Federal Court of Australia
Wilson v Arwon Finance Pty Ltd [2021] FCA 1052
ORDERS
Applicant | ||
AND: | ARWON FINANCE PTY LTD ACN 072 486 643 Respondent | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicant pay the costs of the respondent, to be assessed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
WAD 35 of 2021 | ||
| ||
BETWEEN: | FRANK CULLITY WILSON Applicant | |
AND: | BURLINGTON LOAN MANAGEMENT DESIGNATED ACTIVITY COMPANY (COMPANY REGISTRATION NUMBER IE470093) Respondent | |
order made by: | MCKERRACHER J |
DATE OF ORDER: | 1 September 2021 |
THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicant pay the costs of the respondent, to be assessed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
MCKERRACHER J:
1 The applicant in each of these two matters (Mr Wilson) seeks to set aside bankruptcy notices served on him by two companies in respect of judgment debts obtained with respect to unpaid loan obligations. Arwon Finance Pty Ltd ACN 072 486 64 (the respondent in WAD 15 of 2021, the Arwon proceeding) and Burlington Loan Management Designated Activity Company (Company Registration Number IE470093) (the respondent in WAD 35 of 2021, the Burlington proceeding) each served bankruptcy notices on Mr Wilson on 13 January 2021 and 1 February 2021 respectively. The amounts claimed by Arwon and Burlington in the bankruptcy notices total just over $18 million. In each matter, Mr Wilson relies upon s 40(1)(g) and s 41(7) of the Bankruptcy Act 1966 (Cth) and r 3.02 of the Federal Court (Bankruptcy) Rules 2016 (Cth) to contend that he has a counter-claim, set-off or cross-demand which equals or exceeds the amount of the judgment debts stated in the bankruptcy notices, which could not have been set up in the proceedings in which the judgments were obtained by the respondents.
2 By the time of the hearing, it was apparent that the primary issue was whether the counter-claim that is now raised by Mr Wilson ‘could not have been set up in the action or proceeding in which the judgment or order as obtained’. That concept is a familiar one in personal insolvency which long predates the enactment of the Bankruptcy Act and has been given meaning and content by a substantial body of authority discussed below. Those authorities reveal the fairly limited and confined circumstances in which the Court can be satisfied that an off-setting claim could not have been set up in the proceeding in which judgment was obtained. Accordingly, and for the reasons which follow, the applications must be dismissed with costs.
3 Sections 40 and 41 of the Bankruptcy Act, to the extent they are relevant, provide as follows:
(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 fixed for compliance with the notice; or
(ii) where the notice was served elsewhere—within the time specified 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;
...
(7) Where, before the expiration of the time fixed for compliance with 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.
4 Rule 3.02 of the Bankruptcy Rules sets out procedural steps relevant to an application to set aside a bankruptcy notice. But for one aspect of the Rules which is non-determinative, there is no need to consider those provisions in these reasons.
5 As senior counsel for Mr Wilson indicated, there is a ‘tsunami’ of affidavit evidence and as he also indicated, most of it is of ‘marginal relevance’ to the present applications. Nonetheless, the evidence on which Mr Wilson relies is:
(a) his affidavit of 3 February 2021 in the Arwon proceeding;
(b) his affidavit of 22 February 2021 in the Burlington proceeding;
(c) his affidavit of 22 March 2021 in support of an extension of time in the Arwon proceeding;
(d) his affidavit of 22 March 2021 in support of an extension of time in the Burlington proceeding;
(e) an affidavit of Mr Geoffrey Daniels, labourer, of 21 April 2021 in the Burlington proceeding;
(f) an affidavit of Mr Graeme Scott, retired accountant, of 21 April 2021 in the Burlington proceeding;
(g) an affidavit of Mr Gregory Maher, lawyer, of 27 April 2021 in the Burlington proceeding;
(h) an affidavit of an Mr Anantha Padmanabha, expert forestry consultant, of 13 May 2021 in the Burlington proceeding; and
(i) his affidavit of 17 May 2021 in the Burlington proceeding.
6 Arwon relies on an affidavit of Mr Alistair Stevens dated 17 March 2021. Mr Stevens is the current chief financial officer of the Quintis Group of companies of which Arwon, and a number of other relevant entities were members at the relevant times.
7 Burlington relies on affidavits filed by two of its solicitors annexing various documents.
8 On 1 April 2021, orders were made in both proceedings that the evidence filed in each proceeding be treated as evidence in the other proceeding.
9 The evidence reveals the following background.
10 The Quintis Group’s business consists principally of owning and managing Indian sandalwood tree plantations and producing and selling products harvested from those trees. As part of the plantation management business, the Quintis Group operates managed investment schemes and offers related financial products to sophisticated investors (SIO offering) and institutional investors.
11 From in or about 2000 until October 2018, Arwon was a wholly owned subsidiary of Quintis Ltd ACN 092 200 854 and provided finance to investors looking to acquire interests in sandalwood plantations. Another relevant subsidiary of the Quintis Group was Sandalwood Properties Ltd (SPL) (formerly TFS Properties Ltd). At various times until March 2017, Mr Wilson was a director and officer of companies within the Quintis Group. He was chief executive officer of Quintis, Arwon and SPL for various extended periods, each for more than 10 years. During Mr Wilson’s time within the Quintis Group, Quintis and Arwon were effectively run as one company, with common directors, policies and practices.
12 Significantly, in 2013 and 2014, Mr Wilson also acquired interests in certain sandalwood plantations through an SIO Offering. In his affidavit, Mr Stevens explains the structure of Mr Wilson’s SIO offering as follows:
(a) SPL as land owner leased certain land to Mr Wilson;
(b) Mr Wilson engaged the services of Quintis to establish, develop and manage each sandalwood plantation;
(c) To meet establishment costs, Mr Wilson obtained a loan from Arwon. Mr Stevens describes Arwon as the ‘financing arm’ of the Quintis Group;
(d) Quintis sub-contracted the management of the plantation to one of its subsidiaries, Quintis Forestry Ltd;
(e) Upon maturity, the trees would be harvested and sold by Quintis and the net proceeds of sale (less any interest accrued by a Quintis entity) would be payable to Mr Wilson.
13 Accordingly, on 30 June 2014, Mr Wilson borrowed approximately $13,200,000 from Arwon pursuant to a loan agreement to acquire interests in certain sandalwood plantations.
14 In March 2017, Mr Wilson resigned from his various positions within the Quintis Group in order to pursue proposals to ‘take Quintis private’. In or about April 2017, Mr Wilson ceased making payments to Arwon due to a dispute concerning the quality and viability of the land that had been assigned to Mr Wilson for his plantation interests. On 24 July 2017, Arwon commenced proceedings in the Supreme Court of Western Australia (CIV 2225 of 2017) to recover the loan from Mr Wilson (the Arwon Supreme Court proceeding).
15 Throughout the remaining months of 2017 and early 2018, Mr Wilson embarked on two separate attempts to privatise Quintis, the first with the backing of a Chinese private equity firm known as CMIG, and the second with the backing of a number of substantial shareholders known as the Steynton Consortium. Both of these takeover attempts were ultimately unsuccessful.
16 Instead, voluntary administrators were appointed to Quintis and several of its subsidiaries in January 2018 with a deed of company arrangement being executed on 29 June 2018. In October 2018, Quintis exited the administration and continued trading.
17 Mr Wilson defended the Arwon Supreme Court proceeding on the basis of an asserted promissory estoppel arising from an alleged practice of Arwon to only pursue a borrower for any shortfall after it had first foreclosed on the borrower’s interests and title over the sandalwood trees (grown on the leased plantations) against which the loans were secured. This alleged practice is referred to as the ‘Group Recovery Policy’. That defence was rejected in a judgment of Justice Kenneth Martin in favour of Arwon in the Supreme Court on 24 July 2019: Arwon Finance Pty Ltd v Wilson [2019] WASC 244. In that decision, his Honour refers to the Group Recovery Policy as the ‘“trees first” recovery policy’. Mr Wilson appealed unsuccessfully. Judgment was delivered by the Court of Appeal of the Supreme Court on 31 August 2020: Wilson v Arwon Finance Pty Ltd [2020] WASCA 137.
18 On 26 June 2019, a month before the delivery of judgment in Arwon v Wilson [2019] WASC 244, Mr Wilson commenced proceedings in the Supreme Court of Queensland against Quintis and SPL alleging breaches of investment management agreements and lease agreements entered into between Mr Wilson and those companies in relation to his plantation interests under the SIO Offering (Queensland Water proceeding). The Queensland Water proceeding included allegations that SPL impeded the supply of adequate water to Mr Wilson’s plantations by directing certain water suppliers not to supply water to Mr Wilson and by causing physical damage to water infrastructure on Mr Wilson’s plantations. Neither Arwon, nor Burlington, are party to the Queensland Water proceeding.
19 In the meantime, having received advice some time in or around February 2020, on 16 June 2020 Mr Wilson commenced separate proceedings against Arwon in the Supreme Court of Queensland (BS 6451 of 2020) seeking damages for tortious conspiracy (the Arwon Conspiracy proceeding). In that proceeding, Mr Wilson alleges that Arwon was party to two conspiracies intended to cause financial hardship and injury to him. The so-called ‘first conspiracy’ is alleged to have occurred between approximately March 2017, when Mr Wilson resigned from his positions in the Quintis Group, and January 2018, when Quintis entered voluntary administration. Mr Wilson contends that Arwon, together with others in the Quintis Group, took various steps to impose financial hardship on him and to damage his reputation with potential investors in an effort to prevent Mr Wilson from being able to successfully privatise Quintis. The so-called ‘second conspiracy’ is alleged to have commenced in mid-2017 and to have operated in conjunction with the first conspiracy. It is put that Arwon was involved in the unlawful acts allegedly perpetrated by SPL and Quintis concerning the water infrastructure and supply at Mr Wilson’s plantations and the breaching of agreements so as to cause him economic loss. There is significant overlap between the alleged second conspiracy in the Arwon Conspiracy proceeding and the allegations against SPL and Quintis in the Queensland Water proceeding. Mr Wilson does not contend that Arwon itself carried out any of the unlawful acts that are alleged against SPL and Quintis in the Queensland Water proceeding.
20 After completion of the trial in the Arwon Supreme Court proceeding, Burlington also commenced proceedings in the Supreme Court (CIV 2145 of 2019) to recover money from Mr Wilson (the Burlington Supreme Court proceeding). Burlington had purchased some of the Arwon loan book. On 23 November 2020, after the judgment of the Court of Appeal had been delivered in the Arwon Supreme Court proceeding, Mr Wilson consented to judgment being entered against him in the Burlington Supreme Court proceeding in the amount of $2,939,614.61 (including interest).
21 On 5 January 2021, about six months after commencing the Arwon Conspiracy proceeding, Mr Wilson also commenced proceedings against Burlington in the Supreme Court of Queensland (BS 202 of 2021) seeking damages for tortious conspiracy (the Burlington Conspiracy proceeding). The claims in both the Burlington Conspiracy proceeding and the Arwon Conspiracy proceeding are referred to together in these reasons as the Off-setting Claims.
22 In two of Mr Wilson’s affidavits and in Mr Padmanabha’s affidavit, the value of the Off-setting Claims is variously alleged to be between $40 million and $80 million.
23 On 11 January 2021, Arwon caused to be issued a bankruptcy notice (BN 251056) to Mr Wilson in relation to an unpaid debt of $15,210,590.47. The notice was served on Mr Wilson on 13 January 2021. That debt was based on the judgment in the Arwon Supreme Court proceeding. On 4 February 2021, Mr Wilson applied to set aside that notice in this proceeding.
24 Similarly, on 27 January 2021, Burlington caused to be issued a bankruptcy notice (BN 251140) to Mr Wilson for $2,939,614.61 which was served on Mr Wilson on or about 1 February 2021 (together with the notice issued by Arwon, the Bankruptcy Notices). Again, the debt the subject of the notice is the judgment debt from the Burlington Supreme Court proceeding. It is common ground that, while consenting to judgment being entered against him in that proceeding, on or about 23 November 2020, Mr Wilson was represented by solicitors and senior counsel.
25 Mr Wilson gives much evidence of doubtful relevance to these applications. Lengthy details of acrimony between Quintis and himself in 2017 are provided as evidencing actions taken by Quintis to impede and block Mr Wilson’s attempts to privatise the company. As to the alleged damage caused to his plantation through water deprivation, Mr Wilson says he first heard of the Quintis Group’s involvement in such activities in August 2018 from a contractor. He then took advice, with the Queensland Water proceeding being commenced the following year.
26 As to Burlington, Mr Wilson said he first learned from Ms Kerry Pownell, a former Quintis employee, in mid-2020 that Burlington had never, in the past seven years, sued defaulting borrowers to recover loans. Burlington had only done so against Mr Wilson, Ms Pownell surmised, because it had been urged to do so by Arwon. Mr Wilson says this was the first ‘direct confirmation’ of Arwon and Burlington conspiring against him.
27 In addition to evidence discussed later in these reasons, Mr Wilson gives the following evidence about legal advice he received concerning the Off-setting Claims later pursued in the Arwon Conspiracy proceeding which seeks to demonstrate why these claims were only raised after judgment in the Arwon and Burlington Supreme Court proceedings:
124. With respect to the Arwon litigation, commenced in July 2017, I was unable to bring my conspiracy claim against Arwon because I only became aware of the Quintis group’s attempts to damage and destroy my plantations through water deprivation until approximately August 2018, from my contractors.
125. Upon finding out about Quintis’ attempts to damage and destroy my plantations, I sought advice from my lawyers conducting the Arwon defence. I thought it was like a bank deliberately destroying a house over which they held security and suing the borrower for not being able to repay the loan. My lawyers advised me that because the actual damage was caused by another company in the Quintis group, I could not bring the claim against Arwon but could commence proceedings against that Quintis group company and on 26 June 2019 I commenced proceedings against [SPL (the Queensland Water proceeding)].
126 In or about December 2019, I met with Martin Bennett regarding another matter he represented me on and we discussed the Arwon case. I informed Martin that I believed the Quintis group was deliberately destroying my plantations and Arwon was permitting this to happen when they held the plantations as security, Martin expressed the view that I could sue Arwon under the tort of conspiracy.
127. I asked Martin to put his views in writing, which he did in February 2020. I immediately provided Martin’s advice to my lawyers and my lawyers then worked with Counsel over the following 4 months to prepare a statement of claim against Arwon. Attached and marked FCW42 is a copy of this letter.
128. On 16 June 2020, the statement of claim was filed in the Queensland Supreme Court.
129. For the reasons set out below, I believe there will likely be significantly more material that comes out of discovery in the conspiracy proceedings against Arwon to support this claim.
(Emphasis in original.)
GOVERNING PRINCIPLES
28 Mr Wilson bears the onus of satisfying the Court that he has a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross-demand that he could not have set up in the action or proceeding in which the judgment or order was obtained.
29 Mr Wilson must show a counter-claim, set-off or cross-demand which sounds in money (Re Brink; Ex parte Commercial Banking Co of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135 per Lockhart J (at 138)), and which exists at the time the application to set aside is heard: Patane v Asteron Life Ltd [2004] FCA 232; (2004) 2 ABC(NS) 85 (at [74]). A claim for an unliquidated demand for a tort can be a cross-demand: Re Judd; Ex parte Pike (1924) 24 SR (NSW) 537 (at 539-540) and Massih v Esber [2008] FCA 1452; (2008) 250 ALR 648 (at [24]).
30 As Markovic J observed more recently in Blair v Owners of Strata Plan No 71656 [2016] FCA 1522 (at [20]):
The terms “counter-claim”, “set-off” and “cross demand” in s 40(1)(g) of the Bankruptcy Act are not subject to limits. The word “counter-claim” likely refers to claims in equity and the word “set-off” likely refers to those claims the subject of a set-off at common law while “cross demand” refers to claims other than those encompassed in the expressions “counter-claim” or “set-off” and can include a claim for unliquidated damages for a tort or damages for breach of contract: see Re Brink; Ex parte Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 (Re Brink) (per Lockhart J) at 138-139.
(Emphasis in original.)
31 Although few limits are placed on the nature of the off-setting claim, the Court must be satisfied that the applicant ‘has’ such a claim (that equals or exceeds the judgment debt). This limb requires the applicant to demonstrate a prima facie case by producing evidence of the off-setting claim, though such evidence does not need to be admissible as it would need to be before a court trying the issue; the Court on an application under s 40(1)(g) and s 41(7) does not conduct a ‘mini-trial’ of the off-setting claim contended for: Ebert v Union Trustee Co of Australia Ltd [1960] HCA 50; (1960) 104 CLR 346 (at 350) and Re Brink (at 141). The standard as formulated by Lindgren J in Glew v Harrowell [2003] FCA 373 (at [11]) is whether the Court can be satisfied the debtor has a claim deserving to be finally determined. In CFB18 v Reader Lawyers & Mediators [2018] FCA 611; (2018) 16 ABC(NS) 26, Colvin J summarised the relevant principles (at [33]-[34]):
33 Where an application is made to set aside a bankruptcy notice on the basis of such an offsetting claim, the Court must weigh 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: Guss v Johnstone (2000) 74 ALJR 884 at [40]. The offsetting claim must sound in money and it must be a claim that it is proper and reasonable for the debtor to litigate: Vogwell v Vogwell (1939) 11 ABC 83, 85. It must be raised in the same right as the claim the subject of the bankruptcy notice: Ebert v Union Trustee Company of Australia Ltd (1960) 104 CLR 346, 351-352 . So, for example, a claim made in a trustee capacity can only be met by an offsetting claim against the debtor in the same trustee capacity.
34 The various formulations in the cases as to what must be established by the party seeking to set aside the notice were summarised by Lindgren J in Glew v Harrowell (2003) 198 ALR 331 at [9]. They include, the existence of a “prima facie case”, “a fair chance of success” or the party is “fairly entitled to litigate” the claim and that the party is advancing a “genuine” or “bona fide” claim. However, it is not simply a matter of evaluating whether there is a claim with the requisite strength. Rather, the question is whether the claim is of a kind that, in all the circumstances (including the Court’s view of the strength of the offsetting claim), it is just to allow the party to pursue rather than face bankruptcy. One aspect of the claim to consider is its strength. A weak claim will not suffice. Otherwise, an assessment of strength is to be considered in the context of other considerations that bear upon the justice of allowing the bankruptcy proceedings to continue without the claim first being determined.
32 Further useful guidance is found in Lewis’ Australian Bankruptcy Law (11th ed) (at 70-73).
33 As to whether an off-setting claim ‘could not have been set up’ in the proceeding where judgement was obtained, the policy reason that underlies this threshold in s 40(1)(g) is to ensure that a debtor cannot simply stand by (as the respondents argue Mr Wilson has done) while judgment is obtained, and later seek to use a counter-claim, set-off or cross-demand to set aside a bankruptcy notice founded upon that judgment: Re Ling; Ex parte Ling v Commonwealth (1995) 58 FCR 129 per Hill J (at 137). As noted, it is this particular consideration that is the focus of the present case.
34 On this crucial point, Mr Wilson particularly relies on the following passage from the judgment of Lukin J in Re Stokvis (1934) 7 ABC 53 (at 57):
I take a counter claim, set off or cross demand which could not be set up as one which, from point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained… Mere failure to take advantage of the opportunity can hardly be said to be inability.
(Emphasis added.)
35 That passage was quoted with approval in Re Brink (at 139) and Palaniappan v Westpac Banking Corporation [2017] FCAFC 121; (2017) 252 FCR 486 (at [32]). Often quoted also is the dictum of Avory J in Re Jocumsen (1929) 1 ABC 82 (at 85):
I think that upon the true interpretation of the section a debtor is entitled to set up in answer to a bankruptcy notice a counter-claim which rebus sic stantibus he could not in law have set up in the action in which the judgment was obtained, even though he could, if he had chosen, have taken steps which would have rendered the counterclaim available to him in the action.
I think it means a counter-claim which as things then stood the debtor could not set up in the action.
(Emphasis added.)
36 Latin expressions are less frequently adopted these days to explain plain English words but the expression means ‘things standing thus’. It is applicable to refer to a fundamental change of circumstances.
37 These circumstances are frequently characterised ‘as a matter of law’. In Massih, Flick J said (at [28]):
Consistent with the legislative objective sought to be achieved by s 40(1)(g), it has been held that the phrase “could not have been set up” refers to a “cross-claim, set-off or cross demand” which could not have been set up as a matter of law; a mere failure to take advantage of an opportunity to do so does not fall within s 40(1)(g) …
(Emphasis added.)
38 Each of the respondents also relies upon the Full Court decision in Palaniappan per Gilmour J (McKerracher and Charlesworth JJ relevantly agreeing), setting out the principles applicable to the proper construction of s 40(1)(g) of the Bankruptcy Act as follows (at [32]):
The principles applicable to the proper construction of s 40(1)(g) of the Act, which the parties accept, correctly, are relatively well settled. They are relevantly:
(1) The question of whether or not a counterclaim or cross-demand “could not have been set up” is a question to be determined with reference to legal inability, not practical or personal considerations: Re Brink at 434, 437.
(2) “[A] counter-claim, set-off or cross demand which could not be set up [is] one which, from point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained. … Mere failure to take advantage of the opportunity can hardly be said to be inability”: Re Stokvis at 57.
(3) The debtor bears the onus of satisfying the Court that he/she was legally incapable of setting up his/her counterclaim in the proceedings in which the judgment was obtained: Re Ling; Ex parte Ling v Commonwealth (1995) 58 FCR 129 at 130 and 137.
(Emphasis added.)
39 In light of these statements of principle, the nature of the legal inability or impediment required to be established for relief under s 40(1)(g) of the Bankruptcy Act is helpfully illustrated by the following cases:
(a) in Re Vicini; Ex parte EA Sealey & Co (1982) 64 FLR 323, (applied in Re Deen; Ex parte Deen v Muller (1995) 58 FCR 441), the applicant claimed that despite best endeavours, he was unable to obtain the factual and expert evidence required to establish his counter-claim, in spite of the fact that the counter-claim had been pleaded as an addendum to the defence in the debtor proceeding. Fisher J held that there was no reason, as a matter of law, why the counter-claim could not have been set up in the original proceeding, stating (at 327) that:
The fact that he was unable to pursue [his counter-claim] because of an inability to bring witnesses and evidence before the court at that time in no way assists him to establish that as a matter of law he was unable at the time to set up the counterclaim in the action.
(Emphasis added.)
(b) in Tzovaras v Nufeno Pty Ltd [2003] FCA 1152; (2003) 1 ABC(NS) 421, the debtor stated that he was unable to bring his cross-claim in the proceedings in which judgment was obtained against him because the District Court of New South Wales did not have jurisdiction to determine his cross-claim as it was beyond the monetary limit set by the court’s empowering legislation. Jacobson J held (at [37]-[52]) that the cross-claim could nevertheless have been set up in the proceeding as a matter of law, because the proceeding could have been removed to the Supreme Court of New South Wales (such that it would have been the same proceeding though in a different court). Although the applicant in Tzovaras had in fact sought an order for removal from the District Court, the order had to be made by the Supreme Court of New South Wales. The applicant’s application for an adjournment so that a removal order could be sought in the Supreme Court was refused. Jacobson J (at [55]-[56]) likened the debtor’s position in that case with the situation prevailing in Re Scott; Ex parte Scott v Beneficial Finance Corporation Ltd (1994) 53 FCR 324 in which the debtor was refused leave to amend his pleading to include the off-setting claim in the form that it would later be brought in a different court due to the lateness of the amendment and previous procedural non-compliance. Einfeld J summarised the position in Re Scott as follows (at 327G-328A):
In this case there was no reason at law why the applicant could not have raised his cross-claim in the Supreme Court proceedings. Had it formed part of his initial defence, and been properly pleaded, it is difficult to see how he would have been prevented from fully ventilating it. Having filed a defence without including these matters he then sought to amend his defence to include them. He evidently did so in a most unsatisfactory form, and at least partly for that reason, was refused leave.
In this circumstance it can hardly be said in light of the authorities to which I have referred, that the counterclaim could not have been set up. The applicant failed to take advantage of the opportunity afforded him to plead the matters in a timely and proper manner. As a result of this finding. I conclude that the applicant has not satisfied s 40(1)(g) of the Act.
(Emphasis added.)
(c) in Palaniappan (at [44]-[47] and [50]), it was held that the debtor was not legally incapable of setting up a counter-claim even when faced with a ‘no set-off’ clause under the principal agreement with the judgment creditor. This claimed ‘legal inhibition’ was held not to be a ‘positive inhibition’ of the kind referred to by Lukin J in Re Stokvis (at 57). Gilmour J also emphasised (at [45]) that the phrase ‘positive inhibition’ is not contained in s 40(1)(g) and that ‘it is the language of the section to which attention must be given, rather than the language of judgments of the Court’;
(d) In Re Ling, the debtor asserted an off-setting claim against the Commonwealth for negligent misstatement or alternatively, defamation. He proffered two reasons why the claim could not have been set up in the debtor proceeding. Only the first is presently relevant (though both failed to meet the requirement of s 40(1)(g)), and the debtor explained it in his supporting affidavit as recorded by Hill J (at 132):
I was not advised by my solicitors in the proceedings in which the judgment was obtained that I had a claim against the Commonwealth of Australia except for the defamation claim. My current solicitors have advised me that I do have a claim against the Commonwealth of Australia exceeding the judgment debt in favour of the Commonwealth.
His Honour rejected this explanation as follows:
What emerges here is that the practical reason why no action was taken against the Commonwealth, whether by the institution of a cross-claim or otherwise, is that the debtor was not advised that he could do so. But that does not suffice to make the claim one which the debtor could not have set up in the Commonwealth proceedings. That is not a question to be determined by reference to practicalities; it is a question to be answered by reference to legal considerations: Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135; Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183; Walton v National Mutual Life Association of Australasia Ltd (1994) 49 FCR 406 at 408; Re Scott; Ex parte Scott v Beneficial Finance Corporation Ltd (1994) 53 FCR 324; Re Martinovic (unreported, Federal Court, Kiefel J, 23 June 1995).
(Emphasis added.)
(e) in Walton v National Mutual Life Association of A/asia (1994) 49 FCR 406, a suggestion during the hearing of the set aside application that the off-setting claim could not have been set up due to a solicitor’s negligence was held not to fall within the meaning of ‘could not have set up’ under s 40(1)(g) (at 408D);
(f) in Re a Debtor [1914] 3 KB 726, however, after judgment had been obtained against the debtor, the debtor took an assignment of a debt that was owing by the judgment creditor to a third party. It was there held that the assigned debt was a claim that could not have been set up in the original proceedings; and
(g) although the Full Court in Eastick v Australia and New Zealand Banking Group Ltd (1981) 53 FLR 91 refused to disturb the primary judge’s findings of fact, it considered that the alleged off-setting claim could not have been set up in the debtor proceeding. In that proceeding, the creditor sought to enforce a guarantee given by the debtor which included a term to the effect that a certificate issued by the creditor would be conclusive evidence of the amount owing. Such a certificate was issued almost a year after the creditor commenced proceedings to enforce the guarantee and judgment was entered against the debtor on that basis. The off-setting claim was said to be for damages in the sum of the judgment debt on the basis that the certificate had been negligently prepared. The Court considered that the claim could not have been set up in the debtor proceeding ‘because the damage alleged to have been suffered by the appellant was the obtaining of judgment in those proceedings as a result of the use of the certificate in the actual course of the proceedings’ (at 96).
MR WILSON’S CONTENTIONS
40 Mr Wilson, in written and oral submissions, has emphasised that he possesses bona fide conspiracy claims against both Arwon and Burlington that enjoy reasonable prospects of success.
41 Mr Wilson accepts that for him to establish a claim for tortious conspiracy, he must prove:
(a) there was a combination or agreement between two or more persons;
(b) there was an intention to injure, which:
(i) must be the sole or predominant purpose for conspiracy by lawful means; or
(ii) need not be the predominant purpose if there was an unlawful act;
(c) the combination or agreement was executed in whole or in part; and
(d) some pecuniary loss as a result of the defendants’ acts in furtherance of the combination or agreement.
42 There must be a combination or agreement between the conspirators. To be a party to the combination or agreement, each party must be sufficiently aware of the surrounding circumstances and share the same purpose or intention: Australian Wool Innovation Ltd v Newkirk [2005] FCA 290 per Hely J (at [62]).
43 As conspirators will ordinarily conceal their combination or agreement, it will often be the case that there is no direct evidence of the same. The combination or agreement can therefore be proved as a matter of inference from the overt acts of the relevant parties done in pursuance of the apparent common purpose between them. It is the weight which is to be given to the united force of all of the circumstances which must be considered: Chong v CC Containers Pty Ltd [2015] VSCA 137 (at [133]-[134]).
44 As noted, in March 2017, Mr Wilson resigned as chief executive officer of Quintis for the purpose of pursuing a proposal to take Quintis private. Mr Wilson’s case is that:
(a) after he resigned, Arwon, Quintis and SPL entered into an agreement pursuant to which each, where able, would take steps to cause Mr Wilson loss or economic hardship and harm his reputation so as to maximise the prospects of preventing any attempts by Mr Wilson to privatise Quintis; and
(b) subsequently, the parties entered into a further agreement to implement a process whereby Arwon would continue to engage in litigation (being the Arwon Supreme Court proceeding) and Quintis and SPL would breach agreements with Mr Wilson to cause him financial harm and economic loss, such that Mr Wilson would eventually be in a financial position whereby he could no longer conduct his sandalwood plantations or manage or be involved in a co-operative that operated in direct competition with the Quintis Group.
45 The acts pleaded by Mr Wilson to have been done by the ‘conspirators’ from which, on Mr Wilson’s case, these conspiracies can be inferred are as follows:
(a) Quintis gave false information to CMIG about Mr Wilson during the first takeover attempt so as to leave Mr Wilson out of the proposal. Quintis ultimately rejected an offer from CMIG that Mr Wilson considered to be commercially attractive;
(b) Quintis included redacted board minutes in a data room for due diligence on potential investors during the second attempted takeover which accused Mr Wilson of being in default of his loan obligations and discussed that Arwon would be instituting legal proceedings against Mr Wilson, but without mention of discussions showing the substantial dispute between Mr Wilson and Arwon over those matters;
(c) Quintis announced to the ASX that Arwon intended to take legal proceedings against Mr Wilson, despite never having announced previously that a debtor was being pursued;
(d) Arwon commenced legal proceedings against Mr Wilson on 24 July 2017, despite its longstanding policy of first foreclosing on the plantation interests secured by the loan and despite the statements made to Mr Wilson by representatives of Quintis;
(e) Quintis frustrated the attempts of the Steynton Consortium, advised by Goldman Sachs, to perform due diligence and put forward a proposal to take Quintis private by:
(i) delaying and inserting unduly restrictive terms in the confidentiality agreement;
(ii) making representations that Mr Wilson and his associates were threatening Quintis employees and were a potential danger to Quintis employees and preventing Mr Wilson from participating in due diligence site visits; and
(iii) refusing to allow the Steynton Consortium to deal with a major creditor of Quintis (and parent company of Burlington), with respect to its proposal for Quintis,
following which Quintis did not emerge with an agreement with another party but instead appointed administrators after the creditor identified at (iii) above exercised an option which Quintis could not fund;
(f) SPL took various actions to damage Mr Wilson’s plantations (being the same plantations over which the respondents hold security) by:
(i) arranging for the cessation of water supply to land on which Mr Wilson’s plantations were growing;
(ii) attempting to prevent water being supplied to Mr Wilson’s plantations; and
(iii) intentionally damaging Mr Wilson’s water infrastructure and fluming; and
(g) Burlington, acting in support of Arwon, commencing litigation against Mr Wilson itself, after the Arwon Supreme Court proceeding concluded, to increase pressure on Mr Wilson.
46 Mr Wilson argues that it is the weight of these acts considered together, and in sequence, that proves as a matter of inference a combination or agreement dating back to April 2017 with the purpose of causing harm to Mr Wilson to maximise the prospects of preventing his attempts to privatise Quintis and his involvement with the co-operative that was competing with Quintis.
47 In or about late November 2020, Mr Wilson says he became aware of ‘direct’ evidence of a combination or agreement between the respondents to act together or, at least, complimentarily. The pleaded terms of that agreement were to act inconsistently with the standard defaulting borrower procedures and commence legal proceedings against Mr Wilson rather than foreclose against the secured plantation interests in order to cause damage to Mr Wilson.
48 Mr Wilson’s evidence is that, prior to this point, he did not have evidence supporting an agreement between Arwon and Burlington.
49 The intention to injure must be the sole or predominant purpose of a conspiracy by lawful means: McKernan v Fraser [1931] HCA 54; (1931) 46 CLR 343 (at 361-362). For a conspiracy by unlawful means, it must be an intention but need not be the sole or predominant purpose: Fatimi Pty Ltd v Bryant [2004] NSWCA 140 Handley JA (at [14]-[17], McColl JA agreeing at [83]). In general, a person uses unlawful means if they are doing an act which they are not at liberty to commit: Dresna Pty Ltd v Misu Nominees Pty Ltd [2004] FCAFC 169.
50 On Mr Wilson’s case, the damage and destruction to his plantations were unlawful acts undertaken with the intention of causing economic damage to him. Even if those acts are held not to have been unlawful, Mr Wilson’s case is that the summary above shows the respondents’ actions, in all the circumstances, could only have been taken with the sole or predominant intention of causing economic damage to Mr Wilson. In particular, it is contended that there can be no other intention inferred from the damage or destruction to the plantations than to cause damage to Mr Wilson.
51 Accordingly, Mr Wilson argues that while it is accepted that there must be some overt act which can be pleaded as having been done in execution or furtherance of the agreement, the acts do not need to be done by each of the parties to the conspiracy. Rather, it is sufficient that one of the parties to the agreement so acted and, in reliance on the summary of contended facts above, Mr Wilson submits that both respondents were clearly involved in the conspiracies alleged.
52 Full particulars of the damages claimed by Mr Wilson in the Off-setting Claims will be the subject of expert evidence in those proceedings. However, Mr Wilson has provided evidence in the form of Mr Padmanabha’s affidavit that provides a basis, he contends, for the Court to be satisfied, to the standard required for these applications that the amount of the Off-setting Claims exceeds the amounts claimed in the Bankruptcy Notices. Indeed, Mr Padmanabha’s valuations greatly exceed the respondents’ judgment debts, though the weight to be given to MR Padmanabha’s evidence is disputed.
53 As to the question whether the Off-setting Claims could have been set up in Arwon’s and Burlington’s Supreme Court proceedings, Mr Wilson’s main point is, as the passage quoted from Re Stokvis (at [34] above) shows, the question is not binary. A counter-claim that could not be set up in the earlier proceedings may be one where the impediment was ‘from point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do’ (Emphasis added). Only the latter of these four, it is said, could be understood to be referring to a claim that could not have been set up as a matter of law.
54 Thus, Mr Wilson contends that notwithstanding what has been said in a number of cases, it must be thought unlikely that the reference in s 40(1)(g) of the Bankruptcy Act to ‘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’ is limited only to claims that the judgment debtor could not have set up in the earlier proceeding as a matter of law. If this were so, it is argued, then absent considerations of the jurisdiction of the court or tribunal hearing the earlier proceeding, the only circumstance in which the requirement of s 40(1)(g) could be satisfied is where the law had changed and a prohibition from making the claim that had previously existed had been changed. Such a construction of this requirement of s 40(1)(g) would render it effectively nugatory in respect of any claim other than one which arose after judgment in the earlier proceeding. No doubt many of the authorities juxtapose claims which could not have been set up as a matter of law with a mere failure to take advantage of an opportunity to make a claim because judgment debtors so commonly merely fail to take such advantage. But, Mr Wilson says that the dicta of Lukin J in Re Stokvis demonstrates these situations are not exhaustive. Rather, there are claims that from point of time, or from their nature could not have been brought as counter-claims that s 40(1)(g) attracts.
55 In this matter, Mr Wilson says he did not bring the Off-setting Claims as counter-claims in the primary proceedings because when he first became aware of facts that indicated the possibility of such claims, it was necessary for factual and other inquiries to be made before bringing them as counter-claims. For a litigant to commence legal proceedings involving allegations of conspiracy requires that the litigant be satisfied that it has a proper basis to bring such a claim. Where legal advice is sought about such action, a legal practitioner’s paramount duty to the Court extends to satisfying themselves that there is a reasonable basis for instituting proceedings in respect of which they have been engaged to advise: see, for example, A159 of 2002 v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 1087 per Selway J (at [23]). This is said to be particularly so where allegations in the nature of tortious conspiracy or the like are made.
56 The effect of these requirements is that a debtor can be prevented by law, in the sense required by the cases, Mr Wilson says, from setting up a counter-claim in a proceeding unless there has been appropriate investigation and consideration of the basis for setting it up. Indeed, in Massih (at [32]), Flick J said that the relevant phrase in s 40(1)(g) of the Bankruptcy Act ‘refers only to those causes of action which a debtor was entitled to plead up to the time of judgment’. An obvious example is set out above, where the debtor takes assignment of a debt owed by the creditor issuing the bankruptcy notice only after the conclusion of the proceedings which give rise to the debt the subject of the notice, as in Re a Debtor. In the words of Lukin J in Re Stokvis, that is a claim which, from point of time, could not have been set up in the original proceeding. But Mr Wilson says that Lukin J also recognised that a claim, from its nature, might be one which could not be set up in the original proceeding. This would include, it is said, a case where a cross-claim involved the invoking of a jurisdiction that the primary court could not exercise. That contention is not correct in my view, especially in circumstances where it is open to transfer a proceeding to a court that does have jurisdiction, and particularly having regard to the rulings in Tzovaras (at [37]-[52]) and Re Ling (at 134A and 137B) that effecting that transfer may require an order to be sought from the other court or indeed the claim itself commenced in the other court and an application for a remitter made. In my view, a claim that ‘from its nature’ could not have been set up would include situations of the kind described in Eastick. Either way, that is not so in this case. The Supreme Court clearly would have dealt with the conspiracy claims.
57 Mr Wilson notes by way of comparison that the issue of the time required to investigate and assess a cause of action has been recognised in a limitations context. In Shire of Toodyay v Merrick [2016] WASC 29, the Court considered an application to extend the time in which an action could be brought under s 38(2) of the Limitation Act 2005 (WA) on the basis of fraudulent or other improper conduct of the defendant. A question for the Court was when the action ought reasonably to have been commenced. In considering this question, the Court allowed for the time required to further investigate and obtain legal advice on the issues raised in a report received in April 2012, holding that the action ought reasonably to have been commenced ‘probably sometime towards the end of 2012’ (at [124]). I would pause only to observe that the question of when an action ought reasonably to have been commenced is quite different from the question posed by the words ‘could have been set up’ in s 40(1)(g) of the Bankruptcy Act. I do not consider this comparison assists Mr Wilson.
58 Mr Wilson asserts that similarly, the question of when a debtor was ‘entitled to plead’ a counter-claim demand should allow for the time to investigate and take advice on, and then plead, a cause of action following the discovery of the relevant evidence. This is particularly so in circumstances where the cause of action is tortious conspiracy which, by its nature:
(a) involves serious allegations that, in general, must be inferred from the acts of the conspirators, and so requires careful investigation and consideration in order to determine whether there is a proper basis to plead a case; and
(b) as recognised in the cases, ordinarily involves the concealment by the conspirators of their combination or agreement.
59 Mr Wilson’s evidence is that he only became aware of the attempts by the Quintis Group to damage and destroy his plantations in around August 2018. He then sought legal advice in respect of this evidence. That advice was to the effect that he did not have a case against Arwon. He did, however (after the trial in the Arwon Supreme Court proceeding), commence the Queensland Water proceeding against SPL and Quintis on 26 June 2019.
60 On receiving subsequent advice in early 2020, Mr Wilson gave instructions to prepare and commence the Arwon Conspiracy proceeding. This process took approximately four months, in addition to the time that had already been spent investigating and taking advice in respect of the Queensland Water proceeding.
61 Mr Wilson deposes to the fact that the lawyers originally instructed by him did not initially consider there was a claim against Arwon. Presumably the advice was oral. No written advice to that effect has been produced unlike the subsequent advice he received. However, he says, from its nature, tortious conspiracy is a complex cause of action, particularly in respect of the evidentiary basis for pleading it. When regard is had to the time it took to investigate the matters set out above, and to the requirements to ensure a proper basis before pleading a cause of action, Mr Wilson submits that he could not reasonably have been expected to have set up the claim in the Arwon Supreme Court proceeding having regard to the time he discovered the evidence that allowed the Off-setting Claims to be brought in relation to the time of trial.
62 Mr Wilson argues that his circumstances can be distinguished from the case of Re Vicini. There, the debtor claimed that despite best endeavours, he was unable to obtain and present the evidence required to establish the counter-claim. The Court held that this was not a reason why, as a matter of law, the counter-claim could not have been set up in the original proceeding. However, that counter-claim had been pleaded and was before the Court in the original proceeding. The issue was that the debtor, for practical reasons, and despite the machinery presumably available under the Court’s rules such as subpoenas, was unable to substantiate the claim by presenting supporting evidence to the Court. Indeed, the Court found that the debtor had, in fact, set up the counter-claim in the original proceeding. The debtor failed to take advantage of a counter-claim that had already, in effect, been set up. In contrast, Mr Wilson’s submission is that he was, by reason of the matters set out above, unable to set up his counter-claim at all until appropriate investigation and consideration had occurred.
63 As noted above, the evident policy underlying s 40(1)(g) of the Bankruptcy Act is to prevent a debtor standing by while judgment is obtained and later seek to use that claim to set aside a bankruptcy notice founded upon that judgment: Re Ling (at [32]).
64 Mr Wilson says he did not simply stand by. The evidence that started his enquiries only came to his knowledge in August 2018. Upon becoming aware of relevant evidence, he sought advice and pursued the claims available to him. Ultimately, the Off-setting Claims, from their nature, took time to properly investigate and consider before proceedings could be commenced. Advice from multiple legal practitioners was obtained. Mr Wilson’s position is that, given the legal constraints on commencing proceedings without proper investigation, he could not reasonably have set up his counter-claim in the Arwon Supreme Court proceeding.
65 In the case of Burlington, Mr Wilson’s evidence is that he only became aware of the evidence he relies on to establish Burlington’s involvement in the conspiracy after he had consented to judgment in the Burlington Supreme Court proceeding. For that reason, in light of the legal constraints set out above, he could not have set up his counter-claim against Burlington in those proceedings.
66 In those circumstances, Mr Wilson says it would be unjust not to allow Mr Wilson to pursue his Off-setting Claims and force him to comply with the Bankruptcy Notices or face bankruptcy.
ARWON’S CONTENTIONS
67 Arwon broadly makes three distinct submissions in support of its position that Mr Wilson’s application to set aside the Bankruptcy Notices should be dismissed:
(a) for various reasons, even at a prima facie level, the allegations of tortious conspiracy against Arwon do not enjoy sufficient prospects of success;
(b) that the timing of the Arwon Conspiracy proceeding brought by Mr Wilson should give rise to the inference that his Off-setting Claim is not bona fide; and
(c) that Mr Wilson has produced no evidence of any legal inability, as distinct from a practical inability, to set up the claim in the Arwon Supreme Court proceeding.
68 As Arwon points out, in the Arwon Conspiracy proceeding, the loan agreement and the Group Recovery Policy form a significant part of Mr Wilson’s allegations (which are denied) that Arwon committed the tort of conspiracy. Mr Wilson alleges that Arwon’s commencement of the Arwon Supreme Court proceeding, and decision not to follow the Group Recovery Policy, were acts forming part of the so-called first conspiracy. Mr Wilson also alleges that the continuation of the Arwon Supreme Court proceeding formed part of the so-called second conspiracy.
69 However, to the extent that Mr Wilson’s conspiracy claim relies on a deviation from the alleged Group Recovery Policy, Arwon submits, with some force, that the findings of Kenneth Martin J in rejecting Mr Wilson’s defence of promissory estoppel in the Arwon Supreme Court proceeding are not susceptible to challenge in this application, or in the Arwon Conspiracy proceeding and give rise to an issue estoppel: Blair v Curran [1939] HCA 23; (1939) 62 CLR 464 per Dixon J (at 531-533). Of the numerous findings made by Kenneth Martin J in relation to Mr Wilson’s purported detrimental reliance on the Group Recovery Policy, his Honour’s reasons at [129] in Arwon v Wilson [2019] WASC 244 are illustrative:
Consequently, any assumption(s) that Mr Wilson held concerning a necessary future application to him as a defaulting borrower by Arwon of an inflexible future ‘trees first’ recourse against himself under the Loan Agreement, should he default in the future, would be unreasonable and self-induced. That state of assumption, if held, would be a case of an assumed position reached in the mind of Mr Wilson by his persuading himself of such a likely future recovery position to be followed by Arwon, more by way of a self-delusion, rather than by acting on a body of underlying rational facts to reasonably support that otherwise uncommunicated (by Arwon) state of mind and assumption concerning the extent of a his future risk exposure as a possible defaulting debtor, should he ever default on his repayments as a borrower years off in future.
70 Arwon argues that in these circumstances, Arwon’s decision to sue Mr Wilson for the debt in the Arwon Supreme Court proceeding, the substance of the first conspiracy, cannot constitute a basis for tortious claim of conspiracy.
71 Arwon also points out that the acts that are alleged to constitute the second conspiracy in the Arwon Conspiracy proceeding were acts allegedly undertaken by SPL and Quintis, not Arwon. In the statement of claim filed in that proceeding, Mr Wilson does not allege any substantive, specific acts by Arwon that are said to form the basis of the second conspiracy (other than those acts that form part of the first conspiracy).
72 For these reasons, Arwon asserts that based on the statement of claim filed in the Arwon Conspiracy proceeding, Arwon is not a proper defendant to Mr Wilson’s various conspiracy claims.
73 As noted, on 26 June 2019, Mr Wilson commenced the Queensland Water proceeding against Quintis and SPL (not Arwon). The subject matter of the Queensland Water proceeding, Arwon argues, substantially overlaps with the second conspiracy in the Arwon Conspiracy proceeding.
74 It would appear, Arwon says, that Mr Wilson attempts to attribute the acts of Quintis or SPL to Arwon by defining it as part of the Quintis Group in his statement of claim in the Arwon Conspiracy proceeding. These allegations are said to ignore:
(a) Arwon’s status as a separate legal entity;
(b) Arwon’s confined role in providing financing to investors as part of the Quintis group: Arwon v Wilson [2019] WASC 244 (at [41]); and
(c) that Arwon did not perform or procure plantation management services nor contract with investors in relation to the provision of plantation management services or leasing and was not involved in any decision making in relation to those matters.
75 Arwon reiterates that Mr Wilson must demonstrate that he has a prima facie case and a fair chance of success. The Court is not required to undertake a preliminary trial of the counter-claim, set-off or cross-demand; rather it must be satisfied on the materials supporting the application that the debtor has a prima facie case and a fair chance of success: Re Brink per Lockhardt J (at 141). As noted, that may include testing the admissibility of the evidence filed in support of the application, but only at the level of assessing whether the claim deserves to be finally determined: Glew (at [11]).
76 Arwon also emphasises that to establish the tort of conspiracy by unlawful means, it is necessary to show that Arwon engaged in unlawful acts or means that were aimed or directed at Mr Wilson: see Fatimi and Williams v Hursey [1959] HCA 51; (1959) 103 CLR 30. However, the statement of claim filed in the Arwon Conspiracy proceeding does not specifically allege any unlawful acts by Arwon. The first conspiracy as pleaded is substantially based on Arwon’s decision to seek to enforce the debt owed to it by Mr Wilson in the Arwon Supreme Court proceeding. Arwon says it was clearly entitled to enforce the debt against Mr Wilson and its actions in doing so, in light of the decision in Arwon v Wilson [2019] WASC 244 (upheld on appeal) cannot constitute the basis of a tortious conspiracy claim.
77 The second conspiracy is also said not to be based on acts taken by Arwon. Even if those acts were unlawful, the acts were not committed by Arwon, but rather by other entities in the Quintis Group. As a result, it is said that the statement of claim in the Arwon Conspiracy proceeding (and the materials filed by Mr Wilson in support of the present application) do not disclose a prima facie case against Arwon and do not have a fair chance of success.
78 Arwon also argues that in order to set aside a bankruptcy notice under s 40(1)(g) of the Bankruptcy Act, the debtor must show that his or her claim is genuine or bona fide: Capsanis v Owners - Strata Plan 11727 [2000] FCA 1262 per Hely J (at [11]); Glew (at [9]); see also, CFB18 (at [34]). Arwon submits that there is a basis to infer that the Arwon Conspiracy proceeding has been brought against Arwon for the purpose of delaying Mr Wilson’s bankruptcy and, thus, does not constitute a genuine or bona fide claim.
79 This inference is said to arise when consideration is given to the tenuous link between Arwon and Mr Wilson’s conspiracy claims, the commencement of the Queensland Water proceeding in June 2019, the timing of the Arwon Conspiracy proceeding and the significant overlap in the subject matter of those two proceedings. Arwon says the totality of these factors supports an inference that Mr Wilson’s conspiracy claims are not genuine or bona fide, and have been brought for the purpose of delaying or avoiding bankruptcy.
80 Turning to Arwon’s third substantive contention, in circumstances where the subject matter of the Arwon Conspiracy proceeding overlapped substantially with the subject matter of the Arwon Supreme Court proceeding, and the conspiracy claims crystallised well before the trial in the Arwon Supreme Court proceeding, Arwon asserts that there was no relevant legal barrier to Mr Wilson setting up the conspiracy claims in the Arwon Supreme Court proceeding.
81 Mr Wilson’s affidavits of 3 February 2021 and 22 March 2021 are said not to contain any evidence of Mr Wilson’s legal inability to set up the conspiracy claims in the Arwon Supreme Court proceeding. It was only in his affidavit dated 17 May 2021 (as set out above at [27]) that Mr Wilson deposed that:
(a) he only became aware of the water deprivation issues that form part of the second conspiracy from around August 2018;
(b) he took advice about suing Arwon and his solicitors advised that the claim could not be brought against Arwon, although that advice is not included in the evidence;
(c) in December 2019, he took further advice from Mr Martin Bennett, who told him he could sue Arwon for the tort of conspiracy;
(d) Mr Bennett provided written advice in February 2020 to that effect; and
(e) Mr Wilson commenced the Arwon Conspiracy proceeding in June 2020.
82 Arwon contends that Mr Wilson provides no evidence of a legal inability to bring the conspiracy claims in the Arwon Supreme Court proceeding. Instead, it is argued that Mr Wilson simply failed to take the opportunity to bring the conspiracy claims in a timely manner. He was not prevented from doing so.
83 As somewhat of an aside, Arwon says the evidence underpinning Mr Wilson’s valuation of his Off-setting Claims (variously contended in Mr Wilson’s evidence to exceed $40 million, but also said to be at least $80 million) should not be accepted in circumstances where:
(a) he does not adequately disclose the process of reasoning by which the conclusions were reached;
(b) the evidence is based on a questionable factual foundation;
(c) Mr Wilson is not independent; and
(d) the valuations have varied significantly.
84 Mr Padmanabha’s evidence (a sandalwood expert from India) should also not be accepted, it is said, in circumstances where:
(a) he does not adequately disclose the process of reasoning by which the conclusions were reached;
(b) the evidence is based on questionable factual foundation; and
(c) the materials that have been provided to Mr Padmanabha have not been fully disclosed, including his instructions and correspondence with Mr Wilson.
85 Further, Mr Padmanabha has previously provided evidence that he is unable to provide an accurate valuation without a physical inspection. He was unable to physically inspect the relevant plantations before swearing his affidavit due to travel restrictions.
86 Mr Wilson has not, it is therefore contended, discharged his onus to show the value of the conspiracy claims exceeds the amount of the judgment in the Arwon Supreme Court proceeding.
87 Burlington submits three primary reasons for the dismissal of Mr Wilson’s set aside application:
(a) No evidence: pursuant to r 3.02 of the Bankruptcy Rules, Mr Wilson was required to file an affidavit stating why the counter-claim, set-off or cross-demand was not raised in the Burlington Supreme Court proceeding. Neither Mr Wilson’s submissions dated 29 March 2021, nor his evidence filed prior to Burlington’s written submissions, appeared to make any attempt to establish how Mr Wilson was unable, as a matter of law, to set up his conspiracy claim in the Burlington Supreme Court proceeding. This submission appears somewhat confused, at least by reference to the Court file as it now stands. While it is true that a proper attempt at an explanation as to why Mr Wilson could not have set up the Off-setting Claims in the Burlington Supreme Court proceeding does not appear until Mr Wilson’s third affidavit filed on 17 May 2021, some six weeks after filing of the set aside application, Burlington’s written submissions were filed on 24 May 2021. In any event, in light of the way the matter proceeded to a substantive hearing, I do not consider any purported procedural non-compliance to carry any weight;
(b) No legal impediment: Burlington says that the explanation given by Mr Wilson, namely, that he was unaware of certain facts, did not have access to particular documents during the pendency of the Burlington Supreme Court proceeding and that he now requires additional time to obtain such documents and expert evidence to establish a prima facie case, are akin to the unsuccessful explanations given in Re Vicini and Tzovaras. The reasons given by Mr Wilson are in the nature of claimed impracticality, difficulty or lack of access to evidence or witnesses, none of which have ever been accepted as constituting the requisite legal impediments required for relief under s 40(1)(g) of the Bankruptcy Act;
(c) No legal impediment (new evidence from Mr Wilson): Mr Wilson states in his third affidavit dated 17 May 2021 that conversations took place between him and Ms Pownell ‘after consenting to judgment’ in the Burlington Supreme Court proceeding which led Mr Wilson to believe that Burlington could be sued for the tort of conspiracy. Burlington contends that:
(i) A lack of awareness of the availability of a cause of action against a party does not constitute a legal impediment: In Re Doherty, E.J. & Ors; Ex parte Doherty, E.J. & Ors v. Murphy, J.W. & Anor [1993] FCA 739, Northrop J stated (at [16]):
The judgment debtors claim that they did not know of the sale prices or the conditions of sale, but nevertheless the causes of action arose before the judgment had been entered in March 1993. The fact that the legal advisors of the judgment debtors may not have known of the cause of action until later is, in my opinion, not sufficient excuse for saying the cross-demand could not have been set up in the earlier Supreme Court action.
(Emphasis added.)
(ii) Mr Wilson’s new evidence should be rejected or given no weight for at least the following reasons:
(A) None of the purported conversations with Ms Pownell are particularised by date, time or place.
(B) Mr Wilson refers to telephone conversations purportedly overheard by Ms Pownell between unnamed persons at unspecified times. If true, in any event, they are matters of pure speculation by Ms Pownell. Each of the sub-paragraphs are best characterised as hearsay upon hearsay.
(C) Mr Wilson has given no explanation regarding why the sub-paragraphs referred to above have not been deposed by Ms Pownell herself or were not deposed to in the earlier affidavits sworn by Mr Wilson.
88 Burlington says that there are further reasons for dismissal of the set aside application in this case:
(a) The conspiracy claim could have been set up earlier: it is evident, Burlington argues, that the conspiracy claim could have been, and it is reasonable to expect that it should have been set up in the Burlington Supreme Court proceeding because:
(i) A cause of action for the tort of conspiracy accrues when the final element has occurred, being a pecuniary loss to the claimant: Australian Liquor, Hospitality and Miscellaneous Workers Union v Liquorland (Australia) Pty Ltd [2002] FCA 528; (2002) 114 IR 165 per Cooper J (at [52]-[53]). Having regard to Mr Wilson’s statement of claim in the Burlington Conspiracy proceeding, he alleges that he suffered pecuniary loss from the first conspiracy on or about 20 January 2018 and from the second conspiracy from about August 2017 or February 2018. The Burlington Supreme Court proceeding was commenced on 1 July 2019, which is after both the alleged conspiracy claims would have accrued;
(ii) Aspects of the conspiracy claim were in fact raised in the Burlington Supreme Court proceeding. At [17] of the statement of claim in the Burlington Conspiracy proceeding, Mr Wilson refers to the Group Recovery Policy. As in the Arwon Supreme Court proceeding, this alleged ‘Policy’ was raised and was central to Mr Wilson’s defence dated 20 September 2019 in the Burlington Supreme Court proceeding;
(iii) Substantially the same claim as the conspiracy claim was filed by Mr Wilson against Arwon in the Arwon Conspiracy proceeding. This occurred approximately five months before Mr Wilson consented to judgment being entered against him in the Burlington Supreme Court proceeding (such consent being given in circumstances where Mr Wilson was represented by solicitors and senior counsel);
(b) Anshun principles: the Burlington Supreme Court proceeding and the conspiracy claim concern the same parties, were both capable of determination within the jurisdiction of the Supreme Court and each refer to the Group Recovery Policy. Burlington submits that it was unreasonable for Mr Wilson to not bring the conspiracy claim within the Burlington Supreme Court proceeding, which could give rise to an estoppel of the kind discussed in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589. It should be observed however, that it could hardly be unreasonable for the purposes of Anshun estoppel for Mr Wilson not to have brought his conspiracy claim in the Burlington Supreme Court proceeding if in fact, as his unchallenged evidence suggests, he was unaware of evidence in support of it or the availability of the claim. But that is a different test to that required under s 40(1)(g) and does not require further consideration;
(c) Access to documents: Burlington contends that Mr Wilson’s evidence that he did not have, and will not be able to obtain, access to relevant documents is irrelevant to the determination of the legal question in this proceeding (i.e. whether Mr Wilson could have set up the conspiracy claim in the Burlington Supreme Court proceeding). Even if that evidence was relevant, it should be disregarded, Burlington says, as Mr Wilson always had, and still has, access to any required documents through discovery orders, third party discovery orders and subpoenas. Mr Wilson was also a director of Quintis and Arwon until March 2017 and SPL until December 2015, affording Mr Wilson, as a former director, a statutory right of access to documents under s 198F of the Corporations Act 2001 (Cth); and
(d) Prejudice: a number of actions to investigate disposals of assets by a bankrupt are available to a trustee in bankruptcy once a sequestration order has been made. Unfair preference payments made within six months of the date of any sequestration order can be potentially recovered. Undervalued transactions are potentially recoverable if made within five years of any sequestration orders. Transfers to defeat creditors become more difficult to prove with the effluxion of time (noting that an element of such claims is whether the property, if it had not been transferred, would probably have become part of the debtor’s bankrupt estate or would probably have been available to creditors). On or about 30 June 2017, Mr Wilson sold 50% of the shares in Domenica Nominees Pty Ltd (ACN 009 359 406), the corporate trustee of Mr Wilson’s family trust that held shares in Quintis, to Mr Benjamin Frank Wilson. Similarly, on or about 21 August 2017, Mr Wilson sold 50% of the shares in BWC Corp Pty Ltd (ACN 107 002 808) to Ms Deana Domenica Wilson. Having regard to the temporal background referred to above, Burlington presses for the application to set aside to be dismissed as swiftly as possible.
89 For the reasons advanced by senior counsel for Mr Wilson, I am prepared to accept only for the purpose of these applications and in the interests of avoiding further delay, that there are bona fide off-setting claims exceeding the value of the judgment debts against Mr Wilson.
90 In my view, the more critical issue is whether they could have been set up in the Arwon Supreme Court proceeding and the Burlington Supreme Court proceeding.
91 The fundamental difficulty confronting Mr Wilson in these applications is that none of the factual elements comprising his conspiracy claims occurred after judgment in either the Arwon or Burlington Supreme Court proceedings. As Burlington points out, Mr Wilson’s conspiracy claims accrued when the pecuniary loss was suffered. According to Mr Wilson’s pleadings in both Conspiracy proceedings, those losses occurred over the course of 2018. The Conspiracy proceedings were brought in June and November 2020. While it may be accepted that establishing an evidentiary basis for tortious conspiracy can require extensive investigation, this does not lead anywhere except to the conclusion that Mr Wilson was unaware that such a claim was available to him, or was practically incapable of bringing it. However, it is well established by authority that a mere lack of awareness of a cause of action, or lack of legal advice that a counter-claim could be brought, or negligent advice that an action was not maintainable are not counter-claims that s 40(1)(g) attracts: see, for example, Re Ling (at [9]-[10]); Re Doherty (at [16]); Jensen v Queensland Law Society Inc [2004] FCA 1630 per Kiefel J (at [10]); Walton (at 408). There may be circumstances where this produces a harsh outcome for an applicant, but the cases have repeatedly shown that in recognition of the legislative objective, the clear meaning of the words are to be applied.
92 Significantly as well, Mr Wilson’s evidence does not indicate that he could not possibly have gathered sufficient evidence to bring conspiracy claims any earlier than he did. To the contrary, the nature of the claims in the Queensland Water proceeding together with the alleged promissory estoppel defence run in the Arwon Supreme Court proceeding essentially form the basis of the conspiracy claims now brought. This should have been sufficient to alert Mr Wilson and his advisers to the possibility of the alleged conspiracy, if it existed, and plead that claim, even if further evidence would need to be obtained during the proceeding. It was not necessary to have all the relevant facts to justify instituting a counter-claim given that those matters had already been pleaded. Indeed, Mr Wilson’s own evidence indicates that he was advised at the time of preparing his defence to the Arwon Supreme Court proceeding that no connection could be made between Arwon and the acts now the subject of the Queensland Water proceeding. If the legal advice he received was wrong, that has been regarded as insufficient to satisfy s 40(1)(g) of the Bankruptcy Act. If a second opinion was warranted as Mr Wilson thought it was, it could have been obtained more expeditiously. If shortage of facts was the difficulty, there are numerous mechanisms by which the necessary facts could have been pursued, but were not. In this regard, Mr Wilson’s case is not as different from Re Vicini as he might contend.
93 In relation to the evidence that Mr Wilson says came to light upon which he decided to bring the Off-setting claims, that evidence is hardly compelling. The reality is that there were no additional provable facts available by the time Mr Wilson did pursue the Off-Setting Claims. The hearsay reports he received, if true, could hardly have come as a surprise and in themselves were a very flimsy basis for a change of heart.
94 Mr Wilson emphasises, correctly, the professional obligation not to plead a conspiracy without a proper foundation, but at the same time correctly acknowledges that much of the key material to support such a claim will not be evident until discovery and other processes over the course of proceedings. These factors make it clear that while some care and attention is necessary, it is not the position that the claim cannot be mounted until after many months of investigation. That overstates the position and, in any event, there is no evidence to support the existence of such a need.
95 In Palaniappan (at [32]), the Full Court observed that the question of whether or not a debtor could have set up a counter-claim was to be judged by reference to legal inability, not personal and practical considerations. The setting up was the instituting not the prosecuting of a counter-claim. Further, in Palaniappan, the following discussion is pertinent (at [39]-[45]):
39. If, however, ‘unable to set up’ means, in effect, unable to prosecute rather than unable to institute a counterclaim, even then the appellant, in my opinion, fails to meet the terms of the exception.
40. The appellant could have prosecuted his counterclaim if he had complied with the terms of the Guarantee, by paying to the Bank the guaranteed monies. By cl 9(a) of the Guarantee, so long as any of the guaranteed money remains unpaid, he could not, without the Bank’s consent, reduce his liability under the Guarantee by claiming that he or Murray Riverside or any other person has a right of set-off or counterclaim against the Bank.
41. As Buss JA, in the Court of Appeal, described the effect of cl 9 at [74] in Palanappian v Westpac Banking Corporation:
74. A suspension provision of the kind embodied in cl 9 of the Guarantee does not oust the jurisdiction of the courts. It suspends, but does not otherwise impair, the rights of the party bound by the provision. That party is entitled to enforce the rights in question provided it conforms with its primary obligation to make payment to the other party. See GE Capital Australia v Davis [2002] NSWSC 1146; (2002) 180 FLR 250 [93] (Bryson J); Westpac Banking Corporation v Helicopters Brisbane Pty Ltd [2012] QSC 263 [24] (Martin J). (emphasis added).
42. Contrary to the appellant’s submission, the conclusion of the Master and, in turn the Court of Appeal, was not, in effect, a finding that, as a matter of law, the appellant could not set up his set-off and counterclaim, at least not in the sense of a legal inhibition which would attract the exception provided in s 40(1)(g)(c)(ii) of the Act.
…
44. ... There are many cases, in which a practical inability to proceed with a counter-claim has been held not to be a positive inhibition, which are analogous to the appellant’s circumstances. In Re Vicini; Ex parte E. A. Sealey & Co (1982) 64 FLR 323, an inability to proceed with a counterclaim due to a lack of available witnesses and supporting evidence was held to amount to a mere failure to take advantage of an opportunity, rather than a positive inhibition to doing so: at 325-326 applying Lukin J’s observations in Re Stokvis at 57. Similarly, in Walton v National Mutual Life Association of Australia Limited [1994] FCA 1114; (1994) 49 FCR 406, the Court held at 408 that a solicitor’s negligent failure to set up a cross-demand would not amount to an inability to set up the cross-demand for the purposes of s 40(1)(g) of the Act.
45. Moreover this descriptive phrase, ‘positive inhibition’, is not found in s 40(1)(g). It is the language of this section to which attention must be given, rather than the language of judgments of the Court: Walton at 408. That there would have been no Bankruptcy Notice issued had the guaranteed monies been paid is self-evident. Indeed if they had been paid before the Judgment was entered there would have been no judgment. This would have been the consequence of compliance with the term of the Guarantee. It was the failure of the appellant to meet his contractual obligations which has led to the outcome.
96 As set out above (at [39(d)]), the decision in Re Ling is particularly pertinent to the present circumstances. In that case, Hill J made it patently clear (at 132) that a failure to be advised of a cause of action is a practical reason why an off-setting claim could not have been set up, not a legal impediment of the kind required by s 40(1)(g) of the Bankruptcy Act.
97 Similarly, in Jensen, Kiefel J observed in dispensing with the application to set aside (at [10]):
The appellant’s case in reality is that he was unaware of the alleged invalidity of the resolutions. The question posed by s 40(1)(g) of the Bankruptcy Act is however answered by reference to legal considerations, not practicalities. The question is whether the counter-claim, set-off or cross demand could have been set up as a matter of law: Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135. The section is not concerned with personal and practical reasons why proceedings were not brought. The extent of the appellant’s knowledge falls within these categories.
(Emphasis added.)
98 In Smart v Esanda Finance Corp Ltd [2000] FCA 235, the Full Court (Lee, Goldberg and Kenny JJ) held (at [17]):
The question whether the cross demand “could not have been set up” in the proceeding in which the judgment was obtained for the purposes of s 40(1)(g) of the Act is a question “to be answered by reference to legal considerations”: Re Ling; Ex parte Ling v Commonwealth of Australia (supra) at 599. Counsel submitted that the allegations of forgery and not signing the hire purchase contracts could not have been set up in the appellant’s County Court proceeding because he would have been met with a plea or defence of res judicata or issue estoppel. Whether or not a cross-claim could be set up does not depend upon whether it could be set up successfully but whether it could be set up as a matter of law: Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 at 138-139; Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183 at 189.
(Emphasis added.)
99 In Re James; Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd (1993) 46 FCR 183 (at 189), the explanation given by the debtor for not bringing the cross-demand or counter-claim was that they needed a greater amount of time to obtain the advice of experienced counsel in trade practices matters, who ultimately, but later than the proceedings in which judgment was obtained, advised that there was an appropriate cause of action. The Court said:
The relevance of this evidence depends upon the proper construction of s 40(1)(g) of the Act. That subsection refers to a counterclaim, etc, that “could not have set up” in the action or proceeding in which the judgment or order was obtained.
…
The words, “could not have set up”, could be construed either as meaning “could not as a matter of practicality have been set up”, or alternatively, “could not as a matter of law have been set up”. It is the latter interpretation which has prevailed.
100 Even if it were appropriate to do so, it is too late for a judge sitting at first instance to seek to unwind this line of authority.
101 This is an awareness case of the kind that was rejected by Kiefel J in Jensen; and in Re James by Hill J and Re Doherty by Northrop J.
102 The fact that Mr Wilson received advice that suggested that he did not have a counter-claim or a cross-claim or an off-setting claim and/or, that he was not aware of all the relevant facts, does not suffice for the purposes of saying that he could not set up the claim: Walton (at 408) and Palaniappan (at [44]).
103 The contentions under s 40(1)(g) of the Bankruptcy Act are not established and the applications must be dismissed with costs.
I certify that the preceding one hundred and three (103) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McKerracher. |
Associate:
