FEDERAL COURT OF AUSTRALIA Martinek v Commonwealth Bank of Australia [2014] FCA 578 Citation: Martinek v Commonwealth Bank of Australia [2014] FCA 578 Appeal from: Commonwealth Bank of Australia v Martinek [2013] FCCA 2321 Parties: JAMES BARRY MARTINEK and PATRICIA MAREE MARTINEK v COMMONWEALTH BANK OF AUSTRALIA LIMITED File number: QUD 860 of 2013 Judge: PAGONE J Date of judgment: 4 June 2014 Catchwords: BANKRUPTCY – application to set aside sequestration order – appeal by way of rehearing – whether debtor had viable cross-claim equal to or exceeding amount of judgment debt subject of creditor's petition – discretion of Federal Circuit Court to adjourn or dismiss creditor's petition to allow debtor to pursue cross-claim. Legislation: Bankruptcy Act 1966 (Cth), ss 40(1)(g), 52 Federal Court of Australia Act 1976 (Cth), s 24(1)(d) Cases cited: Allesch v Maunz (2000) 203 CLR 172 Commonwealth of Australia v Martinek [2014] FCCA 2321 George v Deputy Commissioner of Taxation (2004) 212 ALR 496 ICM Agriculture Pty Ltd v Young (2009) 260 ALR 515 Rigg v Baker (2006) 236 ALR 629 Thredgold v Fyfe Pty Ltd [2013] FCA 1363 Totev v Sfar (2008) 167 FCR 193 Westpac Banking Group v Tsatsoulis [2003] FCA 406 Wren v Mahony (1972) 126 CLR 212 Date of hearing: 27 May 2014 Date of last submissions: 27 May 2014 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 12 Counsel for the Appellants: The first appellant appeared in person Counsel for the Respondent: Mr D L Cook Solicitor for the Respondent: Ashurst Australia IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION QUD 860 of 2013 ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA BETWEEN: JAMES BARRY MARTINEK First Appellant PATRICIA MAREE MARTINEK Second Appellant AND: COMMONWEALTH BANK OF AUSTRALIA LIMITED Respondent JUDGE: PAGONE J DATE OF ORDER: 4 June 2014 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellants pay the respondent's costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION QUD 860 of 2013 ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA BETWEEN: JAMES BARRY MARTINEK First Appellant PATRICIA MAREE MARTINEK Second Appellant AND: COMMONWEALTH BANK OF AUSTRALIA LIMITED Respondent JUDGE: PAGONE J DATE: 4 June 2014 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 Mr and Mrs Martinek appeal from a judgment of the Federal Circuit Court delivered on 10 December 2013 ordering that a sequestration order, with costs, be made against their estates. Mr Martinek appeared in person on their behalf on the date fixed for their appeal and unsuccessfully sought an adjournment of their appeal for the reasons which were given orally. 2 Mr and Mrs Martinek had previously been represented by a solicitor, Mr Trevor Hall, who had filed a notice of appeal on their behalf. Mr Martinek said in sworn evidence that Mr Hall had acted for them without fee but that they were dissatisfied with his handling of their matter and decided no longer to use his services in the appeal. That resulted in the appellants being unrepresented by experienced or qualified lawyers at the hearing of the appeal. Mr Martinek participated at the hearing after his unsuccessful application for adjournment but contended that he was unable to conduct the appeal effectively without the assistance of a lawyer. 3 The basis of Mr Martinek's application for an adjournment is relevant to the disposition of the appeal. Mr Martinek had contended that he and his wife needed an adjournment to enable them to obtain expert forensic evidence to assist them in establishing their case against the bank. Mr Martinek gave sworn evidence on the application for an adjournment of the appeal of having been in discussions with Mr Charles Sweeney QC for about eight or nine months about whether he would assist the appellants in maintaining their case against the respondent ("the Bank"). Mr Martinek said that Mr Sweeney QC and Mr Levitt, a solicitor, had both agreed to provide assistance to the appellants if substantial evidence could be found to show that they had a good case. Neither Mr Sweeney QC nor Mr Levitt had agreed to act for the appellants in the appeal or in pursuing the case on the materials available. Indeed, Mr Levitt had written to the Bank's solicitors on 19 May 2014 seeking an adjournment of the appeal but had done so noting expressly that he had not agreed to represent the appellants nor to be formally retained by them but "to act as their agent only for the purpose of making [the] communication, and also as amicus curiae", in requesting the Bank's consent to the adjournment. The significance of these matters to the appeal is that the expert forensic evidence being sought was not to establish an issue relevant to the appeal but to obtain assistance in the hope of establishing a case. 4 The notice of appeal to this Court had been filed by Mr Hall, who ceased to act for the appellants on 7 May 2014. Mr Hall had also filed submissions in another proceeding which expressly purported to make submissions also in the proceeding commenced on behalf of Mr and Mrs Martinek. Those submissions were part of the appeal book in the Martinek appeal. Mr Martinek did not disclaim those submissions but did contend that Mr Hall had been acting beyond his depth in this matter and that his retainer had been terminated. Counsel for the Bank did not contend that Mr and Mrs Martinek had adopted Mr Hall's submissions or that they were in any way bound by them. The submissions were, however, directed to the grounds of appeal and to that extent provided potentially helpful submissions about the grounds sought to be agitated and the basis upon which they might be supported. 5 The grounds of appeal for Mr and Mrs Martinek were, in essence, that the sequestration order ought not to were made because the appellants had a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt owed to the Bank and that, in those circumstances, the Federal Circuit Court ought to have adjourned the hearing of the petition in accordance with what was said to be "the usual practice of the Court". The grounds of appeal were stated as: 1. His Honour the Learned Trial Judge erred in making an order sequestrating the estates of James Martinek and Patricia Martinek because: (a) The Appellants had a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt that they could not have set up for the purposes of section 40(1)(g) of the Bankruptcy Act 1966 (Cth), at the time that the Respondent obtained the judgment upon which it relied for the purposes of the petition; (b) The usual practice of the Court to adjourn the hearing of the petition pending the determination of the counter-claim, set-off or cross-demand was departed from without adequate or sufficient justification. Although the grounds of appeal appeared to rest upon the contention that the Federal Circuit Court ought to have granted an adjournment of the hearing of the petition, the orders sought in the notice of appeal were that the sequestration order be set aside and that the petition be dismissed. 6 An appeal from a sequestration order may be brought under s 24(1)(d) of the Federal Court of Australia Act 1976 (Cth). An appeal under that provision is by way of rehearing (George v Deputy Commissioner of Taxation (2004) 212 ALR 496 at [11]; Thredgold v Fyfe Pty Ltd [2013] FCA 1363 at [15]) but is to be exercised only where the appellant can demonstrate that, having regard to the evidence before the appellate court, the order which is the subject of the appeal is the result of some legal, factual or discretionary error: Allesch v Maunz (2000) 203 CLR 172 at 180-1. The notice of appeal claims, potentially, two errors: first, that the appellants had a claim equal to or exceeding the amount of the judgment debt, and secondly that the hearing of the petition ought to have been adjourned to enable their claim to be determined. 7 The Bank had relied upon a judgment against Mr Martinek entered against them on 11 February 2013 of some $4.2 million after allowance for payments and credits since the date of judgment. A bankruptcy notice was served upon Mr and Mrs Martinek on 26 September 2013 and was to be complied with on or before 17 October 2013. Section 40(1)(g) of the Bankruptcy Act 1966 (Cth) provides that a person commits an act of bankruptcy where a creditor has obtained a final judgment against the debtor and, after service of a notice upon the debtor, the debtor does not comply with the requirement of the notice or satisfy the court "that he or she 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". Mr Hall appeared for the appellants in the Federal Circuit Court at the hearing of the petition against them and had contended, unsuccessfully, that they had a claim within the meaning of s 40(1)(g). The learned judge hearing the petition heard argument on that ground and dismissed it. No error has been shown to vitiate that decision. 8 The judgment which had been relied upon for the petition had been entered against Mr and Mrs Martinek by order of Mullins J in the Supreme Court of Queensland. The petition was opposed by Mr and Mrs Martinek on five grounds which were set out in paragraph 2 of the reasons for the decision by Judge Burnett on 4 December 2013 in the Federal Circuit Court, namely: 1. The judgment upon which the petitioning creditor relies was entered against the judgment debtor on 11 February 2013 and was not a final judgment on the merits entered after a fully adjudicated hearing; 2. The judgment was entered pursuant to a judgment in the Supreme Court of Queensland (BS 7916 of 2011). The respondents were not present in the jurisdiction at the time of those proceedings; 3. On 9 July 2013 the respondents, together with Mr Trevor Eriksson, filed a Statement of Claim in the Supreme Court of New South Wales in which they applied for orders, the effect of which if granted would make nugatory the Queensland judgment; 4. The proceedings commenced on 9 July 2013 are fresh proceedings within s.40(1)(g) of the Bankruptcy Act 1966 (Cth) in that the fresh proceedings raise a counter claim equal to or exceeding the amount of the judgment debt or sum payable under the final order of the Queensland judgment; a counter claim that could not have been set up in the action in which the judgment or order was obtained; and 5. The respondents intend to prosecute the fresh proceedings. In considering these grounds his Honour was aware of the settled law that a court of bankruptcy may go behind the judgment to determine if there is indeed a good debt behind the judgment: Commonwealth of Australia v Martinek [2014] FCCA 2321 at [4]; Wren v Mahony (1972) 126 CLR 212 at 224. His Honour then examined the debt behind the judgment and determined that it was truly and justly owing. In that context his Honour considered a variety of claims which have been made against the Bank by Mr and Mrs Martinek of, for instance, unconscionable conduct, but found against Mr and Mrs Martinek. No error in any of his Honour's conclusions or reasoning was identified in the notice of appeal beyond the broad assertion in paragraph 1(a) (quoted above) of error in his Honour's conclusion, and none was shown by Mr Martinek at the hearing of the appeal or in Mr Hall's written submissions as they had been filed at a time when he had been acting for the appellants. However, and fundamental to any prospect of appeal, there was no evidence before his Honour that quantified the claim against the Bank for any amount that would justify a conclusion of solvency. In that regard his Honour said: 32. In any event, for present purposes I do not think that the debtors' claim against the creditor is such as to be likely to give rise to the prospect of fruitful litigation, and its outcome is unlikely to see the debtors' solvency established or preserved even if an outcome could be quickly obtained (a matter I seriously doubt). It is apparent from Mr Martinek's affidavit that he has no money. Indeed, he is investigating the prospect of tapping his superannuation fund to fund any litigation. To date, he has only been occasionally represented. His proceedings have not been well run and there are now cost orders outstanding against him. None of the material before his Honour, and none of the material upon the appeal, provided any basis for a conclusion other than that the appellants were insolvent even if they had an arguable claim. 9 Section 52(1) of the Bankruptcy Act 1966 (Cth) permits the court to make a sequestration order against the estate of a debtor where certain matters are proved. Section 52(2) empowers the court to dismiss the petition where the court is not satisfied with the proof of any of the matters required by the section to be proved or where the court is satisfied by the debtor "that for other sufficient cause a sequestration order ought not to be made". There was no other cause shown to the learned judge in the Federal Circuit Court or to this Court on appeal that would justify the dismissal of the petition as sought in the notice of appeal. 10 The ground in paragraph 1(b) in the notice of appeal was understood by the Bank as a challenge to the exercise of a discretionary judgment by the learned judge in the Federal Circuit Court not to grant an adjournment. Such a ground of appeal faces several difficulties. The first is that if there had been a failure to grant an adjournment it was not because an adjournment had been sought and rejected: no formal application for adjournment had been made by the appellants. The appellants had opposed the making of a petition rather than having sought that the hearing of the petition be adjourned. Section 52 of the Bankruptcy Act 1966 (Cth) does not provide for an adjournment of petitions but in Rigg v Baker (2006) 236 ALR 629 French J said at [66]-[67]: 66 A distinction has been drawn between a claim against the petitioner creditor which is likely to succeed and which would warrant refusal of a sequestration order and a "real claim" which has sufficient prospect to warrant the debtor being granted an opportunity to have it litigated. In the latter case an adjournment of the petition may be appropriate: Re Jovanovic (1997) 42 NSWLR 520 citing Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No 2) (1994) 51 FCR 14 at 22 (Olney J). The existence of a cross-claim against the petitioning creditor which is likely to succeed may support the proposition that the sequestration order ought not to have been made and should be annulled. On the other hand the existence of a real claim which might have warranted adjournment would not necessarily support that conclusion. That is not to exclude the possibility that in appropriate circumstances the registrar or judge hearing the petition ought to grant an adjournment on the basis of a "real cross-claim". 67 When the creditor's petition is based upon a judgment debt, the existence of a pending appeal against that judgment may also be a ground for adjourning the petition. In Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 the Full Court said that: It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds. That observation arose in the context of an appeal against a sequestration order made after the primary judge had refused to adjourn a petition based on a default judgment then subject to appeal. The ability to adjourn the hearing of the petition on this basis derives, no doubt, from the power of the court or registrar to ensure that the conduct of hearings serve the interest of justice and advance the purposes for which the jurisdiction is conferred. However, the hearing of a petition should not be adjourned where the court is satisfied that there is no real cross-claim or other substantive claim to be established by the debtor. Section 52 of the Bankruptcy Act 1966 (Cth) provides for the making of an order if the court is satisfied of certain matters and for the dismissal of the petition if it is not satisfied with the proof of those matters. The court will ordinarily dismiss a petition where it is satisfied by the debtor, amongst other things, "that for other sufficient cause a sequestration order ought not to be made". The learned judge in the Federal Circuit Court had not been satisfied by Mr and Mrs Martinek that there was other sufficient cause not to make the sequestration order. His Honour specifically concluded in paragraph [33] that it had "not been demonstrated that there [was] other sufficient cause as to why a sequestration order ought not be made". None has been shown on appeal to this court and, accordingly, the power to dismiss the petition under s 52(2) was not engaged and the occasion for an adjournment as contemplated in Rigg v Baker did not arise. 11 The learned judge had concluded that the claim made against the Bank by Mr and Mrs Martinek had no real prospect of success (see: Westpac Banking Group v Tsatsoulis [2003] FCA 406; ICM Agriculture Pty Ltd v Young (2009) 260 ALR 515; Totev v Sfar (2008) 167 FCR 193) in part because the loan facility they had granted had expired on its terms and had not been terminated because of any unconscionable review by the Bank as alleged. That conclusion is not shown to be erroneous. The appellants, in Mr Hall's submissions, contended that they were able to avoid a deed of forebearance but that claim was found, correctly, to be of no effect upon the debt, or to support of their claim against the Bank, because the facility had expired through the effluxion of time and not as a result of the default alleged against the bank. 12 Accordingly, the appeal will be dismissed with costs. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Pagone. Associate: Dated: 4 June 2014