FEDERAL COURT OF AUSTRALIA

Commonwealth Bank of Australia v Conley, in the matter of Conley

[2006] FCA 1011

IN THE MATTER OF STEPHEN CONLEY

COMMONWEALTH BANK OF AUSTRALIA v STEPHEN CONLEY

NSD 941 OF 2006

RARES J

4 JULY 2006

SYDNEY

THE COURT ORDERS THAT:

1. A sequestration order be made against the estate of Stephen Conley.

2. The applicant creditor’s costs, including any reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

THE COURT NOTES THAT:

1. The date of the act of bankruptcy is 7 March 2006.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1                     This is the hearing of a creditor's petition filed by the Commonwealth Bank of Australia on 16 May, 2006. I am satisfied that the debtor, at the time of the filing of the petition on 16 May 2006, owed the judgment creditor $12,252.80 being the balance of the amount due under a final judgment recovered in the Local Court of New South Wales at Manly on 9 December, 2005. Consideration for the debt was money lent. I am satisfied that the applicant creditor does not hold security over the property of the respondent, and that at the time when the act of bankruptcy was committed on 7 March 2006, the debtor, having been served with a bankruptcy notice on 14 February 2006, was ordinarily resident in Australia.

2                     I am satisfied that all the conditions necessary for compliance with the Bankruptcy Act 1966(Cth) and rules have been established by the applicant.

3                     This is a sad case involving a matter that is obviously of great significance to Mr Conley. He has had a number of attempts to resolve claims he has had against the bank in various proceedings, including proceedings opposing the order for possession which led to the ultimate sale of his home. Those proceedings went at least to the Court of Appeal of the Supreme Court of New South Wales, which rejected Mr Conley's claim that the mortgage or transactions over his home were such as attracted relief under the Contracts Review Act 1980 (NSW).

4                     The bank exercised its power of sale in circumstances where Mr Conley had obtained a valuation from RPG Property Services which had been provided to the bank suggesting that the property was worth $700,000. Ultimately, it was sold for something in the order of about $375,000 at an auction. He brought proceedings then in the District Court in 2002 seeking to have the bank account for what he claimed to be the fraudulent exercise of its power of sale. Those proceedings progressed somewhat slowly, but in circumstances where the competing sides put on affidavit evidence suggesting that the property was worth, on the bank's evidence, on a forced sale basis as at the date of sale, $360,000, and on Mr Conley's valuer's evidence between $550,000 and $600,000.

5                     I am satisfied that there is a bona fide dispute that Mr Conley could raise in litigation to contest the exercise of the power of sale in the way in which it was exercised. Unfortunately, his proceedings in the District Court were listed for hearing on 21 February, 2005 at a time when I infer that Mr Conley had suffered then, or very recently beforehand, a very serious injury to his shoulder and biceps which required, and still does require, significant corrective surgery. The medical evidence establishes that he had had this injury for some 4 to 5 weeks as at about 23 March, 2005 and, although there is no direct evidence on the matter, for the purposes of today, I am prepared to infer that the injury was a cause of his not being able to attend or not attending the District Court of New South Wales when the matter was before Rolfe DCJ on 21 February, 2005.

6                     On that date, in default of Mr Conley's appearance, his Honour dismissed the proceedings on a partial basis under the provisions of the District Court rules. I understand from the submissions made by Ms Jackson, who appears for the bank, that that had the effect of permitting Mr Conley to apply to reinstate the proceedings within 28 days, and that if that application were successful, the proceedings would continue in that Court. Ultimately, on 18 March 2005, Mr Conley did file an application to set aside the preliminary Dismissal Order but on 17 June 2005, Gibson DCJ dismissed that motion and confirmed the dismissal of the proceedings in accordance with the orders of Rolfe DCJ of 21 February 2005, including an order for costs.

7                     In the meantime, on 27 May 2005, the bank commenced proceedings against Mr Conley in the Local Court at Manly. He filed a defence to those proceedings on 27 June. The Local Court proceedings involved a claim on a credit card facility granted by the bank which he said he had maintained for over 30 years. In the defence, he said that in January 2001, he had been granted a carer payment which he was still in receipt of, and that he now cares, he told me today, for an elderly relative. Mr Conley later filed an amended defence in September 2005 but that did not raise any suggestion that the Local Court proceedings ought to be transferred to the Supreme Court or to another Court in which he could raise, a set-off to those proceedings for a money debt, based on the unadjudicated cause of action which he had for an accounting in respect of the mortgagee sale.

8                     On 30 September 2005 the bank filed a motion in the Local Court to strike out the amended defence. The motion was heard on 28 October 2005, at which time the Local Court struck the defence out. On 9 December 2005 the bank entered a default judgment in the Local Court which led to the debt, the subject of the creditor's petition.

9                     Mr Conley commenced proceedings in the Supreme Court of New South Wales on 26 June 2006 in which he has reformulated and expanded his claim against the bank in respect of the account which he seeks from it as a defaulting mortgagee together with consequential losses.

10                  In preparing that pleading, Mr Conley has told me that he wished to wait until he was medically in a position where there would be no further adjournment due to his medical condition and the proceedings would be able to proceed regularly and promptly. However, he has felt the need to begin the proceedings, I infer, from the imminence of today's hearing. In support of his statement of claim, he prepared a considerable body of material which is in exhibit before me today and to which I have referred.

11                  The statement of claim sets out in a comprehensive way, and one which is able to be followed clearly, the basis upon which Mr Conley claims the bank acted in breach of its duties as a mortgagee. As I say, I am satisfied that there is a bona fide cause of action that he has, which he genuinely wishes to litigate and which is not simply colourable such as might be regarded as an abuse of process. Mr Conley has put on a notice of opposition to the petition in which he asserts that the bank, in effect, on an accounting, would owe him approximately $750,000 and that the bank has adopted delaying tactics to stall the earlier District Court proceedings.

12                  He has, in the notice of opposition, referred to his intention to undergo surgery and his inability at the present time to have that carried out in a private hospital because of his financial condition. He asserts that the bank will not achieve any financial gain through his being declared bankrupt.

13                  Today, in open Court before me, Mr Conley said, and he also admitted that he had said this earlier this morning before the Registrar, that he was insolvent. He says that the proceedings and consequent bankruptcy, if I make the order sought, would be oppressive for him and I can understand, from a point of view of a person who has been through the litigation and difficulties which Mr Conley evidently has, that that is a feeling he may well hold.

14                  Unfortunately, it seems to me that the substance of Mr Conley's opposition comes down to whether I should exercise my powers under s 52(2)(b) of the Bankruptcy Act 1966 (Cth). Namely, that requires me to be satisfied by him that for other sufficient cause a sequestration order ought not be made. In the history of the litigation with which Mr Conley has been involved against the bank, which I do not pretend to have set out exhaustively, it is obvious that, in the period in 2005 when his application for reinstatement was before the District Court and the proceedings in the Local Court were commenced, Mr Conley claimed to have a significant sum with which to set off the claim in the Local Court.

15                  Once Gibson DCJ refused to reinstate the District Court proceedings, Mr Conley had, at that point, to commence proceedings either again in that Court or in the Supreme Court or some other Court of competent jurisdiction in which to litigate the unadjudicated claim for the alleged fraudulent exercise of the mortgagee's power of sale or for an equitable accounting. In Re Ling; ex parte Ling v The Commonwealth (1995) 58 FCR 129 at 137B-C, Hill J said that the onus was on a debtor to establish a cross-claim, which was one that could be set up in an action, for the purposes of opposing a bankruptcy notice; it was on the debtor to show that that a cause of action could not have been set up opposing the action in which judgment had been obtained to found the bankruptcy notice.

16                  He said that, to satisfy the onus the debtor must show that, as a matter of law and in the circumstances prevailing, he or she could not set up a cross-claim. Obviously in this case, Mr Conley could have claimed in another Court than the Local Court, the equitable accounting and consequential equitable relief which he would need to establish in order to make out his money claim against the bank based on his claim for equitable compensation or accounting.

17                  Hill J indicated that, where the debtor could do that by transferring the proceedings to another Court, then the debtor would need to do so and the discretion would not be exercised to set aside a bankruptcy notice. I appreciate that the issues in moving to set aside a bankruptcy notice under s 40(1)(g) and s 41(7) of the Bankruptcy Act 1966 (Cth) are distinct from the issues under section 52(2)(b). Indeed, in a related proceeding, Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 26 D-E, the Full Court dealt specifically with the issue of whether there was a sufficient cause for a sequestration order not to be made under s 52(2)(b).

18                  Their Honours said:

‘The authorities also show that satisfaction that the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts may well provide a basis for a finding that there is “sufficient cause” for a sequestration order not to be made (see for example, Medestra v Penfolds Wines Pty Ltd). But the authorities do not suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally. They only recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.’

19                  I have been informed by Mr Conley from the bar table that the Supreme Court proceedings are listed for their first directions on 19 September 2006. No doubt that date could be advanced, but it could hardly be said that the Supreme Court proceedings, having regard to the procedural history and the fact that Mr Conley has, as is his right, tried to reformulate his claim in the Supreme Court to enhance it over his earlier one in the District Court, are anywhere near ready. I infer that it would take a considerable time before those proceedings could be got into a state of readiness for hearing and then, presumably, some time hence before they could be heard.

20                  In the meantime, having regard to Mr Conley's admission that he is insolvent, I have to have regard to the public interest. I appreciate that the trustee in bankruptcy may or may not decide to prosecute the Supreme Court proceedings. That will be a matter for the trustee if I do what I think I must do, and that is to order that Mr Conley's estate be sequestrated.

21                  For these reasons, in this matter, I order that a sequestration order be made against the estate of Stephen Conley. I order that the applicant creditor's costs, including any reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth). I note that the date of the act of bankruptcy is 7 March 2006.

Associate:

Dated: 3 August 2006