FEDERAL COURT OF AUSTRALIA Rigg v The Commonwealth Bank of Australia [2001] FCA 1584 BANKRUPTCY – petition founded on non-compliance with bankruptcy notice – judgment for substantial sum obtained in Supreme Court of New South Wales after lengthy hearing – appeal to Court of Appeal dismissed – High Court of Australia dismissed application for special leave to appeal – long history of litigation between debtors and respondent bank – debtors alleged respondent petitioner obtained judgment by fraud, including failure to give proper discovery of documents – debtors sought adjournment of petition to obtain wide-ranging discovery of documents – whether primary judge erred in refusing to order discovery and to grant an adjournment for that purpose. Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 referred to W.A. Pines Pty Ltd v Bannerman (1980) 30 ALR 559 followed Melbourne Home of Ford Pty Ltd v Trade Practices Commission (1979) 36 FLR 450 followed ANTHONY THOMAS RIGG and DOROTHY ANNE RIGG v THE COMMONWEALTH BANK OF AUSTRALIA N 1102 of 2001 CARR, CONTI & STONE JJ 9 NOVEMBER 2001 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1102 OF 2001 IN THE MATTER OF ANTHONY THOMAS RIGG & DOROTHY ANNE RIGG BETWEEN: ANTHONY THOMAS RIGG and DOROTHY ANNE RIGG Appellants AND: THE COMMONWEALTH BANK OF AUSTRALIA Respondent JUDGES: CARR, CONTI & STONE JJ DATE OF ORDER: 9 NOVEMBER 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellants pay the respondent's 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 N 1102 OF 2001 IN THE MATTER OF ANTHONY THOMAS RIGG & DOROTHY ANNE RIGG BETWEEN: ANTHONY THOMAS RIGG and DOROTHY ANNE RIGG Appellants AND: THE COMMONWEALTH BANK OF AUSTRALIA Respondent JUDGES: CARR, CONTI & STONE JJ DATE: 9 NOVEMBER 2001 PLACE: SYDNEY REASONS FOR JUDGMENT THE COURT: introduction 1 This is an appeal from the judgment of a judge of this Court who, on 16 July 2001, on the petition of the respondent, ordered that the estates of the appellants be sequestrated. factual and procedural background 2 The following recital of the factual and procedural background to this matter is largely taken from various judgments delivered during the course of a long history of litigation between the appellants and the respondent. 3 At all material times the appellants were the governing directors of two companies respectively named Tony Rigg Welding & Manufacturing Pty Ltd ("Welding") and Tony Rigg Supplies Pty Ltd ("Supplies"). Welding was an operating company which carried on the appellants' family business, and Supplies was the trustee of two discretionary trusts and held shares in the capital of Welding which carried substantial rights to dividends and capital. 4 In May 1985 the appellants, who at the time owed substantial sums of money to the State Bank, approached the respondent seeking funds for the development of land owned by the appellants at South Nowra ("the South Nowra Property"). Part of the premises was to be occupied by and used for the purposes of Welding and the remainder of the premises was to be let to third parties. 5 By letter dated 5 June 1985 the respondent offered the appellants a bank facility which was duly accepted by them. The facility involved the drawing by the appellants of bills of exchange which were "rolled over" upon maturity. The first draw-down under the bill facility was done through the account of Supplies, but thereafter draw-downs and roll-overs occurred through the account of Welding. Initially the facility was for $485,000, but it was eventually increased to $750,000. The transactions also involved (amongst other things) the appellants executing a guarantee, in respect of advances to Welding, in favour of the respondent and the granting by them of mortgages over two properties they owned, namely the South Nowra Property and their home at Nowra ("the Nowra Property"). 6 The funds which were made available by the respondent through the facility were used partly to repay the appellants' indebtedness to the State Bank and partly to pay for the construction of the premises on the South Nowra Property. Although the land in question was owned by the appellants, the building costs were paid by Welding. As Gleeson CJ, in his reasons for judgment of 24 October 1989 in the New South Wales Court of Appeal, stated, the arrangements for payment of the building costs could not have occurred, and did not occur, without the active participation of the appellants. They at all times controlled Welding and the payments in question were made by cheques which they signed and drew on the company's bank account. 7 The relationship between the parties soured and in 1989 three pieces of litigation were commenced in the Supreme Court of New South Wales. The first was action No. 1544 of 1989 in which the appellants sued the respondent. In the second action, No. 1598 of 1989, Welding sued the respondent. In summary, the respective plaintiffs complained that the respondent had used Welding's account as the conduit for the advances which had been made available pursuant to the facility. This was said to have amounted to a breach by the respondent of a fundamental condition of the loan contract. In the proceedings brought by the appellants they sought declarations that no monies were due and payable by them (or by Welding) to the respondent, injunctions restraining the respondent from exercising the powers conferred upon it by the abovementioned mortgages, and other relief. 8 The respondent cross-claimed against the appellants for the sum of $750,000 plus interest in respect of a bill of exchange drawn by the appellants in favour of the respondent for that amount. The respondent also sued the appellants for $288,747.88 plus interest being monies owed pursuant to the guarantee mentioned above. 9 The respondent moved for summary judgment in respect of its cross-claim. On 19 April 1989, for reasons delivered on that date, Young J granted summary judgment in favour of the respondent against the appellants in the sum of $1,215,038.48. The appellants appealed from that judgment to the Court of Appeal which, on 24 October 1989, unanimously dismissed the appeal. The appellants then lodged an application for special leave to appeal against the Court of Appeal's decision to the High Court of Australia. 10 In the meantime, in the third action, action No. 4009 of 1989, the respondent sued for possession of the South Nowra Property. That action was listed for hearing on 21 November 1989, but was adjourned because on that date the parties entered into settlement negotiations which culminated in a settlement. The terms of settlement were evidenced by a document dated 23 November 1989 ("the Terms of Settlement") executed by the appellants, Welding and the respondent. 11 Relevantly, the Terms of Settlement provided that the appellants would pay to the respondent the amount of $980,000 ("the Principal Sum") by a payment of $380,000 on 16 January 1990 ("the Settlement Date") and the balance of $600,000 on or before 16 October 1990. The respondent consented to the judgment in its favour in action No. 1544 of 1989 being set aside. All existing orders for costs were to be vacated by consent. The appellants agreed to file a notice of discontinuance in those proceedings and to consent to the striking out of the "Notice of Appeal". (We have taken that to mean that they consented to have their application for special leave to appeal struck out). Welding agreed to file a notice of discontinuance in action No. 1598 of 1989. The Terms of Settlement contained mutual releases by the parties from all claims and liabilities arising out of or in relation to the matters referred to in both actions. 12 In relation to action No. 4009 of 1989 (sometimes referred to by its former number, 12044 of 1989), the appellants consented to the respondent having judgment for possession of the South Nowra Property, with execution on that judgment being stayed until the Settlement Date. Subject to payment by the appellants of the sum of $380,000 on that date, the respondent agreed to consent to the judgment for possession being set aside. 13 The Terms of Settlement also included provision that the respondent could hold the two mortgages as security for payment of the Principal Sum and interest. 14 The parties took some of the steps necessary to implement the Terms of Settlement, but the appellants did not pay any of the money payable pursuant to those terms. 15 Further disputes arose. On 20 March 1991 the respondent procured the issue of a writ of possession of the South Nowra Property. On 27 April 1992 the Sheriff took possession of that property, pursuant to that writ. The respondent appointed an estate agent to manage the South Nowra Property who eventually sold it in June 1994. 16 On 22 July 1991 the appellants commenced action No. 3120 of 1991 in the Supreme Court of New South Wales against the respondent purporting to re-open the original dispute. By letter dated 3 October 1991 to the respondent, the appellants, amongst other things, purported to rescind not only the 1985 agreement for the bill facility and each of the bills of exchange that had been issued under that agreement, in each of those cases on the ground of fraud, but also to rescind the Terms of Settlement on the ground that it was voidable at their option "upon a total failure of consideration". It does not appear from the evidence before us what happened to action No. 3120 of 1991 or a related case, No. 3122 of 1991 brought by Welding against the respondent. 17 In another action, action No. 12836 of 1993, the respondent sued the appellants in the Supreme Court of New South Wales seeking judgment for possession of the Nowra Property (that is, the appellants' home) and also for the sum of $738,533.45 being the balance of the sum of $980,000 payable under the Terms of Settlement, and interest, after giving various credits. The appellants brought four cross-claims, one of which they discontinued. In summary, the claims made in the cross-claim were that the respondent had breached certain terms said to have been implied in the Terms of Settlement, had waived the requirement for the first payment, due under those terms on 16 January 1990, to be made on that date, had served a defective notice of demand and had failed properly to "… market the [South Nowra Property] so as to obtain a sale thereof within a reasonable time or a reasonable price." Those proceedings were heard by Brownie J over a period of five days in November 1999. The appellants were represented at that hearing by senior and junior counsel. On 1 February 2000 Brownie J gave judgment in favour of the respondent for $1,040,987.79 and for possession of the Nowra Property. His Honour dismissed the appellants' cross-claims and ordered them to pay the respondent's costs of the action and the cross-claims. 18 The appellants appealed against that judgment to the Court of Appeal which, on 18 July 2000, unanimously dismissed the appeal. The appellants applied to the High Court of Australia for special leave to appeal against the orders of the Court of Appeal dismissing their appeal from the decision of Brownie J. On 1 June 2001 the High Court of Australia heard and dismissed that application. 19 In the meantime, the appellants had procured the issue of a bankruptcy notice based upon the judgment obtained from Brownie J. The respondent served the bankruptcy notice on the appellants on 11 April 2000. The appellants applied for an extension of time in which to comply with the bankruptcy notice. That application was ultimately heard by Hely J and refused. On 26 June 2000 the appellants filed an appeal against the orders of Hely J. That appeal was listed for hearing on 28 November 2000. On 27 November 2000 the appellants notified the Court that they wished to withdraw the appeal. On 28 November 2000 the appeal was dismissed by consent. 20 Again in the meantime, on 31 July 2000 the respondent had filed a petition seeking a sequestration order against the estates of the appellants on the ground that they had committed an act of bankruptcy by failing to comply with the requirements of the bankruptcy notice. 21 On 30 March 2001 the appellants filed a notice of intention to oppose the petition. Among other grounds stated in that notice, the appellants asserted that the judgment in action No. 1544 of 1989 (that judgment was identified in the notice by reference to the date upon which the Court of Appeal dismissed the appellant's appeal) had been obtained by fraud, that the bank had withheld documents, altered documents and drawn documents with intent to deceive. 22 In January 2001 the appellants filed a motion seeking trial of the petition by jury, the issue of subpoenas and "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." 23 On 27 April 2001 Beaumont J dismissed the motion for a trial by jury. 24 On 3 May 2001 Madgwick J made orders ex parte granting leave to the appellants to issue certain subpoenas. On 9 May 2001, the respondent filed a notice of motion seeking a stay of those orders and determination of the question whether subpoenas should be issued. 25 On 29 May 2001 Madgwick J directed the appellants to provide (by 12 June 2001) certain particulars and a list of the categories of documents which they claimed had not been discovered in action No. 12836 of 1993 (the action which resulted in the judgment upon which the bankruptcy notice was based) and in respect of which they sought discovery in the petition proceedings. The appellants did not comply with that direction. On the same day (29 May 2001) his Honour fixed the petition for hearing on 16 July 2001, with a final directions hearing to be held on 3 July 2001. The matter came on for directions before Madgwick J a little earlier, namely 29 June 2001, when counsel for the appellants indicated that his clients sought certain documents listed in a draft subpoena addressed to the Managing Director of the respondent. 26 His Honour took the view that the description of the documents in that subpoena was not comprehensible. He asked the appellants' counsel to settle and sign any further request for documents, detailing the categories of documents required by the appellants on discovery, but expressed in a way which would be intelligible. The appellants did not provide such a document. 27 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 the appellants which was filed and served on or about 12 July 2001, very 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 of the petition to a date after such discovery had taken place. the hearing at first instance 28 The petition came on for hearing before the learned primary judge on 16 July 2001. His Honour refused the adjournment sought and refused to grant an order for discovery. 29 In summary, the appellants sought discovery on the issue of allegedly fraudulent conduct by the respondent in: · obtaining the judgment which was the subject of orders by Young J in its cross-claim in 1989, by failing to give proper discovery of documents which would show fraudulent calculations on the respondent's part; · establishment of the quantum of the debt in the 1989 Terms of Settlement. This was said to flow from the fraudulent conduct referred to immediately above; · ascertainment of and/or allegedly unauthorised enlargement of the quantum of that debt since that time; · alleged mismanagement of the South Nowra Property, involving a number of leases and the sale of that property; and · the sale, at an alleged under-value of the Nowra Property (i.e. the appellants' former home). 30 At the hearing of the petition the appellants sought inspection of the original of the bill of exchange for $750,000 which formed part of the subject matter of the respondent's cross-claim in action No. 1544 of 1989. This was on the basis that the second-named appellant, Mrs Rigg, now claimed that she had not signed the bill and that what purported to be her signature on a copy of that document (shown to her only "recently"), was a forgery. 31 In his ex tempore reasons for judgment, the primary judge noted that a great many documents had been discovered by both parties in action No. 12836 of 1993. Those lists of discoverable documents were in evidence before the primary judge. In the course of his reasons for judgment his Honour said this: "The difficulty is that 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 allegation." 32 In relation to the sale of the Nowra Property, his Honour noted that even if fraud could be established and it could be shown that the sale should have been made at double or treble the sum realised, that would still leave the appellants owing a large amount of the judgment debt. His Honour also noted that the appellants had asserted through counsel that they were indigent and that a social security pension was their sole source of support. 33 His Honour further noted that the appellants were in default in respect of an order for particulars made on 29 May 2001. 34 He found that no satisfactory basis had been shown to him for inferring a reasonable prospect that fraud, relevant "padding" of the debt, or sale at an under-value of the Nowra Property could ever be shown. 35 His Honour then said this: "It would be wrong to permit re-litigation of the alleged sale at an under-value of the South Nowra commercial property when the Supreme Court case dealing with that matter was years in the preparation and, as it turns out, it seems likely that enough documents were produced by the bank on discovery in the Supreme Court proceedings to enable any further documents to be chased down in the litigation in that court. There is no evidence that there are any such other documents, but I am prepared to contemplate that there might possibly be some, or that the applicant may not have fully disclosed documents in their possession or control. Nor is there any evidence before me to indicate that any such other documents would have a real possibility of assisting the respondent. In these circumstances it seems to me that no basis has been shown for me to make an order for discovery wholly or partially in terms of that sought. There is therefore no point in acceding to the application for an adjournment and I decline to do so." 36 Finally, his Honour referred to the recent claim by Mrs Rigg that she had not signed the bill of exchange which formed part of the subject matter of the respondent's cross-claim in action No. 1544 of 1989, which his Honour referred to as "… a possible claim of non est factum by Mrs Rigg". His Honour noted that counsel for the appellants candidly acknowledged that the claim had never before been raised and that the pleadings in that action indicated that the new claim was in contradiction of admissions expressly made by Mrs Rigg in those proceedings. 37 His Honour then proceeded to make the necessary findings of fact upon which to ground the sequestration order and made such an order in respect of the estates of the appellants. the appeal 38 The appellants appear to have drafted the appeal without professional assistance. However, their grounds can be distilled to one proposition. The proposition is that his Honour erred in law by refusing the appellants what they variously describe as "free and open discovery" and "fair and open discovery" in relation to their allegations of fraud. 39 The appellants faced at least two hurdles at first instance. The first was to show that the respondent had not complied with its discovery obligations in the proceedings before Brownie J or in any of the earlier proceedings which could be said to have led to the respondent obtaining judgment in its favour in that action, being the judgment upon which the bankruptcy notice was based. The second was to show that some previously undisclosed documentary material, which should have been disclosed in any of those proceedings, had since become available and from which documents it appeared that there was at least a real possibility that the respondent would not have secured that judgment: Commonwealth Bank of Australia v Quade (1991) 178 CLR 134. 40 The initial written submissions filed on behalf of the appellants in this appeal comprised simply a 13 page copy of submissions apparently made by their counsel to the Court of Appeal at the hearing of the appeal from the judgment given by Brownie J. We did not find that document of any assistance in the disposition of this appeal. 41 The appellants tendered an affidavit sworn on 15 October 2001 annexing various documents which were said to demonstrate the respondent's "unconscionable conduct". The respondent raised no objection to the tender and we have looked at those documents. 42 In our opinion, there is nothing in those documents which raises, as a reasonably arguable issue, the proposition that the respondent has engaged in the fraudulent conduct (including improper withholding of discoverable documents) which the appellants allege. By way of an example, the appellants sought to make much of certain internal memoranda prepared by officers of the respondent. The memoranda, which relate to calculation of amounts owing by the appellants, are, in the main, dated in May and June 1990, some twelve months after Young J's judgment on the respondent's cross-claim which originally quantified the appellants' indebtedness to the respondent. The Principal Sum payable pursuant to the terms of the Terms of Settlement was about $235,000 less than the judgment sum. There is no evidence that these memoranda were suppressed by the respondent when it gave discovery of its documents in action No. 12836 of 1993. In fact, although we have not made an exhaustive search, some of the documents on which the appellants rely bear a very marked resemblance to documents described in items S32 and S34 of the respondent's supplementary list of documents in those proceedings. 43 Mr D C Fitzgibbon of counsel appeared for the appellants at the hearing of the appeal before us. He had also appeared before the primary judge. Mr Fitzgibbon submitted that there had "… never really been an opportunity to inspect [the original of the bill of exchange allegedly signed by Mrs Rigg in 1997] as such". That document, so he submitted, was critical. 44 In our view there is no substance in this submission. In their statement of claim in action No. 1544 of 1989 the appellants pleaded that they had signed various bills of exchange, one of which was the bill of exchange which they seek to put in question in this matter. The appellants tendered affidavit evidence in the 1989 proceedings. Part of that evidence was that at the time when Mrs Rigg signed the bill, the identity of the drawee was in blank. There was also an assertion to that effect in the verified defence to the cross-claim. In his reasons for judgment in the Court of Appeal, Gleeson CJ pointed out that that assertion was manifestly incorrect because there was no doubt that Mrs Rigg signed a printed form of bill of exchange which showed the respondent as drawee. It emerged during the course of argument on that appeal that when the affidavit and verified defence were prepared, Mrs Rigg and her legal representatives had confused the drawee with the payee. 45 In his submissions to us Mr Fitzgibbon speculated, on the basis of the report of a handwriting expert, Mr Chris Anderson, that Mrs Rigg's signature on the bill of exchange might have been reproduced on that document by using a "cut and paste" computer technique. It is quite clear that Mr Anderson was not expressing any such opinion, but was simply putting forward a "hypothesis" or speculation if it turned out to be the fact that the original of the bill of exchange was not available for examination. 46 We do not think that any error on the primary judge's part has been demonstrated. There was clearly no evidence of any real substance before his Honour that the respondent had failed to comply with its discovery obligations in the various proceedings in the Supreme Court, or that it had, by fraud, obtained the judgment on which the bankruptcy notice was based. 47 In those circumstances, it can be seen that the appellants were asking the primary judge for wide-ranging discovery of documents on the basis of bare allegations of fraud and on speculation by the appellants that there may have been such fraud. These are not sufficient bases for obtaining discovery. The appellants were, in our view, engaging at best in a fishing exercise – see W.A. Pines Pty Ltd v Bannerman (1980) 30 ALR 559 at 567; Melbourne Home of Ford Pty Ltd v Trade Practices Commission (1979) 36 FLR 450 at 460. 48 The appellants put no evidence before the primary judge as to how they came by the documents upon which they relied as establishing a right to discovery on the basis that the respondent had obtained the judgment in action No. 12836 of 1993 by fraud in the sense of improperly withholding discoverable documents. His Honour was fully justified, in our view, in expressing the suspicion (in the first of the passages set out above) that discovery in the proceedings before Brownie J was the very source of the documents upon which the appellants now seek to rely to sustain their allegations that his Honour's judgment was procured by fraud on the respondent's part in not giving proper discovery. 49 Mr Fitzgibbon made further submissions challenging the primary judge's power to make the order requiring the appellants to give particulars of their allegations of fraud. They were summarised in paragraphs 2, 3 4 and 5 of a written outline of submissions signed by the appellants and filed shortly before the hearing of the appeal. We do not think that it is necessary to deal with those submissions in detail. All we would say is that they are, in our opinion, misconceived and simply wrong. 50 The only basis for the adjournment application was to enable the appellants to obtain discovery. There is thus no need to consider separately whether the hearing of the petition should have been adjourned. There was, in our view, no basis for the adjournment sought. 51 In our opinion, there is no merit in the appeal. It should be dismissed with costs. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court. A/g Associate: Dated: 9 November 2001 Counsel for the Appellants: Mr D C Fitzgibbon Counsel for the Respondent: Mr A G Bell Solicitor for the Respondent: Mr L E Taylor Date of Hearing: 5 November 2001 Date of Judgment: 9 November 2001