then worth. Indeed the nature of the applhicant's claim, as his counsel's submissions made clear, accepts that there was some reduction in value over this period. It is said, however, that it came about by the failure of the receiver and manager to properly manage the property after his appointment. It is nowhere explained in the Statement of Claim nor were any submissions for the applicant adaressed to the question as to how the respondent is to be made liable for any such defaults on the part of the receiver/manager and given the terms of the Bill of Sale under which he was appointed. Even if a basis for liability be assumed for the moment, no particular conduct is pointed to as showing how the allegation of bad management will be made out. The case shown by the applicant is that there was a substantial difference ($2.2m) between the value of the property in late 1989 and its sale price 372 years later. As this 1s the only factor put forward in support of the claim against the receiver/manager(and the respondent) the applicant must contend that a conclusion of poor management in the intervening period follows by necessary inference. Other factors may have played a part, of course, not the least of which may be the economic climate later prevailing. It 1s neither necessary nor appropnate, however, to refer to the considerable material put forward by the respondent as to the steps taken by the receiver and those concerned with the marketing of the property, nor to the factors there suggested as affecting price, although it 1s notable that even this material failed to drive the applicant to explain his claim, at the least by contradiction. The applicant's case 1s not one where an inference supporting it is so strong as to require explanation by the respondent. In such a case a debtor might be said to have a prima facie case. Here the lack of any evidence, or even a detailed claim, as to bad management leaves the Court in a position where it is wholly unable to assess whether the claim is "real", let alone one having any substance. The submission by senior counsel for the applicant, that it was sufficient to point to the "nature" of the claim is contrary to the authorities such as Ebert. The statement of claim also contains allegations that the respondent breached its duty by failing to provide proper management of the loan, that is to say, of the risks associated with it and further that this was the reason that a sale of one half of the interest in those properties at $1.9m was lost. As I shall later refer, the clam that such a duty was owed was made in the proceedings in which judgment was obtained and it was determined against the applicant. With respect to the Crown Hotel, a httle more information is provided. It is alleged that the applicant entered into a contract to sell the hotel to a Mr Sailor in March and Apmi 1990 (during the currency of the orginal action) for $360,000 00 but that the respondent refused to sanction the sale. Whether the refusal would sound in damages would likely depend upon the terms of the contract itself and factors affecting the likelihood of its completion, including those relating to the prospective purchaser. The applicant has not asserted that the terms of the contract were usual or that the contract would have completed within a reasonable time, and his case would seem to depend upon these matters being implied, since a copy of the contract was not produced on the application. Whilst a question might be thought to be raised by the respondent's refusal, again I am unable to conclude that the claim has substance. The applicant faces the additional difficulties that the amount claimed 1s $175,000 and that a claim or set-off was not brought in the earlier proceedings. There was also an allegation made in the statement of claim that the respondent failed to consider proposals and provide information to the applicant so as to enable the applicant to put forward proposals for satisfaction of the debt. This was not, however, pressed in argument. No factual basis from which it might be concluded that the conduct was, as alleged, misleading or deceptive, was provided and there is nothing in any event to show what would have likely transpired. The Judgment The applicant firstly relies upon O. 35 r. 7(2)(e) which provides that the Court, where it is not exercising its appellate or related junsdiction, may if it thinks fit vary or set aside a judgment or order after the order has been entered where, relevantly, the order does not reflect the intention of the Court. On 8.8.91 (reasons for judgment No. 3), His Honour held that the respondent was not under an obligation to manage the loan for the applicants or to monitor its progress (the 'risk management' to which the applicant refers) but that it was under a duty to advise the applicants that if the loan was taken in foreign cufrency, steps could be taken to minimise the risks of an adverse fluctuation in the rate of exchange, namely, to hedge selectively or to use a 'stop loss mechanism', and His Honour accepted in this respect the evidence of an expert, Professor Valentine, as to the use of that mechanism .0 cover a loan when a loss at a certain percentage is suffered, by putting in place a forward contract at that predetermined point. In his following Reasons for Judgment, on the question of damages (No. 4, 8.8.91), His Honour held that, whilst the applicants would have nevertheless borrowed off-shore, it was probable that Mr Donkin would have decided to adopt a stop loss mechanism at a limit of about 10% "representing the difference between the off-shore rate and the local rate of interest at the time". His Honour then heard further argument and evidence from a chartered accountant as to the calculation of the applicants' financial position in the event that such a mechanism had been employed. After referring to the time at which the rate had moved 1n excess of 10%, his Honour found: "In the result, on the assumptions to be made in the light of my findings in reasons (No. 4) the 'stop loss' mechanism would have been triggered by about that time, with the consequence that the off-shore loan would have been 'brought back' on shore." The calculations then made following the accountant's, (Mr Jones), evidence was not, as His Honour noted, challenged by senior counsel appearing for the applicants. A review of the transcript and those passages relied upon by His Honour shows that Professor Valentine did not say that the loan would be brought "back on shore' as a Necessary consequence of taking forward cover. Mr Butler and Mr Jones, as the Full Court later observed, had however given such evidence, and the former's evidence was not rejected by His Honour and Mr Jones' was accepted. The submission made now (and made in the Full Court) is that it could not have been intended by His Honour to quantify loss on the basis that the loan would have been brought back to domestic rates of interest when the stop loss Mechanism was triggered, for the reason that was not the effect of Professor Valentine's evidence. It may not have been, but there was, as I have noted, other evidence apparently unchallenged and not standing as inconsistent with the professor's. The applicant's argument in the end result, as it was in the Full Court, was that other evidence not before His Honour demonstrates that the triggering of a Stop loss need not have the effect His Honour found. That still however leaves the evidence in a state which, as the Full Court noted, leaves a complete absence of evidence from the applicants as to what they would have done after the initial cover was taken. The respondent submits that, even if this were seen as a relevant demand or cross-claim, the applicants can point only to a loss in the order of A$229,464.00 in the sense that the gain referred to by Mr Bennett of G.B.P. Treasury Services has not been allowed for in his Honour's calculations. It 1s not clear to me that the quantification of loss is that sumple but, on the other hand, the applicant did not in his submissions show what would have been the result. In any event, I do not think it is necessary to resolve that matter, for clearly in my wew the claim put forward by the apphcant, although one by which other relief is now sought under O. 35, was one which could have been set up in the earlier proceedings in which the Judgment was obtained. The reason why it was not, because the applicant and his legal representatives were not aware of the opinions now sought to be relied upon, does not alter the fact that the claim was one, at law, which could have been made (Brink 437). Were the claim to be regarded not as one referred to mn s. 40(1)(g) but as an application brought under O. 35 r. 10, the applicant would in any event fail. In light of the specific statement by His Honour to which 1 have referred, it could not be said that the court did not intend an order reflecting a calculation of the applicants' financial position based upon domestic rates. Mr Donkin's real argument, I consider, was not that it was not manifestly intended but that 1t was mistaken, by reference to facts later found (see Gikas & Ors v. Papanayiotov & Anor [1977] 2 N.S.W.LR. 944, 952-3 and the cases there referred to). Apprehending the difficulty with the requirement of s. 40(1)(g), that the claim was one which could not have been set up in the earlier proceeding, counsel for the applicant submitted that the court ought then go behind (or 'around' as it has been described) the yudgment to enquire whether there is a basis for it and relies upon the decision of the High Court in Wren v. Mahony (1971) 126 CLR 212. That case shows that a court will and ought, given its obligation to satisfy itself as to the debt upon which the bankruptcy proceedings are founded, look behind a judgment where substantial reasons are given for questioning whether behind the judgment there was in truth and reality a debt due to the creditor: Wren, 224-225. The reason there given however, and made out, was that the debt upon which the petition was founded had not yet arisen and there was no dispute as to fact between the parties which had been determined by the Court pronouncing judgment. Other circumstances may exist which make it proper for the court to inquire into the considerations for the judgment: Wyen 223. Whilst there will obviously be a reluctance where there has been a full investigation of issues (Simon v. O'Gorman Pty Ltd (1979) 27 ALR 619), such an occasion may arse as Barwick CJ suggested (Wren 223) where, for example, there has been fraud, collusion, unconscionable conduct, or a miscarriage of justice. Whilst counsel for the applicant used the words "misled" and "miscarriage of justice", there 1s nothing in the conduct of the earlier proceeding which I consider even raises a question as to these matters. The issue of the quantification of the applicant's loss was squarely raised, evidence was received, and submissions were heard. Both parties proceeded upon the basis that the assumptions made by his Honour and to which the accountant, Mr Jones, had referred in his calculations, was correct and it could hardly then be said that the respondent had misled the court. The Full Court heard and determined argument as to whether the later, additional evidence ought to be received and a new trial ordered. The history of the matter 1s not one where any miscarriage of justice can be identified. The judgment stands as prima facie evidence of a debt due to the respondent: In Re Fraser; Ex parte Central Bank of London [1892] 2 QB 633, 636-7. The applicant does not (as in Wren v Mahony) attack the debt due to the respondent but, as I have said, seeks to relitigate the question of the calculation of his loss in his action for negligence. No ground 1s however shown for the Court enquiring further as to matters behind the judgment, or the findings leading to It. The application will be dismissed. 1 will hear counsel as to the orders necessary on the respondent's motion. I certify that this and the preceding ten (10) pages are a true copy of the reasons for judgment herein of the Honourable Justice Kiefel. Date: 2 November, 1994 Associate Counsel for the applicant: Mr A. Vasta OC instructed by: Barker & Associates Counsel for the respondent: Mr P. Keane QC and Mr J. Sheahan and Mr M. Eliades instructed by: Clayton Utz Date of Hearing: 19 October 1994 ~y AUSTRALIS at MEMORANDUM TO: FROM: SUBJECT: DATE: JUDGES' CHAMBERS FEDERAL COURT OF AUSTRALIA LEVEI 8, COMMONWEALTH | AW COURTS 119 NORTH QUAY BRISBANE Q 4000 PO BOX 84, BRISBANE ROMA ST 4003 The Judgments Clerk, Principal Registry Sydney. Associate to The Hon. Justice Kiefel Judgment QN 443 of 1994 Donkin v. AGC (Advances) Lid 2 November 1994 12 December 1994 It has recently come to my attention that the heading in the above judgment is incorrect. I have amended the judgment. I would be grateful if you would alter your records so show the correct heading. 1 have arranged for the electronic transfer of the judgment and its reference is "Donkin. Rep". My apologies for the oversight. M. Pollard Associate to The Hon. Justice Kiefel