McCallum, John Stewart & Ors v The Australian & New Zealand Banking Group Ltd [1995] FCA 1133

CATCHWORDS BANKRUPTCY - application to strike out debtors' application for annulment of sequestration order - no prospects of success - demonstration of discretionary matters not sufficient - issue estoppel - relitigation of matters which could have been raised before - assertion of inside information not an excuse Bankruptcy Act (Cth) 1966 s 40(1)(g), s 52(2(b) and s 153B Lands Titles Act (Tas) Re Cook (1936) 13 ABC 245 Re Frank (1987) 77 ALR 511 Port of Melbourne Authority v Anshun (1981) 147 CLR 589 re: John Stewart McCallum & Ors v The Australia & New Zealand Banking Group Limited (No. TB 657 of 1994 Judge: Heerey J Date: 12 December 1995 Place: Hobart

IN THE FEDERAL COURT OF AUSTRALIA) ) BANKRUPTCY DIVISION ) No. TB 657 of 1994 ) BANKRUPTCY DISTRICT OF TASMANIA ) RE: JOHN STEWART McCALLUM JOAN ESTELLE McCallum PETER JOHN STEWART McCALLUM SALLY-ANNE McCALLUM-TOOMEY SUZANNE McCALLUM Bankrupts BETWEEN: JOHN STEWART McCALLUM JOAN ESTELLE McCALLUM PETER JOHN STEWART McCALLUM SALLY-ANNE McCALLUM-TOOMEY SUZANNE McCALLUM Applicants RAYMOND GRIFFITHS THE AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED Respondents JUDGE: Heerey J DATE: 12 December 1995 PLACE: Hobart MINUTE OF ORDERS The Court orders that: 1. The debtors' application for annulment dated 19 May 1995 be struck out as an abuse of process. 2. The debtors pay the costs of this application of the respondents, the Deputy Commissioner and the Official Receiver. 3. Liberty reserved to the second respondent to make an application for costs against the debtors' solicitors on adequate notice and on proper materials. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

IN THE FEDERAL COURT OF AUSTRALIA) ) BANKRUPTCY DIVISION ) No. TB 657 of 1994 ) BANKRUPTCY DISTRICT OF TASMANIA ) RE: JOHN STEWART McCALLUM JOAN ESTELLE McCallum PETER JOHN STEWART McCALLUM SALLY-ANNE McCALLUM-TOOMEY SUZANNE McCALLUM Bankrupts BETWEEN: JOHN STEWART McCALLUM JOAN ESTELLE McCALLUM PETER JOHN STEWART McCALLUM SALLY-ANNE McCALLUM-TOOMEY SUZANNE McCALLUM Applicants RAYMOND GRIFFITHS THE AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED Respondents JUDGE: Heerey J DATE: 12 December 1995 PLACE: Hobart REASONS FOR JUDGMENT The debtors were made bankrupt by a sequestration order on 13 December 1994 on the petition of the Australia and New Zealand Banking Group Limited. They have applied under s 153B of the Bankruptcy Act (Cth) 1966 for an annulment of those orders. The Bank, supported by another creditor, the Deputy Commissioner of Taxation, brings this application to strike out the debtors' applications on the ground that they have no prospects of success and are accordingly an abuse of process. It is necessary to say something about the substantial litigation which gave rise to the judgment debt which founded the petition against the debtors. The debtors were developers of private hospitals and nursing homes. They operated through three companies, Kingborough Nursing Home Pty Ltd, Redwood Village Pty Ltd and Argyle Developments Pty Ltd. Those companies borrowed from the Bank and the borrowings were personally guaranteed by the debtors. The Bank appointed a Receiver who sold three of the properties owned by companies namely Kingborough Nursing Home, Redwood Village Retirement Village and Ellerslie Nursing Home. The companies and the debtors brought proceedings in the Supreme Court of Tasmania. In essence there were three complaints in the Supreme Court action. First, the sales by the Receiver were illegal because the Lands Titles Act (Tas) did not permit a receiver to sell land under that Act and accordingly, the Receiver committed the torts of trespass and/or conversion. Secondly, it was claimed that the sales were illegal because the Bank had not given notice of sale as required by the Lands Titles Act. Thirdly, it was said that the sales were made recklessly and/or negligently and at an under value. That last mentioned claim was originally made in respect of all three properties but at trial was only pursued in relation to Kingborough Nursing Home. The trial commenced on 31 August 1993 before Zeeman J and concluded on 14 September. His Honour gave judgment on 15 October dismissing the claims and giving judgment for the Bank on its counterclaim for an amount subsequently ascertained at $18,229,107.57. Appeals by the debtors to the Full Court ofthe Supreme Court and applications for special leave to appeal to the High Court were unsuccessful. At the trial a concession was made by Mr B J Tamberlin QC, senior counsel for the plaintiffs, at the end of the plaintiffs' case on 6 September 1993. I take the text of this concession from an affidavit that was sworn by counsel for the Bank, Mr Peter Evans, which makes some corrections to the version in the transcript. Mr Evans was not cross‑examined and his version seems inherently more likely to be correct. Mr Tamberlin said; Your Honour, I wish to do this at this stage, your Honour. The plaintiff has given careful consideration to the evidence over the past few days and has come to the view that he has decided not to proceed with the argument in relation to recklessness against the Bank or the Receiver. Shortly afterwards he also said: And so far as the damages are concerned we would say, "Well, the market price was the sale price of the three properties and the assessment or the agreement in relation to Redwood, less an allowance for the AGC pay out would be the appropriate way of dealing with that." The case then proceeded on the assumption that the prices for which the three properties were sold was the market price. The defendants did not call any valuation evidence. At this stage it is necessary to mention some allegations which were made by one of the debtors, Mr John Stewart McCallum, in an affidavit sworn on 28 August 1995 in support of the application for annulment. Mr McCallum deposes that through Mr W Hodgman QC, he was introduced to Mr Ian Ritchard, who is the Registrar of the Supreme Court of Tasmania (the spelling in the affidavit is "Richards"). Mr McCallum swore: 6. ... I became friendly with Mr Richards and enjoyed his company on many occasions. 7. A few weeks prior to the commencement of the hearing of my proceedings against the ANZ Bank in the Supreme Court of Tasmania, Mr Richards rang me and said Richards "I have some news for you. Meet me at the Sheraton at 5.00 to discuss it." I met him at the Sheraton as arranged and he said Richards "Zeeman has told me that there is no doubt in his mind that the appointment of the Receiver by the ANZ Bank was void." I understood the reference to Zeeman to be a reference to Mr Justice Zeeman who was the Judge on the Tasmanian Supreme Court assigned to hear this case. As a result of this advice I did not believe it was necessary to prepare a case regarding the way in which the Receiver managed and sold the groups assets and I instructed my solicitors and counsel accordingly. 8. At the commencement of the proceedings before Justice Zeeman in the Supreme Court he said words to the effect Justice Zeeman "I am a friend of Mr Bayley the Receiver and of officers of the ANZ Bank. Does anybody require me to disqualify myself from hearing this matter on that basis?" Mr Michael Hodgman, whom I know to be the son of Bill Hodgman QC, our lawyer, was in the Court listening. After hearing what the Judge said I took Michael Hodgman outside and sought his advice. He said Mr Michael Hodgman "You have to realise that you are in Tasmania now. You have to realise all these peoples are mates together. You have already been told that Justice Zeeman considers Bayley's appointment to be void. You have proved one of the major things you have to prove and you should stick with him." On the basis of this advice I instructed my senior counsel, Mr Brian Tamberlin QC that I did not object to Justice Zeeman hearing the case and that I would withdraw my allegation that the Receiver Bayley had been negligent in the way he carried out his duties as Receiver of my various companies. Counsel for the Bank tendered a letter received by his firm from Mr Michael Hodgman QC dated 9 November 1995. Mr Hodgman referred to a request by the Bank's solicitors for an affidavit in response to Mr McCallum's assertions. Mr Hodgman stated that he had previously been retained as counsel by Mr McCallum, that by the time of the trail his retainer had not been withdrawn, and that he would not provide an affidavit unless Mr McCallum waived privilege or the Judge ruled that privilege had been waived. I was not informed that Mr McCallum had waived privilege and was not asked by counsel for either side to rule on that issue. Mr Ritchard has sworn an affidavit saying that Mr William Hodgman rang him and asked if he would speak to a friend, Mr John McCallum, "concerning changes to procedures since he has practised". Mr Ritchard continued: 2. I agreed to do this. I spoke to Mr McCallum on a number of occasions on the telephone. I spoke to him in the precincts of the Court on a number of occasions and saw him once socially. I would not say we became friendly. 3. In relation to paragraph 7 I did not ring Mr McCallum or suggest that we should meet. At his request I met him for a drink at the Sheraton Hotel. We did not talk about his case. I specifically did not advise him of any matters concerning an alleged statement by Mr Justice Zeeman. In addition Mr Justice Zeeman, to my knowledge, has never discussed this matter with me. I would comment that, quite apart from the inherent improbability of what Mr McCallum deposes to, the course which the trial took is inconsistent with his claim. The complaint about the sale of the properties and the valuation issues involved were clearly only withdrawn at the end of the plaintiff's case and not at the outset of the trial as he suggests. I do not think I need to make any positive finding on this issue, but if what Mr McCallum has sworn to was untrue, it must have been false to his knowledge. To make such a statement on oath asserting a conversation of this nature with a judicial officer disclosing, at the very least, improper conduct on behalf of that officer, is a serious matter indeed. I propose to refer the papers in this matter to the Tasmanian Director of Public Prosecutions for his consideration. The basis of the debtors' claim for annulment is an asserted wish to relitigate the sales of the various properties. A draft statement of claim has been provided. It makes assertions, amongst other things, that the properties were sold at an undervalue resulting in losses as follows: Ellerslie $760,000; Kingborough Nursing Home $12 million Sunnyside Medical Centre $3 million. There are added then a number of other claims, notably net profit on unsold lots of Redwood Village, $12 million; "financial loss" to McCallum Family, $10 million; "personal damage" to McCallum Family, $5 million; and "reversal of interest in property charged by ANZ and interest on damages above" $34,441,875. The total claimed is $80,618,249. The first submission in support of the strike-out application is based on the terms of s 153B, which is as follows: If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Registrar, the Court may make an order annulling the bankruptcy. It was common ground before me and amply supported by authority, in particular Re Cook (1936) 13 ABC 245 at 249 and Re Frank (1987) 77 ALR 511 at 517, that it is not enough to show that if certain matters were before the Court at the time the sequestration order was made the Court might have exercised its discretion against the making of a sequestration order. I accept the submission of counsel for the Bank that the matters now raised, the proposed new action, at most could have enlivened a discretion in the Deputy Registrar not to make a sequestration order. She would not have been bound not to make such an order. Senior Counsel for the debtors for his part accepted that there would not have been before the Deputy Registrar a counter-claim, set-off or cross demand which satisfied the requirements of s 40(1)(g). All he could say was that the debtors could have satisfied the Court that "for other sufficient cause [i.e. other than the debtors being able to pay their debts] a sequestration order ought not to be made": s 52(2)(b). Again, this would have been a matter of discretion. I think that is sufficient of itself to make out the Bank's case that the applications for annulment are bound to fail. However, I think counsel for the Bank was also correct in submitting that the proposed claims in the new litigation would be met with probably a successful defence of issue estoppel and certainly the extended form of estoppel established by the High Court in Port of Melbourne Authority v Anshun (1981) 147 CLR 589. The principle for which that case stands is expressed in the judgment of Gibbs CJ, Mason and Aickin JJ (at 602): In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expenses, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few. In essence the complaints about the wrongful sale of the properties were not merely complaints which could have been made in the earlier proceedings but were not. They were proceedings which were in fact made and were expressly abandoned. I do not think anything turns on the points advanced on behalf of the debtors that the concession only dealt with recklessness as opposed to negligence, or that it only involved the Receiver, there being no claim against the Bank on the pleadings. In my respectful opinion Anshun requires courts to take a realistic view to prevent the mischief of relitigation of matters which could have been raised before. I think the proposed new action in the present case is squarely within that doctrine. Insofar as the Anshun doctrine contemplates that there might be some reasonable excuse for a party not having raised a claim in the earlier litigation, it can hardly be said, I think, that the asserted inside information allegedly given to Mr McCallum by Mr Ritchard provided such an excuse. Even if that information were given it was hardly a matter that a litigant could safely and properly rely on. More importantly, it seems that was not what happened. As already mentioned, the concession was made by senior counsel at the end of the plaintiffs' case, no doubt in the light of the performance of witnesses for the plaintiffs who had already given evidence on this issue. I will grant the orders sought in the strike-out application. I will order that the debtors pay the costs of the Bank and the Deputy Commissioner of this application. I will reserve liberty for the Bank to make application for costs against the debtors' solicitors on adequate notice and on proper materials. There will be an order for costs for the Official Receiver. I certify that this and the preceding eight (8) pages are a true copy of the reasons for judgment of his Honour Mr Justice Heerey. Dated: Associate Appearances Counsel for the applicant: Mr A Shand QC with Mr A G Melick Solicitor for the applicant: Gunson Pickard & Hann Counsel for the respondent: Mr R Hudson Solicitor for the respondent: Butler, McIntyre & Butler Date of hearing: 11-12 December 1995