Commonwealth Bank of Australia v Shannon

1. [1]

   These proceedings were commenced by the plaintiff, the Commonwealth Bank of Australia (“CBA”), by way of Statement of Claim filed 17 July 2013. The plaintiff filed an Amended Statement of Claim on 17 February 2014 seeking orders setting aside two judgments of this Court (Davies J) which were delivered on 21 May 2013 in proceedings numbered 2013/117170 and 2013/123931 as well as costs. Broadly stated, the plaintiff alleges that the first and second defendants (Geoffrey Shannon and his late father Dallas Shannon) colluded to have those two judgments entered in favour of Dallas Shannon and the third defendant (D&W Shannon Pty Ltd).

2. [2]

   The judgments of Davies J delivered on 21 May 2013 have been stayed by a further judgment of this Court (Rothman J) pending final determination.

3. [3]

   The first defendant, Geoffrey Shannon, by way of Amended Notice of Motion dated 15 July 2015, sought the following orders:

   1. (1)

      The proceedings be dismissed pursuant to UCPR r 13.4 or the inherent jurisdiction of the court

   2. (2)

      Alternatively CBA’s claim be struck out pursuant to UCPR r 14.28, or the inherent jurisdiction of the court.

   3. (3)

      Further, or in the alternative, these proceedings be stayed pending leave being granted pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth).

4. [4]

   The first defendant, in support of his application, contended that the CBA has no standing to seek orders setting aside judgments in relation to which the bank is a stranger, that the proceedings lack utility, that the proceedings are within the exclusive jurisdiction of the Federal Court not this Court, that the CBA’s pleadings do not comply with the rules for pleadings in the UCPR and that the CBA is precluded from continuing the proceedings without leave of the Federal Court under the Bankruptcy Act 1966 (Cth).

5. [5]

   On 31 July 2015, the first defendant’s application was listed for hearing. Mr P Dowdy of counsel appeared on behalf of the plaintiff. Mr M Jacobs QC and Mr S Golledge appeared for the first defendant/applicant on the Notice of Motion. It became apparent that there were a number of preliminary issues to be determined before any final decision could be made in relation to the application to have the proceedings struck out or dismissed.

6. [6]

   The third defendant, D&W Shannon Pty Ltd filed a submitting appearance on 24 February 2015. A submitting appearance was filed on behalf of the second defendant’s estate on 23 February 2015. As such, the only parties actively involved in the proceedings are the plaintiff and the first defendant, Geoffrey Shannon.

7. [7]

   The first issue for consideration concerns the first defendant’s status as a bankrupt. The first defendant was made bankrupt on 16 December 2013, that is, after these proceedings were commenced by the CBA. The CBA accepted that leave was required under s 58(3) of the Bankruptcy Act to continue the proceedings against the first defendant. That section provides:

8. [8]

   The CBA submitted that although it was prepared to proceed in relation to the first defendant’s Notice of Motion on 31 July 2015, it may be appropriate for the proceedings to be stood over to allow it to obtain the necessary leave in the Federal Court. This was because if the CBA was unable to obtain leave their proceedings would effectively be ended in any event. The first defendant contended that it was not s 58(3) that applied, but rather s 229(3) of the Bankruptcy Act. The latter section was said to apply where a personal insolvency agreement is in place.

9. [9]

   The second issue is whether the first defendant has standing to bring a strike out application in circumstances where he is bankrupt and a Trustee in Bankruptcy, Mr Prentice, has been appointed to act on his behalf. The CBA submitted that Geoffrey Shannon did not have standing and that Mr Prentice did. Mr Prentice has indicated that he has no objection to the CBA’s proceedings continuing, with a letter written by him to that effect becoming Exhibit 1 in these proceedings.

10. [10]

    Ultimately, after hearing submissions from counsel, I determined that the appropriate course would be to stand the proceedings over to allow the CBA time to attempt to gain leave from the Federal Court pursuant to s 58(3) of the Bankruptcy Act. The Federal Court would, in making that determination, be in a position to determine the first defendant’s submissions as to the applicability of that section. I reserved judgment on the question of the first defendant’s locus standi to make an application for a strike out or summary dismissal of the proceedings. I directed the parties to file further written submissions on the issue of standing. I have since received the First Defendant’s Further Submissions dated 5 August 2015 and the Plaintiff’s Further Submissions on Standing of Mr Shannon dated 11 August 2015.

11. [11]

    On 8 February 2016, the Federal Court (Gleeson J) delivered judgment on CBA’s application for leave pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth): Commonwealth Bank of Australia v Prentice (Trustee), in the matter of Shannon (Bankrupt) [2016] FCA 53. The Court made the following orders:

Background

1. [12]

   Litigation between the parties in various courts has been ongoing since 2009 when the CBA commenced proceedings in this Court claiming over $8,500,000 against the first defendant (proceedings no. 2009/296947).

2. [13]

   For the purposes of determining this application, it is not necessary to set out the full history of the dispute. A detailed overview is included in his Honour Rothman J’s judgment in D A Shannon v G A Shannon; D & W Shannon Pty Ltd v G A Shannon (No 2) [2013] NSWSC 1222. It is necessary, however, to set out the events of April and May 2013 leading to the entering of the judgments the plaintiff, the CBA, now seeks to set aside.

3. [14]

   On 16 April 2013 the second defendant in these proceedings, Dallas Shannon, commenced proceedings in this Court against the first defendant claiming a liquidated sum of over $12,987,000 (proceedings no. 2013/117170). The evidence in those proceedings was that the debt was owed by the first defendant under five loan agreements entered into between 1995 and 2003. On 22 April 2013 the third defendant in these proceedings, D&W Shannon Pty Ltd also commenced proceedings against the first defendant claiming a liquidated sum of over $8,669,000 (proceedings no. 2913/123931) said to have been loaned pursuant to a loan agreement entered into in September 2003.

4. [15]

   In both sets of proceedings, applications were made for summary judgment against Geoffrey Shannon on an urgent basis before the Duty Judge on 20‑21 May 2013. Summary judgments were entered in each by Davies J on 21 May 2013. It is those two judgments which the CBA now seeks to set aside.

5. [16]

   It is the CBA’s contention in the present proceedings that none of the loan agreements referred to above, giving rise to the alleged debts owed by the first defendant to the second and third defendants, were genuine. It is alleged that the agreements were “shams”. It is alleged that the first and second defendants colluded to have the judgments entered so as to control the external administration of the debtor’s estate in a favourable way and to maximise the voting power of creditors at meetings relating to the first defendant’s external administration, so as to procure resolutions favourable to the first defendant. The CBA also alleges that the first and second defendants sought to achieve an outcome whereby the first defendant would have the benefit of having a personal insolvency agreement which was “extremely” favourable to him in any arrangement entered into under Part X of the Bankruptcy Act.

6. [17]

   The first defendant was declared bankrupt on 16 December 2013 following a sequestration order made by Rares J in the Federal Court as a result of proceedings between him and the CBA. He was declared bankrupt at a time when these proceedings had been commenced but not finalised.

First Defendant’s Submissions on Standing

1. [18]

   It was submitted for the first defendant, Mr Geoffrey Shannon, that he has standing in the proceedings and an entitlement to defend himself for two main reasons:

   1. (1)

      The Statement of Claim filed by the CBA indicates an intention to seek indemnity costs against him. Any such costs would be the first defendant’s personal liability rather than his estate.

   2. (2)

      The first defendant’s character, reputation and credit are at stake because of the serious allegations being made by the bank against him.

2. [19]

   With respect to the first, it is noted that the CBA at the hearing indicated that it would refrain from seeking any personal costs order against the first defendant in this litigation. For that reason, it is unnecessary to deal further with the costs point so far as it relates to the first defendant’s locus standi in this litigation, though I note that in written submissions for the first defendant the validity of the undertaking given by the CBA was questioned: First Defendant’s Further Submissions at [5.1]-[5.3].

3. [20]

   As to the second reason said to give rise to the first defendant’s standing, reliance was placed on the decision of Dodds-Streeton J in Re-Engine Pty Ltd v Fergusson [2007] VSC 57 and particularly observations made by her Honour at [66]:

4. [21]

   The first defendant also relied upon the decision of Baulkham Hills Shire Council v Stankovic [2009] NSWCA 281 for the proposition that the first defendant has standing as a result of being named in the proceedings as a defendant. In that case Beazley JA (as her Honour then was) said at [15]:

Plaintiff’s Submissions on Standing

1. [22]

   The CBA, in asserting that the first defendant has no standing in relation to these proceedings, relied upon s 58(1) of the Bankruptcy Act which provides:

2. [23]

   Section 5 of the Act defines “the property of the bankrupt” as including both the property divisible among the bankrupt’s creditors as well as “any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt”.

3. [24]

   The CBA submitted that because the two judgments which they seek to have set aside create or evidence a provable debt, the first defendant has no financial interest which would confer standing on him to make any application in connection with the judgments. Reliance in this respect was placed on a statement by the majority of the High Court (Brennan CJ, Gaudron and McHugh JJ) in Cummings v Claremont Petroleum (1996) 185 CLR 124 at 137-138 that:

4. [25]

   The CBA accepted that despite what it asserted to be the first defendant’s lack of standing to take any action in the proceedings the Court has the discretion to permit a bankrupt individual to answer allegations of personal misconduct in certain circumstances. The CBA acknowledged an observation to that effect by Johnson J in National Australia Bank Limited v Strik [2009] NSWSC 184, his Honour there drawing upon the decision of Dodds-Streeton J in Re-Engine Pty Ltd v Fergusson [2007] VSC 57.

5. [26]

   The CBA contrasted these decisions with Cummings v Claremont Petroleum, supra however, in which it was noted that the Court had held that the bankrupt directors in that case, against whom a judgment had been made, did not have standing to appeal against that decision despite the judgment involving damages for conspiracy and deceit, breaches of duty by them as company directors and contraventions of legislation: Plaintiff’s Further Submissions on Standing of Mr Shannon at [3].

6. [27]

   The plaintiff indicated their intention to join Mr Prentice, the first defendant’s trustee in bankruptcy, and made the following submission in their Further Submissions at [7]:

7. [28]

   The plaintiff relied upon the approach of Sloss J in Talacko v Talacko [2013] VSC 712 to the question of a bankrupt defendant’s right to appear and particularly her Honour’s comments at [74]-[75] as follows:

8. [29]

   It was further submitted on behalf of the CBA that the finding by Dodds-Streeton J in Re-Engine Pty Ltd of a discretion to give a bankrupt person a limited right to participate to give evidence answering serious allegations made against them, did not amount to authorisation for the proposition that a bankrupt could move the Court to dismiss proceedings or have them struck out pursuant to the UCPR.

Standing: Consideration

1. [30]

   As mentioned above, the CBA acknowledged the decision of National Australia Bank Limited v Strik in which Johnson J at [9]-[10] stated:

2. [31]

   Re-Engine does not stand for the proposition that a bankrupt has standing when their reputation and character are at stake though the first defendant has sought to rely upon it for that proposition. The relevant passages from Re-Engine are as follows:

3. [32]

   As noted above, the first defendant relied upon what was said at [66]. In the context of the paragraphs immediately following [66] it is apparent that her Honour did not conclude that Mr Fergusson, as a bankrupt, had standing. It is clear from her Honour’s judgment and from the passage quoted above from Strik that any entitlement to be heard is discretionary.

4. [33]

   I accept the submission for the first defendant that the allegations made against him are serious in nature and that matters of character and reputation arise which he should be entitled to respond to. However, I consider, consistent with the above authorities, that the first defendant does not have standing in these proceedings by reason of his bankruptcy. This is so even in the context of this case where the CBA named Mr Shannon as first defendant and had, as at the time of the hearing, omitted to join Mr Shannon’s Trustee in Bankruptcy to the proceedings (though I note that the CBA had indicated its intention to do so after resolving the leave question in the Federal Court). Order 2 of the Orders made by the Federal Court on 8 February 2016 specifically addresses the joinder of the Trustee of the Bankrupt Estate.

5. [34]

   Though this case also involves “serious allegations of personal misconduct” the present situation can nonetheless be distinguished from the “unusual circumstances” described by Dodds-Streeton J in Re-Engine in that the Trustee in Bankruptcy in this case has not “not objected” to the proceedings (or to the first defendant’s appearance in them), but rather has consented to the proceedings continuing, contrary to the first defendant’s strike out application. Additionally, this matter is not at a stage where it can be said that it “will proceed in any event,” given that the substantive hearing has not commenced and indeed, its commencement depended upon a grant of leave by the Federal Court.

6. [35]

   I consider that whilst the first defendant does not have standing or a right to be heard, he should be given a limited right to participate in the proceedings in respect of adverse allegations of personal misconduct made against him.

7. [36]

   I have referred in paragraph [3] above to the orders sought in the first defendant’s Amended Notice of Motion. The issue of leave to the CBA to continue these proceedings has now been resolved by reason of the orders made by the Federal Court on 8 February 2016. Additionally, as stated in [35] above, I have concluded that the first defendant does not have locus standi or an entitlement to be heard by reason of his bankruptcy, but there exists a discretion to permit him to give evidence in answer to any allegations of personal misconduct.

8. [37]

   Before making any orders to give effect to the conclusions expressed above, I propose to hear submissions from the parties as to:

   1. (1)

      The terms for the grant of leave to the first defendant to participate in the proceedings in light of these reasons on the Amended Notice of Motion filed on 15 July 2015;

   2. (2)

      The disposition of any remaining matters arising on the first defendant’s Amended Notice of Motion dated 15 July 2015;

   3. (3)

      Remittal of the proceedings to the Registrar’s List for case management; and

   4. (4)

      Costs.

9. [38]

   I propose to re-list the proceedings before me in relation to the above matters at 9:30am on Thursday, 18 February 2016.