FEDERAL COURT OF AUSTRALIA

Rafidi v Commonwealth Bank of Australia [2018] FCA 1005

ORDERS

THE COURT ORDERS THAT:

   1. The interlocutory application filed by the applicant on 29 August 2017 be dismissed with the applicant to pay the respondent’s costs thereof.

   2. The parties confer and supply draft short minutes of order to the Court within 14 days, setting out a timetable of the steps required to bring the proceedings to final hearing, marking up any areas of disagreement.

   3. The proceedings be listed for a case management hearing at 9.30am on 30 July 2018.

   4. The time within which the applicant must comply with Bankruptcy Notice BN212149 issued on 21 February 2017 be extended until final hearing or as otherwise ordered by the Court.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BURLEY J:

1.    INTRODUCTION

1    On 24 February 2017 the applicant, Iyad Rafidi, was served with Bankruptcy Notice BN 212149 (Bankruptcy Notice) issued pursuant to s 41 of the Bankruptcy Act 1966 (Cth) (Act). The Bankruptcy Notice was served by the respondent (CBA) in respect of a total debt of $9,331,605.09 resulting from orders made by consent on 4 November 2016 (Consent Orders) in proceedings conducted in the Supreme Court of NSW between Mr Rafidi, Brick and Block Company Pty Limited (BBC) and the CBA (Supreme Court Proceedings).

2    Two interlocutory applications are presently before the Court. In the first Mr Rafidi seeks to amend his originating process. It might be noted that the draft amended application and affidavits relied upon in support by Mr Rafidi do not provide any clear exposition of the basis upon which he contends that the Bankruptcy Notice should be set aside. The Federal Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules) provide in r 3.02(1) that an application to set aside a bankruptcy notice under the Act must be accompanied by an affidavit stating the grounds in support of the application and the date when the bankruptcy notice was served on the applicant. Rule 3.02(3) provides that if the application is based on the ground that the debtor has a counter-claim, set-off or cross demand referred to in s 40(1)(g) of the Act, the affidavit must also state: (a) the full details of the counter-claim, set-off or cross demand; and (b) the amount of that claim and the amount by which it exceeds the amount claimed in the bankruptcy notice; and (c) why the demand was not raised in the proceedings that resulted in the judgment or orders to which the bankruptcy notice relates. The requirements of r 3.02(3) flow from s 40(1)(g) of the Act, to which I refer in more detail below. Insofar as s 40(1)(g) refers to a cross-claim, it provides that a debtor who has been served with a bankruptcy notice in respect of a final judgment or final order must satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount payable under the final order, being a counter-claim he or she “could not have set up on the action or proceeding in which the judgment or order was obtained”.

3    In the present case Mr Rafidi relies on a proposed amended application and 4 affidavits in support, together with extensive written and oral submissions to articulate the grounds upon which he contends that the Bankruptcy Notice should be set aside. The CBA opposes the amendments on the basis that they raise a cross-claim that is prohibited by the terms of s 40(1)(g) of the Act, that the grounds are generally incomprehensible and on the basis of the costs and delay that would be occasioned by permitting the amendment. Mr Rafidi, through his solicitor, Mr Trevor Hall, urges the Court to consider the question of whether or not to grant the amendment on the basis of whether or not it raises grounds that have a reasonable prospect of successfully setting aside the Bankruptcy Notice.

4    For the reasons that I have set out below, I have found that, as far as one can tell from the materials advanced on behalf of Mr Rafidi, there are two broad substantive bases upon which he contends that the Court should go behind the terms of the Consent Orders and thereby set aside the Bankruptcy Notice. The first I have defined as the “vitiated consent allegations” and the second the “CAM cross-claim allegations”. I have concluded that leave to amend should be refused in relation to the latter.

5    In the second interlocutory application, the CBA seeks preliminary rulings as to the admissibility of the affidavit evidence filed on behalf of Mr Rafidi pursuant to s 192A of the Evidence Act 1995 (Cth) (Evidence Act) or alternatively summary disposal of the proceedings and certain orders as to costs. Orders in accordance with the first two of these are unnecessary in light of my conclusion in relation to the amendment application, and are in any event unlikely to be appropriate in the case of an application to set aside a Bankruptcy Notice. In the result, Mr Rafidi’s application to set aside the Bankruptcy Notice should proceed to hearing based on the vitiated consent allegations. I will deal with the question of costs at the final hearing.

2.    THE PROCEEDINGS

2.1    Background events

6    On 16 March 2017 Mr Rafidi filed an application in the present proceedings seeking first, a declaration that the Bankruptcy Notice was not technically valid under the Act because at the time it was issued there was not attached to it a final judgment or order as required under the Act. Secondly, a declaration that there is in truth no indebtedness due by Mr Rafidi to the CBA for the reasons set out in a document attached to the application, styled “statement of claim”. Thirdly, an order that the Bankruptcy Notice be set aside.

7    The statement of claim is some 23 pages in length and alleges that the Consent Orders arose from proceedings that did not adjudicate on matters that were the subject of the proceedings and was obtained by misfeasance. It asserts that the Consent Orders represent a judgment that a Court exercising jurisdiction in Bankruptcy can and should go behind. The reasons advanced in the document may be broadly summarised as follows. First, when the CBA acquired all of the share capital in BankWest in December 2008 it hatched a scheme (the statement of claim refers to it as the “plan”) that involved conducting a review of the commercial loan book of BankWest, transferring the facilities of certain performing loans to the credit asset management (CAM) department of that bank and writing the loans off, including the BBC facilities and Mr Rafidi’s guarantee of those facilities. The statement of claim alleges that this affected 1,958 commercial loans made by BankWest. Receivers were appointed in respect of the loans and the guarantors were pursued into bankruptcy in respect of any alleged shortfall. Central to achieving the purpose of the plan was the writing off and removal of performing loans from the loan book of BankWest sooner than it was legally entitled to do so. The statement of claim refers to the Supreme Court Proceedings and over 12 other legal proceedings, enquiries or incidents (named in the document as “scandals”) that Mr Rafidi contends reflect misbehaviour undertaken by the CBA which are apparently said to be in some way related to the execution of the plan. The alleged purpose of the plan was to switch the weight of the BankWest loan book away from commercial lending and towards residential lending which was said to be to the benefit of the profitability of the CBA. Secondly, the statement of claim alleges that the CBA engaged in 13 listed forms of misconduct during the course of the Supreme Court Proceedings. One is that the CBA falsely accused Mr Rafidi of fabricating a letter dated 14 January 2009 that is said to have contained a material offer of accommodation from BankWest (the 14 January 2009 letter). Others include making false statements to the Court, placing a fraudulent document in the court book, failing to produce documents as required, applying its skills and those of senior counsel in fraud and fabrication in order to obtain the Consent Orders and conceal the plan and failing to consent to the setting aside of the Consent Orders. By reason of these matters the statement of claim alleges that; the plan was a fraud or equitable fraud on the BBC facility and the guarantee given by Mr Rafidi; the debt that supports the Bankruptcy Notice arises by reason of misfeasance; and by reason of that fraud, the Court is asked to go behind the Consent Orders.

8    On 7 April 2017 the CBA filed a document entitled “Notice of Grounds of Opposition to the Application” (Notice) which indicated that it opposed the application on the grounds that; (a) the application requires the Court to go behind a consent judgment in the Supreme Court Proceedings; (b) the matters set out in the application, statement of claim and affidavit in support do not provide any reason why the Court should do so; and (c) the matters set out in the statement of claim are unrelated to the Supreme Court and do not raise grounds for challenging the compromise set out in the Consent Orders judgment, are generally incoherent and in any event contain reference to matters that were known to Mr Rafidi at the time when he consented to the judgment. Furthermore, the Notice states that Mr Rafidi failed in an application to set aside the judgment in the Supreme Court.

9    In case management conferences conducted before me in April and May 2017 the parties indicated their joint view that it was preferable that the question of whether or not the applicant could go behind the judgment in the circumstances set out in the statement of claim should be determined as a preliminary question. However, they were unable to propose an agreed question or agree to relevant facts and so abandoned that course. On 30 May 2017 directions were made that Mr Rafidi file the balance of his lay and expert evidence upon which he relies in the proceeding.

10    On 11 July 2017, the CBA filed an interlocutory application seeking, inter alia, orders that the document styled “statement of claim” be struck out or removed from the file, that paragraph 11 of the 16 March 2017 Rafidi affidavit be removed from the Court file, and costs. Ultimately, the order that the statement of claim be struck out was not opposed, and on 28 July 2017 I made orders by consent that it be struck out.

11    By 28 July 2017, Mr Rafidi had filed all of his substantive evidence in the application, which consists of his first affidavit filed on 16 March 2017, his second affidavit filed on 28 July 2017 and affidavits from Adrian Mastronado and Aris Evanian filed on 17 July 2017 and Graham Andersen filed on 28 July 2017.

2.2    The agreed approach to the current interlocutory applications

12    The result of the thrust and parry of the litigation to date may be summarised as follows. Mr Rafidi has abandoned reliance on the statement of claim. He now seeks leave to rely on the proposed amended application and the affidavits filed in support as the basis for his contention that the Bankruptcy Notice should be set aside.

13    The parties agree that if the allegations as advanced by Mr Rafidi (and summarised below) were to go to final hearing, they would put the CBA to very significant expense and cause significant delay.

14    The solicitor representing Mr Rafidi, Mr Trevor Hall made some relevant concessions during the conduct of the hearing. First, he invited the Court to consider the CBA’s response to Mr Rafidi’s application for leave to rely on the draft amended application as analogous to an application for summary disposal of the claim pursuant to s 31A of the FCA Act. Secondly, in a written submission filed after the current application was heard, Mr Rafidi accepts that the CAM cross-claim allegations as contained in the affidavits in support of the proposed amended application were capable of being advanced during the course of the Supreme Court Proceedings, but were not. His written submission notes that Stevenson J published a judgment that such allegations were not properly pleaded at the trial and that Hammerschlag J took the same view in respect of 5 or 6 earlier iterations of the pleadings. Mr Rafidi concedes that the consequence is that he does not fall within the exception in s 40(1)(g) of the Act. Nevertheless, Mr Rafidi submits that the Court ought to exercise its discretion to go behind the judgment on the basis of the CAM cross-claim allegations for reasons that I discuss below. Thirdly, Mr Rafidi accepts that he consented to the Consent Orders with full knowledge of the facts relevant to enter into them. Fourthly, he accepts that in this case it is appropriate for the Court to make preliminary rulings as to the admissibility of the evidence.

15    Before turning to consider the various matters raised by the parties, and the appropriate way to proceed in relation to the present interlocutory application, it is necessary to identify with some care the amendments to the grounds sought to be introduced by the proposed amended application.

2.3    The Interlocutory applications

16    On 13 October 2017 Mr Rafidi filed an interlocutory application dated 29 August 2017 seeking leave to amend his application accompanied by an affidavit sworn on the same day by Andrea Lee, solicitor, which annexed a draft amended application. On 9 November 2017 Ms Lee swore a further affidavit which annexed a different form of draft amended application, stating that Mr Rafidi seeks leave to amend his application to adopt the later form. I refer to the later of these versions as the proposed amended application. The CBA opposes the grant of leave to amend.

17    On 16 August 2017 the CBA filed an interlocutory application. In summary, it seeks:

(1) that the Court make advance rulings as to the admissibility of the affidavits sought to be relied upon by Mr Rafidi;

(2) for special orders for costs to be made against Mr Rafidi with respect to the proceedings to date; and

(3) that the Court not further extend the time for compliance with the Notice; or

(4) alternatively to (3), that the proceedings be stayed pending payment by Mr Rafidi of the costs found to be payable by him.

18    On 29 November 2017 the CBA (by consent) was granted leave to amend its interlocutory application to seek summary judgment in the proceedings pursuant to ss 23 or 31A of the Federal Court of Australia Act 1976 (Cth) (FCA Act) or alternatively pursuant to ss 23 or 37P FCA Act or r 1.32 of the Federal Court Rules 2011 (Cth) (FC Rules).

19    Prior to the hearing of these interlocutory applications the parties filed detailed written submissions. These included a schedule of objections to the evidence advanced on behalf of Mr Rafidi and responses to those objections.

20    The CBA contends that most, if not all of the evidence relied upon by Mr Rafidi is irrelevant or is otherwise inadmissible to any properly founded application to set aside a Bankruptcy Notice. It contends that the Court should refuse leave to amend, or alternatively grant leave but dispose of the application summarily, and in particular that aspect of the application that raises CAM cross-claim allegations (CAM cross-claim allegations). It submits in the alternative, that the Court should make early rulings as to the inadmissibility of evidence filed on behalf of Mr Rafidi. This is because the cost imposed upon the CBA in responding to the CAM allegations would be large and would take a considerable time to investigate.

21    The CBA relies upon three affidavits sworn by Justin Bates, who is a partner of Dentons, the solicitors representing the CBA. In the first, Mr Bates provides extensive details of the Supreme Court Proceedings, in which his firm acted. In his second affidavit, Mr Bates gives evidence about the time and effort that it would take the CBA to respond to the allegations contained in the statement of claim. The CBA relies on this affidavit in opposition to the amendment and in support of its application for preliminary rulings to be made as to the admissibility of the evidence pursuant to s 192A of the Evidence Act. Mr Bates summarises the effect of his evidence as being that it would be necessary for the CBA and its external legal service providers to perform in excess of 1 year and 9 months’ worth of work (and possibly much longer) to address all of the allegations raised.

22    In Mr Bates’ third affidavit he sets out calculations that he has made to determine the costs incurred by the CBA in investigating the allegations made in the statement of claim before it was withdrawn by Mr Rafidi and in support of an order that Mr Rafidi be obliged to pay a fixed costs order pursuant to s 43(3)(d) of the FCA Act. He assesses the total costs thrown away by reason of the abandonment of the statement of claim as being $108,503 and party-party costs as being $88,981. He proposes a lump sum costs order by applying a one-third discount to this amount giving a total of $59,314. In the alternative, he gives evidence that the costs incurred by the CBA in preparing its interlocutory application to strike out the statement of claim filed on 11 July 2017 are estimated to be $31,240 which, after discounts for party-party costs and a lump sum payment, comes to $17,181.

3.    THE PROPOSED AMENDMENTS

3.1    Introduction

23    I have noted in section 1.1 above that the requirements of the Bankruptcy Rules in relation to an application to set aside a bankruptcy notice include that it must be accompanied by an affidavit stating the grounds in support of the application and that if the application is based on the ground that the debtor has a counter-claim, set-off or cross demand referred to in s 40(1)(g) of the Act, the affidavit must also state the full details of the counter-claim, the amount of that claim, the amount by which it exceeds the amount claimed in the bankruptcy notice and why the demand was not raised in the proceedings that resulted in the judgment or orders to which the bankruptcy notice relates. Further, s 40(1)(g) of the Act requires that any counter-claim “could not have set up on the action or proceeding in which the judgment or order was obtained”.

24    The draft amended application and affidavits relied upon in support by Mr Rafidi do not provide any clear exposition of the basis upon which he contends that the Bankruptcy Notice should be set aside. For present purposes it has been necessary to have regard to a combination of affidavits relied upon together with the written and oral submissions made on behalf of Mr Rafidi by Mr Hall. None of these materials provides a clear picture of the basis upon which it is asserted that the Bankruptcy Notice should be set aside. Nevertheless, in order to address the interlocutory applications advanced it is necessary to examine those materials to elucidate the issues between the parties.

25    In this section of my reasons I consider the grounds advanced in support of the proposed amendments first by reference to the proposed amended application itself (section 3.2); secondly, by reference to the affidavit evidence filed on behalf of Mr Rafidi (section 3.3); and finally by reference to the submissions advanced by Mr Rafidi (section 3.4). In section 3.5 I summarise the effect of the grounds advanced in those materials.

3.2    The draft amended pleading

26    The proposed amended application deleted references to the statement of claim and seeks the following relief:

Concerning the Bankruptcy notice referred to in this application, (a copy of which is annexed as “A”), and on the grounds stated in the statement of claim (a copy of which is annexed as “B”) and the accompanying affidavit(s) including the affidavit of Iyad Rafidi sworn 16 March 2017, the Applicant claims:

1.    A Declaration that the document described Bankruptcy Notice BN212149, issued on 21 February 2017 and served on 24 February 2017 … is not a Bankruptcy Notice as required or contemplated at the time of issue pursuant to s 40(1)(g), s 41, Bankruptcy Regulations 4.01 and 4.02 or the prescribed for[m] of Bankruptcy Notice contained in Schedule 1 to the Bankruptcy Regulations, in that at the time of the issue of the document, there was not attached to the signed form of Bankruptcy Notice, a final judgment or order as required;

2.    An Order for the purposes of section 30 of the Act that this Court go behind the judgment upon which the Bankruptcy Notice is based and that this Court determine that for the purposes of jurisdiction in bankruptcy the judgment is not a proper judgment and does not evidence what for the purposes of exercising jurisdiction in bankruptcy is in substance and effect a true and proper debt.

3.    A Declaration that upon a consideration of the facts and circumstances existing, there is in truth no indebtedness due by the Applicant to the Respondent for the reasons set forth in the document entitled Statement of Claim and that the judgment is not a proper judgment for the purposes of a Court where exercising jurisdiction in bankruptcy;

4.    An Order pursuant to s 30 of the Bankruptcy Act 1996, that Bankruptcy Notice BN212149 issued on 21 February 2017 and that was served on 24 February 2017, a copy of which is attached and marked “A”, be set aside;

5.    Costs.

27    It will be seen that the technical objection in paragraph 1 of the claim for relief remains, and that paragraphs 2 and 3 assert, in effect, that there exists a reason why the Court would go behind the Consent Orders and find that there is in fact no debt owed. Immediately after the claim for relief, the draft amended application contains the following grounds, which appear to be directed towards the claim in paragraphs 2 and 3:

(a) There is reason for questioning whether behind the creditor’s judgment, there is in truth and in substance, (and in so far as concerns the obligations of the debtor said to arise by reason of a contract of guarantee), a debt that is in fact due and owing to the creditor.

(b) There are substantial reasons upon which a Court seized with jurisdiction in bankruptcy would seek to question whether the debtor is in truth and in fact, indebted to the creditor.

(c) The effect of those substantial reasons is that this Court where exercising jurisdiction in bankruptcy, could not and would not be satisfied that there is any satisfactory proof of the petitioning creditor’s debt or claim.

(d) A court where called upon to exercise jurisdiction in Bankruptcy will be compelled to conclude in the affirmative, that there are substantial reasons to go behind the creditor’s judgment.

(e) It is an abuse of process for the creditor to have issued the Notice with the intended effect that it would create an act of bankruptcy, where the judgment referred to in the Notice is not a proper judgment for the purposes of the exercise of this Court’s jurisdiction in bankruptcy.

(f) Alternatively, where the judgment does not evidence a proper debt for the purposes of the exercise of this Court’s jurisdiction in bankruptcy, the Notice should be properly set aside and in order to avoid further litigation arising out of the Notice between the Applicant and the Respondent, as will otherwise needlessly follow.

28    It will be seen that the “Grounds” so stated provide no information as to the nature of the claim advanced by Mr Rafidi, or the basis upon which he contends that the Notice should be set aside.

3.3    The affidavit evidence relied upon by Mr Rafidi

29    In Mr Rafidi’s first affidavit he gives evidence about the Supreme Court Proceedings, the Consent Orders, some background materials relevant to his asserted case that the Consent Orders do not reflect a true debt owed by him to the CBA, and criticisms that he has of the manner in which the Supreme Court Proceedings were conducted against him and the circumstances in which he gave consent to the Consent Orders. Aspects of his affidavit address the acquisition by the CBA of BankWest, and his contention that the facility granted by BankWest to BBC and guaranteed by him was transferred to CAM on 11 June 2009 for improper purposes. Mr Rafidi refers to receivers being appointed by the CBA over the BBC commercial facilities and the pursuit by the CBA of him personally under his guarantee. These latter points were advanced in support of the grounds stated in the statement of claim, and which, as I have noted, have now been abandoned.

30    Mr Rafidi gives evidence in his first affidavit that during the hearing of the Supreme Court Proceedings, on 16 October 2016, senior counsel for the CBA filed a document giving particulars of why it would in closing addresses submit that the 14 January 2009 letter was a fabrication (the CBA fabrication submission). Mr Rafidi also gives evidence that the CBA was required by Court order to produce its loan file in relation to its dealings with BBC. He then states:

50. I did not consent to my case or a defence to my case being run outside the pleaded case.

51. I did not consent to the respondent as cross defendant running a case by way of defence that the 14 January 2009 letter was a fabrication or a fraud.

…

53. I consented to judgment in the Court below because the cross-claim was supported by an insurance policy …and because for other reasons it appeared to me that it was quite impossible that the trial would proceed as being a fair hearing.

54. I did not know at the time that I tendered my consent that the Respondent would then seek referral of my conduct to the Director of Public Prosecutions and directly accuse me of fraud. I did not know that the respondent intended to make allegations against me following the entry of judgment, outside the pleaded case, that the res had run in the proceedings.

31    Mr Rafidi further asserts that he did not consent to the Supreme Court Proceedings being conducted as fraud proceedings (a reference, it appears, to the CBA’s allegations that the 14  January 2009 letter was fabricated), and that he did not consent to not being advised of the “plan” (being the alleged scheme of BankWest described in the statement of claim).

32    In Mr Rafidi’s second affidavit he elaborates upon the matters identified in his first. He makes assertions that the CBA prevented him in the Supreme Court Proceedings from raising “the plan” at the hearing and asserts that he seeks leave to raise that matter in the present application. He gives opinion evidence going to the motivations of the CBA in dealing with the BBC facilities and in conducting the Supreme Court Proceedings. Mr Rafidi also refers to attempts that BBC made on 29 November 2015 to amend its pleading to raise allegations of fraud against the CBA and makes a submission that had the CBA not opposed the amendment, it could have considered his true indebtedness. Mr Rafidi then elaborates on his criticism of the discovery provided in the Supreme Court Proceedings. His affidavit then returns to the 14 January 2009 letter. He criticises the manner in which during his cross-examination the CBA repeatedly put to him allegations that the letter was fraudulent and that he was fraudulently involved in its production and criticises a detailed written submission made by counsel for the CBA during the trial setting out why the CBA alleged fraud. Mr Rafidi contends that he has not been given a chance to explain or respond to the allegation of dishonesty or put forward exculpatory documents. Mr Rafidi refers to some other aspects of the trial and contends that had they been conducted differently, or had further documents been supplied, the case would have proceeded differently.

33    Mr Rafidi also relies on an affidavit given by Adrian Mastronado, who gives evidence that he is a company director who is a plaintiff in proceedings concerning BankWest which were due to commence for trial in the Supreme Court of New South Wales on 17 July 2017. Mr Mastronado gives evidence that those proceedings concern commercial facilities previously guaranteed by him with BankWest. He also gives evidence that he is or may be a group member in the Representative Proceedings to which I refer in more detail below in paragraph [42]. Mr Mastronado gives evidence that he is aware that Mr Rafidi seeks to go behind a judgment obtained against him by the CBA, and that Mr Mastronado’s own proceedings “boil down” to an allegation that in May 2010 BankWest would not permit him to refinance and imposed additional conditions upon him which led to the CBA treating the facilities as being in default. Mr Mastronado asserts that BankWest failed to act reasonably and fairly towards him and breached various contractual obligations.

34    Mr Rafidi also relies on an affidavit sworn by Aris Michael Evanian, who gives evidence that he is a company director, who understands himself to be a group member of the Representative Proceedings. He gives evidence about his own relationship with BankWest and claims against BankWest.

35    The final affidavit relied upon by Mr Rafidi is given by Graham Andersen, who gives evidence that he is the Chairman and Founding Principal of Loan RQ Pty Ltd, which is the holding company for MARQ Services and Morgij Analytics, which provides loan data analysis and reporting services for the purposes of assessing, monitoring and determining risk analysis in the financial services sector. He states that he has a background in the finance and mortgage securitisation markets in Australia and has previously held what he describes as senior positions with several banks. His report is dated 6 July 2017 and in it he states that he was asked to provide an expert report as to whether the CBA had a strategy in place designed to remove BankWest pre-acquisition commercial loans from the BankWest loan book. The report refers to the conduct of BankWest in relation to BBC in the final three paragraphs.

3.4    The grounds advanced as evident from Mr Rafidi’s submissions

36    I now turn to the submissions made on behalf of Mr Rafidi in support of his application for leave to amend. In them he contends that this Court would not permit the CBA to rely on the Bankruptcy Notice in circumstances where the Consent Orders were obtained irregularly, illegally, in bad faith or improperly. He cites Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 345 ALR 534 (Ramsay) in support of the proposition that the Court must satisfy itself that the debt on which the creditor proceeds is a just and proper debt and submits that s 52(1) of the Act imposes an obligation on the Court to be satisfied that the debt on which the petitioning creditor relies is still owing. Mr Rafidi submits that the Court is not bound by the way that he conducted the Supreme Court Proceedings, or forensic decisions made in that Court. Mr Rafidi submits that the Court in the present case cannot be satisfied that the Consent Orders provide a reliable statement of a debt owed by him to the CBA. The reasons advanced for this proposition are opaque, but after having close regard to the written and oral submissions made by Mr Hall and the affidavit material filed, Mr Rafidi’s contentions appear to be as follows.

37    First, at the time the Consent Orders were made, Mr Rafidi owed obligations to an insurer as to what he would do in the event that he and BBC were advised that they were unlikely to succeed in the Supreme Court Proceedings. In his first affidavit Mr Rafidi says that he agreed to the Consent Orders because the cross-claim was covered by an insurance policy in the event of adverse costs and because for other reasons it appeared to him that it was quite impossible that the trial would proceed to a fair hearing.

38    Secondly, following his entry into the Consent Orders, allegations of criminal wrongdoing were then made against Mr Rafidi by the CBA. I interpolate here that the allegations to which Mr Rafidi refers are that he had fabricated the 14 January 2009 letter which was central to his defence to the claim advanced by the CBA in the Supreme Court Proceedings. He appears to contend that if he had known that these allegations were to be made, he would not have entered into the Consent Orders.

39    Thirdly, the CBA has, in its case against Mr Rafidi, engaged in the “worst kind of conduct that a banking institution in Australia can do, namely, intentionally take down customer loans for the objective purpose of removing them from its loan book because the bank no longer wished to hold them”. The precise ambit of the allegations made against the CBA in the context of this submission is unclear. It appears to arise from the affidavits filed and in particular from the affidavits of Mr Mastronado, Mr Evanian and Mr Andersen. To understand the nature of the contention it is necessary to address the submissions advanced on behalf of Mr Rafidi in some detail.

40    In his written submissions, Mr Rafidi states that his evidence raises very serious allegations against the CBA. He submits that for the most part those allegations have been:

…admitted by the Bank as part of the narrative that arises from the documents referred to in the expert report of Mr Andersen as being the “analysts calls”, that reveal the identification by value of loans on the commercial loan book of BankWest identified as being non-core assets and the deliberate reduction in the level of those loans at an annualised rate of 29% per annum…

41    The source of the asserted “admission” by the CBA is not clear.

42    During the hearing of the present interlocutory applications Mr Rafidi tendered in evidence (subject to objections as to relevance) a further amended statement of claim in New South Wales Supreme Court proceedings 2016/8690 between Australian Retirement Group Pty Ltd and P Walsh as plaintiffs and the CBA as the defendant (Representative Proceedings) in which the plaintiffs bring the action on their own behalf and on behalf of certain represented persons who are said to be small business customers who entered into loan facility agreements with Bankwest prior to December 2008 and whose loan facilities were subsequently placed in to the CAM division of Bankwest. I was informed by Mr Hall, who is also named as the solicitor for the plaintiffs in the Representative Proceedings, that Mr Rafidi has not been, but is likely to be joined as a group member in those proceedings.

43    In summary, in the Representative Proceedings the group members include businesses that entered into facility agreements with BankWest, and the guarantors of those facilities, each of which was entered into prior to 19 December 2008. The group members allege that following the acquisition of BankWest by the CBA, and between 19 December 2008 and 1 October 2012, BankWest undertook a review of about 1,958 files relating to, inter alia, commercial facilities provided by BankWest, including the facilities guaranteed by group members. The review was part of a system designed by BankWest to enable it to identify and remove from its books certain commercial loans, including loans to the group members. As a result, BankWest’s original credit policy applicable at the time that the original facilities were executed was materially altered, such that these 1,958 loans had their credit risk downgraded to between “substandard” and “loss-actual” and were classified as non-performing loans. Thereafter, BankWest hindered or prevented group members from performing their obligations under their respective facility agreements, placed the loans with BankWest’s CAM department and wrote off the loans, with the purpose of removing the facility from BankWest’s loan book and bringing to an end the banking customer relationship between BankWest and the various group members. At the time the facilities were placed with CAM, they were “performing loans” and the group members were meeting their obligations under those agreements. Thereafter, BankWest ceased or delayed the making of payments so that the group members were unable to complete their projects and otherwise were hindered or prevented from performing their obligations under their particular facility agreement. Further, once a facility had been placed with CAM, BankWest engaged in unfair practices including charging higher default rates of interest, imposing fees and issuing unreasonable payment demands, issuing notices of default requiring payment of the loans in full within short periods of time, and terminating the facility agreement. BankWest then appointed receivers over the assets of the group members and proceeded to sell their secured property and assets, causing loss and damage. BankWest then made demands against those group members who were guarantors in respect of any shortfall.

44    It may be observed that many of the allegations set out in the Representative Proceedings have points of similarity to those set out in the now abandoned statement of claim.

45    Mr Rafidi submits that the fact that the CBA has filed a defence in the Representative Proceedings, and not sought to strike it out or otherwise complain about the form in which it is constituted, should be taken to mean that this Court can assume that there is necessarily a serious question to be tried in the present application to set aside the Bankruptcy Notice (it may be that this is the source of the “admission” referred to by Mr Rafidi, as quoted in paragraph [40] above). Mr Rafidi appears to adopt the Representative Proceedings as equivalent to the claim that he wishes in his draft amended application to advance against the CBA as one of the bases for setting aside the Consent Orders.

46    The way that Mr Rafidi puts it in his written submissions should be directly quoted:

41. It follows that, even as [sic, if] the Bank would hasten to point out, the prospects of success for Mr Rafidi in the trial court [that is, in the Supreme Court Proceedings] were poor, and even if bank employees called in his case went back on their evidence for reasons which are wholly unexplained, (although there may be a myriad of reasons why a banking officer still in the industry may succumb to pressure and persuasion in the witness box), it is apparent now that even the Bank concedes that in so far as its claims are pressed against guarantors, of which Mr Rafidi is one, those clams will proceed to trial.

42. For these reasons, and the objections that the Bank made the raising of allegations in the trial court, and which Mr Rafidi now seeks to raise, there are now ‘special circumstances”, such as go well beyond those that existed in Ramsay Health Care. The present circumstances arise in the context that the Bank engaged in a pleaded system of conduct that was deliberatively [sic] causative of loss to its customers.

47    Discerning the true meaning of this submission presents some challenges, but it would appear that Mr Rafidi intends to submit that:

(1)    In the trial of the Supreme Court Proceedings Mr Rafidi’s prospects of success may have been poor, but because the CBA has not sought to strike out the Representative Proceedings and instead filed a defence, the claims in the Representative Proceedings must proceed to trial. This should be taken to amount to a “special circumstance” that means, consistent with Ramsay, that the Court should go behind the Consent Orders;

(2)    Another special circumstance, obliquely identified in [42], but more directly raised in the affidavit evidence of Mr Rafidi, is that the CBA objected to him raising certain allegations during the conduct of the Supreme Court Proceedings and ultimately prevented him from advancing an amended form of cross-claim against the Bank to raise similar allegations.

48    Mr Rafidi’s written submissions in this respect conclude with the contention that the evidence which he seeks to advance in the present proceedings provides a rational basis to conclude that there is in truth no debt due by Mr Rafidi to the CBA and that the CBA is seeking to invoke an act of Bankruptcy “for an abusive purpose and part of the overall process of wrong doing that is otherwise set out in the Representative action”.

3.5    Summary of the grounds relied upon by Mr Rafidi

49    On the basis of the materials identified above it may be discerned that Mr Rafidi relies in substance on two bases that warrant the Court going behind the Consent Orders.

50    The first is that after the Consent Orders were entered into Mr Rafidi became aware that the CBA intended to refer his conduct during trial for criminal prosecution. In his first affidavit he says that he did not know that the CBA intended to make allegations against him following the entry of judgment. Further, Mr Rafidi does not consider that the Supreme Court Proceedings were fairly conducted and that it was the realisation that he could not have a fair trial that caused him to enter into the Consent Orders. In his first affidavit he lists a number of reasons why the conduct of the proceeding was, in his view, inadequate. They are: (1) that senior counsel for the CBA unfairly made a submission that the 14 January 2009 was not an authentic document and that the Court ought to make a finding to that effect; (2) that senior counsel for the CBA incorrectly informed the Court about the practice of settling affidavits; (3) that there were deficiencies in the production of documents by the CBA during the proceedings. In his second affidavit Mr Rafidi repeats some of these concerns and in addition, (4) augments his evidence of the absence of proper production of documents by the CBA by contending that a document introduced by the CBA into the court book prior to the commencement of the proceeding was a forgery. He supports an allegation (5) that the CBA has systematically destroyed documents relevant to his file by reference to materials taken from other, unrelated, proceedings and hearings. Mr Rafidi also refers to (6) the resistance by the CBA to the attempts made by Mr Rafidi and BBC to amend its cross-claim. I refer to these matters as the vitiated consent allegations.

51    The second basis advanced arises from allegations of the type initially made in the statement of claim concerning “the plan” and which are now advanced on the basis of allegations of the type set out in the Representative Proceedings which I have described above and supported by material contained in parts of Mr Rafidi’s second affidavit and in the material contained in the affidavits of Messers Mastronado, Evanian and Andersen. Mr Rafidi submits that although these allegations fall within the prohibition set out in s 30(1)(g) of the Act, nevertheless the Court should take it into account in setting aside the Bankruptcy Notice.

52    The above review serves to identify that the proposed amendments raise new grounds in the form of the CAM cross-claim and an elaboration of existing grounds in the form of vitiated consent allegations.

4.    THE RELEVANT LAW

53    The proposed amended application in the present proceedings relies on ss 30(1), 40(1) and 41 of the Act.

54    Section 40(1)(g) of the Act provides:

40 Acts of bankruptcy

(1)    A debtor commits an act of bankruptcy in each of the following cases:

…

(g)    if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

(i)    where the notice was served in Australia—within the time specified in the notice; or

(ii)      where the notice was served elsewhere—within the time fixed for the purpose by the order giving leave to effect the service;

comply with the requirements 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, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;

41 Bankruptcy Notices

…

(7)    Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.

55    I have referred to r 3.02 of the Bankruptcy Rules above. They set out the formal requirements for the making of an application to set aside a bankruptcy notice, including where a counter-claim or set-off is advanced.

56    The Court may, in an appropriate case, go behind a judgment to see whether in truth and reality a debt is due from the judgment debtor to the judgment creditor: Corney v Brien [1951] HCA 31; (1951) 84 CLR 343 (Corney) at 347; Wren v Mahoney [1972] HCA 5; (1972) 126 CLR 212 at 224 – 225.

57    The power to go behind a judgment may be exercised on an application to set aside a bankruptcy notice. In such a case the Court is invested with jurisdiction pursuant to s 30(1) of the Act, where such an order is necessary for the purpose of carrying out or giving effect to the Act in the particular case; Olivieri v Stafford [1989] FCA 731; (1989) 24 FCR 413 (Olivieri) at 430 (Gummow J); Re Halstead; Ex parte Westpac Banking Corporation [1991] FCA 788; (1991) 31 FCR 337 (Halstead) at 347. In Halstead, Heerey J found that the debtor could have set up his counter-claim in the Supreme Court proceedings. Accordingly, his application to set aside the notice was dismissed.

58    Whilst the commission of an act of bankruptcy is undoubtedly a serious matter, which may have consequences upon the ability of an individual to obtain credit and render debt covenants susceptible to creditors’ petitions, it is of a different order of gravity from the change of status brought about by the making of a sequestration order; Re Gerard; Ex parte Reid [1994] FCA 45; (1994) 217 ALR 191 (Sheppard J) cited with approval by Lehane J in Byron v Southern Star Group [1997] FCA 151; (1997) 73 FCR 264 at 270). Cases where a debtor seeks to set aside a bankruptcy notice pursuant to ss 30 or 40(1) of the Act are to be distinguished from proceedings involving a creditor’s petition and the making of a sequestration order under s 52. The broad underlying principle in the latter is that before a person can be made bankrupt the Court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he or she is made bankrupt: Ahern v Deputy Commissioner of Taxation (Qld) [1987] FCA 504; (1987) 76 ALR 137 at [39] – [40]. That is not the position where the nature of the proceeding is a bare attack on the bankruptcy notice; Xu v Wan Ze Property Development (Aust) Pty Ltd (in liquidation) [2014] FCA 461 (Xu) at [120]. Put another way, the examination of the bankruptcy notice at the stage of presentation represents a relatively coarse filter. Such an application is not the hearing of the bankruptcy petition. The refusal of the application will not affect the status of the debtor but it will mean that he or she, in all probability, will commit an act of bankruptcy. That act of bankruptcy will be available to the petitioning creditors or to any other creditor upon which to base a bankruptcy petition at any time in the period of 6 months after the act of bankruptcy has been committed.

59    In Xu, Robertson J endorsed as correct the approach taken by Toohey J in Re Briggs; Ex Parte Briggs v Deputy Commission of Taxation (WA) [1986] FCA 512; (1986) 12 FCR 310 where at 312 his Honour said:

A court hearing an application to set aside a bankruptcy notice is not hearing a petition for sequestration and the provisions of s 52(2), whereby a court may dismiss a petition if satisfied that the debtor is able to pay his debts or that for other sufficient cause a sequestration order ought not be made, cannot be imported into such an application. In my view a court faced with an application to set aside a bankruptcy notice is constrained to look only at the regularity of the notice itself (including service) and otherwise at the circumstances surrounding the existence of the judgment debt and any demand which the debtor may have against the creditor for a comparable amount.

60    In Xu, Robertson J said (at [131]):

… Except in a clear case, questions of fraud, collusion, lack of good faith and miscarriage of justice, or whether substantial reasons have been shown for questioning whether behind the judgment there was in truth and reality a debt due to the judgment creditor, are more apt to be dealt with after the exhaustion of those remedies and where the Court is dealing with an application to make a sequestration order against the estate of the debtor. …

61    It is with these matters in mind that one considers the authorities applicable to cases where an applicant seeks to set aside a sequestration order.

62    The scrutiny required by s 52 of the Act, as to whether there is, in truth and reality, a debt owing to the petitioning creditor, serves to protect the interests of third parties, particularly other creditors of the debtor. As the plurality observed in Ramsay, it is of critical importance to appreciate that such persons were not parties to the proceedings that resulted in the judgment debt. Their interest in being paid in full should not be prejudiced by the making of a sequestration order in reliance on a judgment debt which does not reflect the true indebtedness of the debtor to the petitioning creditor; Ramsay at [55].

63    In Ramsay the issue was whether the discretion of the Court to go behind the judgment is enlivened only in circumstances where a judgment debt upon which the petitioner relies has been obtained where there is evidence of fraud, collusion or a miscarriage of justice (at [111], [112]). The exercise of the discretion to go behind the judgment was for the purpose of determining whether, pursuant to s 52(1)(c) of the Act, the debt on which the petitioning creditor relied was, in fact, still owing. The majority held (Kiefel CJ, Keane, Nettle JJ, citations omitted):

67. … As has been seen, the notion that a party is bound by the conduct of his or her case has never been a sufficient reason not to look behind a consent judgment or a default judgment. That is because a Bankruptcy Court is concerned, not to discipline litigants or to protect finality in the administration of justice as between parties to litigation, but to protect the interests of third parties who were not participants in the litigation which led to the judgment in question.

68. For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability.

69. In Petrie v Redmond, Latham CJ, with whom Rich and McTiernan JJ agreed, said that the Bankruptcy Court:

"is entitled to go behind the judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice. … Also the court looks with suspicion on consent judgments and default judgments. … The Bankruptcy Court does not examine every judgment debt. Special circumstances must be established before it will do so. It is impossible to lay down any general rule."

70. The first two sentences of that passage were cited with evident approval by Dixon, Williams, Webb and Kitto JJ in Corney v Brien. The passage was explicitly concerned with consent judgments and default judgments. As a matter of practical experience, these are the sorts of cases in which third parties can be expected to be disadvantaged by the making of a sequestration order based on a judgment which was not the outcome of the rigorous processes of adversarial litigation. The same concern may also arise in a case where the judgment was obtained in circumstances which suggest a failure on the part of the judgment debtor to present his or her case on its merits in the litigation that led to the judgment.

64    As noted above, where proceedings are resolved by consent orders, different considerations apply; Ramsay at [70]. The following propositions were helpfully set out by Wigney J in Katter v Melhem (No 2) [2014] FCA 1176; (2014) 319 ALR 646 at [73] – [76] in the context of an application to set aside a sequestration order.

65    Where judgment has been entered in pursuance of a compromise, grounds must be shown for challenging the compromise before the subject matter of the judgment will be reopened: Corney at 357 (Fullagar J). That is because it is the compromise and not the claim that was compromised which is the foundation of the judgment: Harrison v Charalambous [1999] FCA 902 (Harrison) at [9].

66    Where a party challenges a judgment entered on a compromise and that party has acted on the advice of counsel, the judgment will not generally be reopened: Corney at 357. The presumption in such circumstances is that it is difficult, although not impossible, to impugn the compromise: Harrison at [9]. One instance where the Court may go behind a judgment in these circumstances is where both parties knew the original claim was not a bona fide claim and the judgment or compromise was obtained by dishonesty known to both parties: Ex parte Banner; In re Blythe (1881) 17 Ch D 480. If, however, counsel had full knowledge of all relevant facts, and no suspicion of unfairness or impropriety in the compromise arises, a Court may decline to go behind a judgment submitted to on the advice of counsel: In Re A Debtor [1929] 1 Ch. 125; Chancliff Holdings Pty Ltd v Bell [1999] FCA 1708 at [100]; Smith v Abbott, Stillman & Wilson [2007] FCA 1256 at [33].

67    The fact that the debtor may have been pressured by his legal advisers to compromise the claim, despite the merits of his defence, will not generally be sufficient to warrant going behind the judgment entered pursuant to that compromise. That will particularly be the case where the judgment creditor was unaware of, or was not implicated in, the alleged undue pressure: Harrison at [11]. In that case, Finkelstein J said (at [12]):

To my mind, what has occurred in this case is not a sufficient basis to go behind the judgment based on the compromise. Although the debtor may have been placed under undue pressure to enter into the compromise, I cannot discern any unfairness or impropriety of such a kind as would justify me in looking behind the judgment. The reality is that the debtor, perhaps through no fault of his own, was placed in a position where his commercial interests necessitated a compromise and he agreed to it in accordance with those interests. In one sense the position the debtor found himself in is not very different to the circumstances which other litigants have often had to confront. I do not doubt that litigants regularly compromise actions otherwise than in accordance with the true merits of the claims made, but that is not a sufficient reason to deny efficacy to the agreements to compromise that these litigants reach. It is certainly not a sufficient reason in this case.

68    It is implicit in this statement that the mere fact that the compromise may not have been “in accordance with the true merits of the claims made” will not be sufficient to impugn the compromise. Such a circumstance alone will therefore not warrant the Court going behind the judgment.

69    The particular circumstances of any given case may no doubt throw up other considerations relevant to whether the Court should exercise its discretion to go behind a judgment. Where the judgment debtor seeks to go behind the judgment on particular grounds, it is difficult to see why it would not be a relevant consideration that those grounds could have been, but were not, raised in opposition to the judgment, or in an application to set aside the judgment. Parties are ordinarily bound by the way they have chosen to conduct litigation. The fact that, for whatever reason, a party did not put particular arguments before the Court that made (or refused to set aside) the judgment does not mean that there was no relevant hearing on the merits: Jeans v Commonwealth Bank of Australia Ltd [2003] FCAFC 309; (2003) 204 ALR 327 at [18]-[21]; Olivieri at 424 (Beaumont J).

70    Finally, it is relevant to note that Mr Rafidi accepts that the CAM cross-claim allegations raise a potential cross-claim against the CBA within s 40(1)(g) of the Act.

71    In Guss v Johnstone [2000] HCA 26; (2000) 171 ALR 598 (Guss) at [39], [40] the High Court (Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ) said:

39. In Vogwell v Vogwell [(1939) 11 ABC 83 at 85], Latham CJ said, in relation to a corresponding provision:

"[T]he authorities show that the matter to which the court looks is this, – whether it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue; in other words, whether it is a claim which it is proper and reasonable to litigate."

40 The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.

72    In the context of a cross-claim brought pursuant to s 40(1)(g), it is necessary in the present case for Mr Rafidi to establish a prima facie case in the sense described in Ebert v Union Trustee Company of Australia Limited [1960] HCA 50; (1960) 104 CLR 346 (Ebert) at 350, where Dixon CJ, McTiernan and Windeyer JJ said:

… 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 does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set off or cross demand.

73    In summary, the question is whether it is just that the claim raised in answer to the debt specified in the bankruptcy notice should be determined before the bankruptcy proceedings are allowed to continue: Guss at [14], [39] and [40].

5.    THE SUPREME COURT PROCEEDINGS

74    Before turning to consider the outcome of the interlocutory applications it is necessary to provide some additional background to the Consent Orders by reference to the Supreme Court Proceedings.

5.1    Summary of the claim and cross-claim

75    The Supreme Court Proceedings were listed for hearing for 6 weeks commencing in October 2016. On the 12th day of the hearing, senior counsel for BBC and Mr Rafidi sought an adjournment. Subsequently, on 4 November 2016, the Consent Orders were entered and a cross-claim advanced by the defendants was dismissed.

76    The plaintiff in the Supreme Court Proceedings was initially the Bank of Western Australia Limited (that is, BankWest), but later became the CBA. The first defendant was Mr Rafidi. The Commercial List Statement alleged; that BankWest had provided certain facilities (facilities) to BBC; that to secure the obligations of BBC certain securities were provided to BankWest including a guarantee and indemnity by Mr Rafidi, who was a director of BBC; that BBC defaulted under the facilities and securities; that BankWest had made demands for an outstanding sum of $5,437,995.83; that BBC and Mr Rafidi had failed to comply and that BankWest was entitled to relief against Mr Rafidi pursuant to the guarantee and indemnity that he had provided.

77    Mr Rafidi defended the claim, and he and BBC filed a cross-claim which, in its final form before the hearing of the proceedings, advanced numerous contentions in support of the broad proposition that no debt was owed to the CBA. In summary they included, first, that BBC and BankWest had in the 14 January 2009 letter entered into an agreement that the bank would lend BBC an additional $5.4 million to acquire the business, plant and equipment of Wesco Concrete and Kemp Australia Trading, but that the CBA had failed to perform that agreement. Secondly, that such conduct amounted to misleading or deceptive conduct in contravention of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth). Thirdly, that on 6 April 2009 BankWest had agreed to release certain securities then held by BBC, but failed to do so. Fourthly, that BankWest had on 6 April 2009 engaged in misleading or deceptive conduct by making representations that it would release certain securities that it held when it did not do so. Other aspects of the cross-claim were summarised by a decision given by Stevenson J following an application brought by Mr Rafidi and BBC to amend the cross-claim (see Commonwealth Bank of Australia v Rafidi [2016] NSWSC 381 (amendment judgment) at [4]), but it is not necessary for present purposes to address them in detail. The cross-claim alleged that by reason of the pleaded conduct, the CBA was liable to pay BBC damages for breach of contract or in respect of its misleading or deceptive conduct and/or the CBA should be perpetually restrained from enforcing or making any claims against BBC or Mr Rafidi arising out of the facility agreements.

5.2    Mr Rafidi’s failed amendment applications

78    On numerous occasions BBC and Mr Rafidi attempted to amend their cross-claim to introduce further allegations to the effect that the appointment on 4 November 2009 of receivers to BBC was motivated, on the part of the CBA, by improper motives. In the amendment judgment, Stevenson J observed that since November 2015 BBC and Mr Rafidi had made 5 applications to amend his cross-claim and circulated a total of 7 proposed forms of cross-claim. Each of those applications was rejected, most recently by Hammerschlag J on 1 April 2016. The judgment of Stevenson J represented the sixth failed attempt. In it, his Honour observed that the proposed amendment included within it the allegation that BankWest’s decision to appoint receivers was taken in bad faith and for extraneous or improper purposes of “enabling” the CBA to make a warranty claim “in respect of the BBC loans” or to “evidence and support” the existing warranty claim said to have been made on 21 January 2009. A seventh attempt was made to introduce the same sort of allegations in the reply to the defence to cross-claim, however, that was withdrawn.

5.3    Mr Rafidi’s failed application to set aside the consent orders

79    On 17 November 2016 Mr Rafidi filed a notice of motion to have the Consent Orders set aside. That application was rejected by Ball J (Commonwealth Bank of Australia v Rafidi [2016] NSWSC 1931 – Consent Orders judgment) who found that as a result of developments in the case, Mr Hall, solicitor, who was by then acting for Mr Rafidi, indicated to the Court on 2 November 2016 that he had instructions to consent to entry of judgment on the CBA’s claim and Mr Rafidi’s cross-claim in favour of the CBA. The Court did not enter judgment at that time because Mr Rafidi was in the process of seeking the consent of insurers to that course of action. The matter was stood over until 4 November 2016. On 4 November 2016, judgment was entered in favour of the CBA. Before it was entered, senior counsel for the CBA produced lengthy submissions in support of an order that Mr Rafidi pay the CBA’s costs on an indemnity basis and in support of an application that the papers in the matter be referred to the appropriate authorities for investigation into the question of whether criminal charges should be laid against Mr Rafidi, amongst others, in connection with the matters that were the subject of the proceedings. One aspect of the referral concerned the contention advanced by the CBA that the 14 January 2009 letter was a fabrication.

80    The application for referral was stood over until 14 December 2016. On that day his Honour dealt with the Notice of Motion seeking to set aside judgment. His Honour records that the only reason advanced by Mr Rafidi for why the judgment should have been set aside was to give him an opportunity to clear his name in light of the application for the Court to refer the papers to the authorities. His Honour concluded that that was not a sufficient basis on which to set aside the judgment, first, because there was no evidence from Mr Rafidi that he had not appreciated that the papers could be referred, or that that would have made a difference to his decision to consent to judgment. At the time, Mr Rafidi was legally represented and was on notice through his legal representative that an application would be made for the referral of the papers following entry of the judgment. Secondly, the application to set aside the judgment was misconceived in any event, because the decision to refer the papers involved an independent administrative decision by the Court. Thirdly, because it was far from clear to his Honour that Mr Rafidi could have taken further steps to clear his name. Most of the witnesses he intended to call had given evidence, and it was apparent that their evidence had gone badly for his case and that his prospects of success were poor. Mr Rafidi had given his evidence in chief through affidavits and, although his cross-examination was not completed, he had been cross-examined extensively.

81    His Honour found at [11]:

… It may be inferred that Mr Rafidi consented to judgment against him because, having regard to developments in the case, it was apparent that his prospects of success were poor. In my opinion, it was not in the interests of justice to permit Mr Rafidi to resile from the position he took previously, presumably on legal advice, to achieve a collateral benefit that he thought would arise from pursuing the court proceedings.

82    An application for leave to appeal from this decision was subsequently dismissed: Rafidi v Commonwealth Bank of Australia [2017] NSWCA 96.

6.    CONSIDERATION

83    In considering the various interlocutory orders sought by the parties, one must first be careful to appreciate the nature of an application to set aside a bankruptcy notice. As I have noted in Section 4 above, the final resolution of the application to set aside the Bankruptcy Notice will involve making a decision as to whether substantial reasons have been shown for questioning whether behind the judgment there was in truth and reality a debt due to the judgment creditor. In the case of the proposed counter-claim raised in answer to the Consent Orders within s 40(1)(g) (that is, the CAM cross-claim allegations), the Court will have to consider whether Mr Rafidi has shown that he has a prima facie case, even though he might not have adduced admissible evidence to do so. It is also to be recognised that there may be a later application involving a creditor’s petition and the making of a sequestration order under s 52 of the Act.

84    The statutory scheme under s 40(1)(g) within Division 1 of Part IV of the Act provides a means by which an act of bankruptcy is committed by a debtor when he or she fails to comply with a bankruptcy notice within the time specified in the notice. Provision is made for the extension of time by which the time for compliance with the notice may be achieved. In the present case the Bankruptcy Notice was served on 24 February 2017 and extensions have been granted for compliance since then. The concession by Mr Rafidi that he is not entitled to rely on a cross-claim within s 40(1)(g) means that he is not entitled to an automatic extension of time for compliance with the Bankruptcy Notice pursuant to s 41(7) of the Act.

85    It is in this context that one turns to consider Mr Rafidi’s interlocutory application to amend. There is no dispute that the Court has the power to exercise its discretion to allow or refuse leave to amend. That power arises at least pursuant to the terms of ss 30(a) and (b) of the Act; see generally Vale v Sutherland [2009] HCA 26; (2009) 237 CLR 638 at [19]. The discretion is to be exercised in a manner that is analogous to the discretion conferred under r 16.53 FC Rules and bearing in mind the terms of s 37M(3) of the FCA Act that require it to be exercised in a way that best promotes the overarching purpose of facilitating the just resolution of disputes as quickly, inexpensively and efficiently as possible.

86    In Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175 (Aon), the High Court set out the types of matters that the Court should consider in exercising its discretion whether or not to grant leave to amend. These were summarised by Gleeson J in Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Ltd (in liq) [2015] FCA 1098 (Tamaya Resources) at [127] (and endorsed by the Full Court in Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2; (2016) 332 ALR 199 at [125] per Gilmour, Perram & Beach JJ) as follows:

•    The nature and importance of the amendment to the party applying for it: Aon at [102];

•    The extent of the delay and the costs associated with the amendment: Aon at [102];

•    The prejudice that might be assumed to follow from the amendment, and that which is shown: Aon at [5], [100] and [102];

•    The explanation for any delay in applying for that leave: Aon at [108]; and

•    The parties’ choices to date in the litigation and the consequences of those choices: Aon at [112] and Luck v Chief Executive Officer of Centrelink [2015] FCAFC 75 (“Luck“) at [44];

•    The detriment to other litigants in the Court: Aon at [93], [95] and [114] and Luck at [44]; and

•    Potential loss of public confidence in the legal system which can arise where a court is seen to accede to applications made without adequate explanation or justification: Aon at [5], [24] and [30].

87    Further, as her Honour stated in Tamaya Resources at [142]-[143]:

The Court will also consider whether the proposed amendments disclose a reasonable cause of action, or whether they have a tendency to cause prejudice, embarrassment or delay in the proceeding:  Research in Motion Ltd v Samsung Electronics Australia Pty Ltd [2009] FCA 320; (2009) 176 FCR 66 (“Research in Motion”) at [21] to [22]; Wotton at [59].

The Court will not grant leave to allow an amendment if it would be liable to be struck out had it appeared in the original pleading: Caason at [21]; Research in Motion at [21] to [22]; Horton v Jones (No 2) (1939) 39 SR (NSW) 305 at 310; McGuirk v University of New South Wales [2009] NSWSC 1424 at [18].

88    In my view, for the following reasons, the application for leave to amend to raise the CAM cross-claim allegations should be refused but Mr Rafidi should be permitted to amend insofar as leave to amend is necessary, to make the vitiated consent allegations.

89    As I have noted, there is no doubt that the CAM allegations amount to a counter-claim, set-off or cross demand that Mr Rafidi could have set up in answer to the action in which the final order (here, the Consent Orders) was obtained; s 40(1)(g) of the Act. Indeed, this cannot seriously be in doubt, see Re Brink; ex parte The Commercial Banking Co of Sydney Ltd [1980] FCA 93; (1980) 44 FLR 135 at 138 and 139. This presents a substantial and substantive impediment to the progress of the CAM cross-claim allegations.

90    In his written submissions Mr Rafidi accepts that the claim could have been set up in the Supreme Court Proceedings and accepts that it falls within the prohibition set out in s 40(1)(g). Furthermore, Mr Hall frankly accepts that Mr Rafidi’s CAM cross-claim allegations were capable of being advanced during the Supreme Court Proceedings but were not properly pleaded and the amendments seeking to do so were rejected, as evinced in the amendment judgment of Stevenson J. It may be noted that the abandoned statement of claim represents yet another attempt to articulate a cross-claim.

91    Mr Rafidi submits that the Court should nevertheless consider his proposed counter-claim because the Federal Court is a Court in bankruptcy and a Court of “final effect” and that as such it should “as part of its responsibility in going behind the judgment” consider now the matters raised as to why in truth and substance there is no debt. However, that submission reflects a misunderstanding of the nature of the present application. As I have noted above, cases where a debtor seeks to set aside a bankruptcy notice pursuant to s 40(1)(g) of the Act are to be distinguished from proceedings involving a creditor’s petition and the making of a sequestration order under s 52, which occurs at a later point in time. The broad underlying principle in the latter is that before a person can be made bankrupt the Court must be satisfied and shall require proof that the debt on which the petitioning creditor relies is still owing by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he or she is made bankrupt. That is not the position in the present case, where the nature of the proceeding is an attack on the Bankruptcy Notice.

92    In this regard Mr Rafidi’s submission that the CAM cross-claim allegations give rise to separate “special circumstances” as to why it would go behind the compromise (see paragraphs [46] – [48] above) is, with respect, wholly unpersuasive. A substantial aspect of that argument is based on the proposition that because the CBA has not sought to set aside or strike out the pleadings in the Representative Proceedings, certain allegations of fact to which those pleadings refer should be taken to be accepted in the present case. The fact that no application has been made to strike out a pleading does not amount to an admission of the allegations contained within it. The CBA has in fact denied those allegations in the Representative Proceedings. Furthermore, the present application is not to be considered by having regard to pleadings advanced in other proceedings between different parties.

93    In addition, the affidavit evidence filed in support of the proposed amended application nowhere identifies the full details of the counter-claim as required by r 3.02(3)(a), or the amount of the counter-claim or that it exceeds the amount claimed in the Bankruptcy Notice, as is required by r 3.02(3)(b) of the Bankruptcy Rules. Mr Rafidi has repeatedly attempted, in the Supreme Court Proceedings and in these proceedings, to formulate a viable cross-claim but has failed to do so. The evidence indicates that the CBA has incurred in excess of $100,000 in costs in taking steps to address the statement of claim, only for it to be abandoned. The likelihood of it being paid these costs is remote.

94    Furthermore, the evidence of Mr Bates in his second affidavit provides a basis upon which I may infer that the CBA will incur very considerable further expense and inconvenience in addressing the CAM cross-claim allegations. He estimates, in the context of the statement of claim in the form that was previously advanced, that it would take over 18 months to investigate and respond to the allegations. I infer that a similar amount of time would be required to investigate and respond to the CAM cross-claim allegations. In this regard there is a broader interest to creditors to ensure that an application such as the present should be heard and determined in good time. Permitting the CAM cross-claim allegations to proceed would not be conducive to that outcome.

95    For these reasons I decline leave to Mr Rafidi to rely on the proposed amended application, and accordingly to rely on the material contained in the affidavits of Messrs Mastronado, Evanian and Mr Andersen. In addition, I decline leave to Mr Rafidi to rely upon those aspects of his affidavits that are directed to the CAM cross-claim allegations. As I have noted, insofar as the first affidavit of Mr Rafidi addresses the allegations contained in the statement of claim, those grounds have been abandoned.

96    In the light of these conclusions it is not necessary for me to address the detail of the evidence advanced on behalf of Mr Rafidi in support of his CAM cross-claim allegations or to make preliminary rulings as to its admissibility. However, in my view an additional basis upon which I would exercise my discretion to refuse leave to amend is that those additional affidavits do not provide a basis for a prima facie case that there is a viable cross-claim.

97    The affidavit of Mr Mastronado consists of his personal, lay summary of events that have taken place in relation to separate proceedings between BankWest, Mr Mastronado and his wife. It is, at best, a summary of his version of events that took place leading up to and during those proceedings. They include rolled up conclusions going to: his own particular motivations; agreements reached between himself and third parties or attempted to be reached; the actions taken by BankWest; the nature and content of the proceedings; and his lay legal conclusions as to the effect of certain actions.

98    The evidence relied upon from Mr Evanian concerns the relationship that he and certain companies with which he and his family members had with BankWest pursuant to loan facilities. It includes references to a number of conversations between Mr Evanian and personnel said to have been associated with various banks. He refers to a “plan” in place within BankWest to remove his facilities and place them into CAM, and the subsequent appointment of a receiver to a property development in which his companies were involved. He makes a number of complaints about the conduct of the CBA and BankWest insofar as it concerns facilities advanced. None of the matters identified by Mr Evanian touch upon the affairs of Mr Rafidi.

99    The evidence relied upon from Mr Andersen purports to be expert evidence. He was asked to give an “overview of the Bank of Western Australia sale”; an overview of what is called the “bad bank strategy” and to compare and contrast CBA’s actions in relation to the “pre-acquisition BankWest commercial loan book against any potential bad bank business strategy”. He is asked from “materials” not defined in his instructions, to express an opinion as to whether the CBA adopted a bad bank strategy to exit a large segment of the BankWest commercial loan book and whether he is able to “draw any inferences” as to whether in relation to the BBC facility, BankWest adopted a “bad bank strategy”. Mr Andersen’s report is substantially based on reports and extracts from documents prepared by third parties, press releases, working papers and selected email correspondence, the provenance of which is not clear.

100    The CBA submits that Mr Andersen’s report does not satisfy the requirements of s 79 of the Evidence Act. It submits that the opinion of Mr Andersen as to whether or not the CBA or BankWest adopted a particular strategy (whether “bad” or otherwise) is irrelevant to the proceedings and not a matter upon which he can give evidence or furnish an expert report. It submits that it would be a matter of fact whether or not the CBA or BankWest adopted a particular strategy with a particular motivation, not a matter of opinion. It also submits that the Report is replete with statements of conclusion, without any reasoning as to the basis of the conclusion. These criticisms have considerable force. Section 6, which is entitled “The likelihood that the CBA adopted a bad bank strategy in respect of the BankWest loans” is extraordinarily general and includes a significant number of selected hearsay quotations from extracts of documents. It concludes with the assertion that such matters, the public statements made by the CBA together with the matters in this report, “show that the CBA adopted a bad bank strategy to exit a very large segment of performing BankWest commercial loans which it identified as “non-core for strategic commercial reasons”. He concludes in paragraphs 319 – 322 that the “treatment” of BBC stands on “all fours” with such a strategy. That conclusion is based on a number of assumptions as to the motivation of the CBA and a selected list of documents supplied to Mr Andersen, perhaps by Mr Rafidi or his legal advisers, although the source is not explained.

101    Leaving aside the question of the admissibility of this evidence, which I do not here consider, in my view none of these affidavits is rationally able to provide a basis for the cross-claim that Mr Rafidi wishes to bring.

102    Having regard to these conclusions it is not necessary for me to consider the CBA’s interlocutory application. Indeed, given that the question of whether or not a cross-claim brought within s 30(1)(g) is to be determined on a prima facie basis without undue regard to the admissibility of evidence, in my view it would be unwise to make preliminary rulings on the admissibility of the evidence; Ebert at 350. Nor, upon reflection, is an application such as the one now proposed to be advanced by Mr Rafidi one that is apt to be determined pursuant to s 31A of the FCA Act or analogous procedures.

7.    DISPOSITION

103    I have noted above that the grounds upon which an applicant seeks to set aside a bankruptcy notice are to be understood having regard to the contents of the application itself and the affidavit filed in support of the application; Bankruptcy Rules 3.02. Mr Rafidi’s interlocutory application to amend relies on the grounds as set out in; the proposed amended application, his second affidavit and in the affidavits of Mr Mastronado, Mr Evanian and Mr Andersen. For the reasons that I have identified, I refuse leave to amend to introduce the CAM cross-claim allegations with the consequence that Mr Rafidi may not rely on the affidavits of Mr Mastronado, Mr Evanian and Mr Andersen and may not rely on his second affidavit to the extent that it relates to the CAM cross-claim allegations. However, Mr Rafidi’s application to set aside the Bankruptcy Notice may proceed on the basis of the vitiated consent allegations as they are set out in his first and second affidavits and the “technical argument” identified in paragraph 1 of the unamended application. I have noted that Mr Rafidi has abandoned reliance on the allegations made in the statement of claim. The result is that the matter may proceed on the unamended form of the application (as to which, see paragraph [26] above which shows the disallowed amendments in mark-up form) but with the references in it to the statement of claim excised.

104    Accordingly I will dismiss Mr Rafidi’s interlocutory application and order that he pay the respondent’s costs of that application. Aspects of the interlocutory application filed by the CBA are redundant as a consequence of this result. However, I will not dismiss that application for the present. It is perhaps likely that consideration of the remainder of that application can be deferred until the final hearing.

105    The appropriate course is for the proceedings to proceed expeditiously to final hearing. Until that time, I will extend the time for compliance with the Bankruptcy Notice. Mr Rafidi has now filed his evidence and it may be that the CBA does not desire to file any additional affidavit material in response. If that is the case, then it may be appropriate to put in place a timetable for the filing of any written submissions and the hearing of the matter. In light of the submissions already made, which in large measure were directed to the merits of the application, the parties may not consider it necessary for there to be a further hearing, in which case it can be determined on the papers.

106    In any event, the parties should confer and within 14 days provide draft short minutes of order to my associate, indicating the steps that they propose should take place to bring the matter to final hearing indicating in mark-up any areas of disagreement between them. I will provisionally list the matter for a case management hearing shortly thereafter in the event that it is necessary to determine any areas of disagreement.

Associate:

Dated:    4 July 2018