Foyster v ANZ Banking Group Ltd [1999] FCA 1043

FEDERAL COURT OF AUSTRALIA

Foyster v ANZ Banking Group Ltd [1999] FCA 1043 BANKRUPTCY – application to set aside a bankruptcy notice – whether debtor has counter-claim, set-off or cross-demand – prior administration of debtor's estate under Pt X Bankruptcy Act 1966 – relevance of s86 Bankruptcy Act to debtor's cross-demand – separate cross-demand against creditor in conversion – whether property founding action in conversion of a value exceeding the debt owing under bankruptcy notice – whether claim in conversion made in good faith Bankruptcy Act 1966 (Cth), s40(1)(g), s86, s243 Ebert v Union Trustees Co of Australia (1960) 104 CLR 346, cited Gye v McIntyre (1991) 171 CLR 609, cited Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR(NSW) 700, cited

LLOYD FOYSTER v ANZ BANKING GROUP LTD N7702 OF 1999 EMMETT J 27 JULY 1999 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N7702 OF 1999

BETWEEN: LLOYD FOYSTER

Applicant

AND: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

(ACN 005 357 522)

Respondent

JUDGE: EMMETT J

DATE OF ORDER: 27 JULY 1999

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The application be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N7702 OF 1999

BETWEEN: LLOYD FOYSTER

Applicant

AND: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

(ACN 005 357 522)

Respondent

JUDGE: EMMETT J

DATE: 27 JULY 1999

PLACE: SYDNEY

EX TEMPORE REASONS FOR JUDGMENT (NO. 2) 1 I have before me an application by Lloyd Foyster ("the Debtor") to set aside a bankruptcy notice, numbered NN1924 of 1998 ("the Bankruptcy Notice"), served on the Debtor at the behest of Australia and New Zealand Banking Group Limited ("the Bank"). The Bankruptcy Notice, by reason of an order made by a Registrar on 17 May 1999, was deemed to be served on the Debtor on 7 June 1999. The ground on which the Debtor seeks to have the Bankruptcy Notice set aside is that contemplated by sections 40(1)(g) and 41(7) of the Bankruptcy Act 1966 (Cth) ("the Act"). 2 Under section 40(1)(g), a debtor commits an act of bankruptcy if a creditor, who has obtained against the debtor a final judgment or final order, has served on the debtor a bankruptcy notice, and the debtor does not, within the time specified in the notice, either comply with the requirements of the notice, or satisfy the Court that he has a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, that he could not have set up in the action or proceeding in which the judgment or order was obtained. 3 I have earlier in the day, in ruling on the admissibility of evidence, indicated my view as to the inter-relationship between section 41(7) and section 40(1)(g) – see Foyster v ANZ Banking Group Ltd [1999] FCA 1032. The question which is now posed for the Court is whether the Court should be satisfied that the Debtor has a counter-claim, set-off or cross-demand equal to or exceeding the amount of the sum payable under a final order of the Supreme Court of New South Wales obtained by the Bank against the Debtor in the circumstances to which I shall refer, and which is the subject of the Bankruptcy Notice. 4 Not every claim by a debtor will suffice. A claim made in bad faith would not be good enough. A claim must be more than bona fide. The debtor must satisfy the Court that he or she has a genuine claim. The Court must be satisfied that it has a reasonable probability of success. The standard may be expressed by saying that the debtor must show that he has a prima facie case, even if, then and there, he or she does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in the counter-claim, set-off or cross-demand - see Ebert v Union Trustee Company of Australia Ltd (1960) 104 CLR 346 at 350. 5 There has been considerable litigation between the Debtor and the Bank. It has been summarised in reasons for judgment of Hidden J of the Supreme Court of New South Wales delivered on 10 May 1999 in proceedings 21004/95. In the proceedings before Hidden J, allegations of negligence and fraud were made by the Debtor against the Bank, arising out of borrowings from the Bank in Swiss francs in 1985 by Country Properties Pty Ltd ("the Company"), which was associated with the Debtor. The Debtor's case was that the manager of the Bank advised him that the Company should take an advance in Swiss francs, rather than in Australian dollars. The Bank sought an order that the proceedings be summarily dismissed or permanently stayed. The Debtor, in turn, sought leave to file an Amended Statement of Claim, making separate allegations of negligence and fraud on the part of the Bank in relation to further borrowings effected by the Company in 1989. 6 In 1990, the Company had commenced proceedings against the Bank in the Commercial Division of the Supreme Court seeking damages for what was said to be negligent advice by the Bank in connection with the loan in Swiss francs. Those proceedings were subsequently transferred to the Common Law Division as proceedings 11620/91. However, on 14 April 1993, they were dismissed, pursuant to the Rules of the Supreme Court, because of failure by the Company to provide a verified statement in answer to interrogatories. 7 On 17 June 1991, the Debtor resigned as a director of the Company and, on the following day, he commenced proceedings in his own name against the Bank (proceedings 13286/91). In those proceedings, the Debtor sought damages from the Bank for alleged negligence in connection with the Swiss francs loan and an order setting aside the guarantee which he gave in respect of the loan. 8 However, on 19 December 1991, the Debtor entered into a deed of assignment under Part X of the Act pursuant to a special resolution of creditors on 17 December 1991. By the Deed of Assignment, the Debtor conveyed and assigned to his trustee, John Duncan Green ("the Trustee"), all his divisible property within the meaning of Part X of the Act. The Bank lodged a proof of debt in the administration under Part X, claiming the sum of $10,863,022. The Debtor, in his Statement of Claim in the proceedings before Hidden J, asserted that he was indebted to the Bank in the sum of $10,547,829, as at 19 December 1991. The administration under Part X appears to have proceeded on the basis that the proof in the sum of approximately $10 million was accepted by the Trustee. 9 On 26 October 1992, the Trustee issued a certificate, pursuant to section 232 of the Act, that the Debtor's divisible property had been realised and the final dividends had been paid to creditors. As I shall indicate shortly, much turns on the effect of the Act in relation to that administration. 10 As I have said, on 18 June 1991, the Debtor had commenced proceedings 13286/91 against the Bank. Under section 60(2) of the Act: "An action commenced by a person who later becomes bankrupt is […] stayed until the trustee makes election to prosecute or discontinue the action". Section 60(3) enables the defendant to such an action to serve notice of the action upon the trustee and, unless the trustee makes an election under section 60(2) within 28 days thereafter, he or she is deemed to have abandoned the action. 11 On 2 July 1993, the Bank served a notice under section 60(3) upon the Trustee in respect of proceeding 13286/91. No election was made by the Trustee within the prescribed period. Accordingly, the proceedings were deemed to have been abandoned on and after 31 July 1993. 12 However, in the meantime, on 6 July 1993, the Debtor offered to purchase from the Trustee certain assets of the Debtor including: "[a]n action filed in the Supreme Court of NSW, Sydney Registry, Common Law Division No. 13286 of 1991, and that the defendant in the matter is the Australia and New Zealand Banking Group". 13 The Debtor offered to pay $500 for those assets. The Trustee acknowledged receipt of the sum of $500 "for the above mentioned assets". No deed of assignment appears to have been executed. However, on 19 November 1993, a Deed of Confirmation was entered into between the Trustee and the Debtor. The operative part of that deed was as follows: "The agreement dated 6 July 1993 between Messrs Green and Foyster always intended that the assignment should include and assignment of all those rights in, title to, and causes of action relating to, or in any way arising out of the dealings between Mr Foyster and the bank in the period 1986 to 26 October 1992, including the matters raised in the District Court of New South Wales proceeding No. 5096 of 1991, including any amendments to either or both proceedings from time to time and also the matters now raised in the proposed Amended Statement of Claim in the proceedings which is Annexure A to the Notice of Motion dated 17 September 1993 in these proceedings." 14 On 26 April 1994, an order was made by a Master of the Supreme Court that the statement of claim in proceedings 13286/91 be struck out. An appeal against that decision was dismissed on 14 May 1997. An order for costs was made in favour of the Bank against the Debtor in connection with that summary dismissal. The order for the payment of costs is the order upon which the Bankruptcy Notice is founded. There is, therefore, no basis for contending that the Debtor is not indebted to the Bank in respect of that order. 15 However, the Debtor claims to have a counter-claim, set-off or cross-demand that exceeds the amount of the order for costs. When the proceedings first came before me, the counter-claim, set-off or cross-demand relied on by the Debtor was said to be that articulated in the proposed Amended Statement of Claim sought to be filed in proceeding 21004/95. Those proceedings were commenced in October 1995, although the original statement of claim was not served until October 1997 after the appeal from that dismissal of proceedings 13286/91 had itself been dismissed. The original statement of claim was served on the last day permitted by the Rules. 16 On 1 November 1996, the Debtor filed yet another statement of claim in the Supreme Court in proceedings 21219/96. It made allegations similar to those made in proceedings 13286/91 which had been dismissed, although it also made additional allegations to which I shall refer later. Proceedings 21219/96 were summarily dismissed by a Master of the Supreme Court on 8 December 1997. 17 In the Supreme Court proceedings which are still current, namely 21004/95, claims are made in respect of two sets of transactions involving the Bank. The claims are articulated in the proposed Amended Statement of Claim. 18 The first set of dealings may be summarised as follows: · The Bank advised and represented to the Debtor that he should not borrow in Australian dollars, as his and the Company's financial interest over the next five years would be substantially better served if the borrowing was to be made in Swiss francs, and that, instead of borrowing the sum of A$950,000, the borrowings should be increased to the equivalent of A$1,500,000 in Swiss francs. That representation was particularised as including the following representations alleged to have been made to the Debtor by Mr McMaster, a branch manager of the Bank: