Re Joseph Abram and Janette Dawn Abram v Bank of New Zealand; David Tietjen and Vanessa Dikkenberg [1993] FCA 44; (1993) 14 Atpr 41-218 (19 February 1993)

FEDERAL COURT OF AUSTRALIA

Re: JOSEPH ABRAM and JANETTE DAWN ABRAM
And: BANK OF NEW ZEALAND; DAVID TIETJEN and VANESSA DIKKENBERG
No. G369 of 1992
FED No. 49
Number of pages - 16
Practice and Procedure
[1993] FCA 44; (1993) 14 ATPR 41-218

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Einfeld J.(1)

CATCHWORDS

Practice and Procedure - pleadings - statement of claim - whether cause of action disclosed - claim upon a bank and its employees - allegation of an unrecoverable loan created by a book entry credit unbacked by either real money, wealth or security - allegations of conspiracy and fraud - reliance on Magna Carta and Bible - allegations of defects in form - no cause of action disclosed - no arguable case that mortgage is void due to defects - claims of conspiracy and fraud not sustainable

Trade Practices Act 1974 (Cth) ss 52, 52A, 53

Contracts Review Act 1980 (NSW) s 4

Industrial Arbitration Act 1940 (NSW) s 88F (now s 275 of the Industrial Relations Act 1991)

Australian Constitution

Credit Act 1984 (NSW) ss 18, 30, 154

Federal Court Act 1976 (Cth) s 19

First National Bank of Montgomery v Daly Justice Martin V Mahoney, Credit River Township, Scott County, Minnesota, USA, unreported 6 December 1968

Napier v National Australia Bank Spender J, unreported 16 April 1992

Fisher and Anor v Westpac Banking Corporation and Ors French J, unreported 18 August 1992

Arnold and Anor v State Bank of South Australia and Ors Burchett, Hill and Drummond JJ., unreported 18 November 1992

HEARING

SYDNEY, 15 August 1992 and 25 January 1993
19:2:1993

The applicants appeared in person

Counsel and solicitor Dr Flick QC instructed by Clayton Utz
for the respondents

ORDER

1. Application and all motions except the first respondent's motion for the summary dismissal of the proceedings dismissed.

2. Applicants to pay respondents' costs.

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

DECISION

EINFELD J. On 27 February 1989 the applicants (the Abrams), as husband and wife, applied for a loan with the first respondent (BNZ) for $170,000 for the purpose of discharging an existing liability to the National Australia Bank. The loan was to be secured by a mortgage over the Abrams' residence at 10 Lexington Avenue, St Clair. The loan application was approved on 29 May 1989 and the mortgage document was prepared. It was to carry interest at 17% per annum on its daily balance charged monthly. An unusual feature of the mortgage was that within the approved limit, it could be operated as an overdraft account on which cheques could be written for general expenses and outgoings. It seems that as long as the Abrams deposited the amount of the monthly interest, and did not exceed the $170,000 limit, the account would be in order. It is not clear but not presently relevant how the principal was intended to be repaid.

2. On 6 April 1989 the Abrams accepted the loan and each signed an acknowledgment that they understood the terms of the mortgage and expressly declined to seek independent legal or other advice as to its terms and their obligations under them. The mortgage itself was signed and the money advanced on 18 April 1989 and the mortgage was registered on 2 May 1989. The advance was effected by BNZ paying to the National Australia Bank $105,239.63 to discharge the Abrams' existing liability, and a sum of the order of $1000 to a firm of solicitors for BNZ's legal costs of the loan, with the balance being made available to the applicant by way of permitted drawings up to the loan limit.

3. Over the ensuing months, the Abrams drew a number of cheques on and made several deposits into the mortgage account, the balance between withdrawals and deposits being such, however, that the amount owing gradually increased. On or about 29 June 1990 the $170,000 limit was reached and in fact exceeded, but subsequent deposits over ensuing months reduced the amount under the limit, sometimes quite substantially so. By mid to late 1991 the balance owing commenced to increase again. The Abrams' last deposit to the account was on 5 May 1992 and on or about 29 May 1992, the limit was again exceeded. The account has never fallen below the limit since, and on 22 January 1993, the balance owing was apparently just under $185,000. In all, on my approximate calculations, the Abrams appear to have drawn cheques amounting to more than $120,000, paid interest of over $80,000 and made deposits of about $145,000. Of course bank fees and government taxes were taken out as well. Although the subject of dispute and not immediately relevant, BNZ says that a second account of the Abrams, which had apparently been used by them for some purposes up to 2 June 1992, stood overdrawn at 22 January 1993 in the amount of just over $11,200. BNZ wishes to recover this claim of a total indebtedness of almost $200,000 against the property secured under the mortgage.

4. A 1992 valuation of the Abrams' St Clair home, obtained by BNZ, estimated its worth at $235,000, or $220,000 on a forced sale. The Abrams say that the house is worth $300,000 and is insured for $389,000. It is their family home. At my request BNZ has successively undertaken to the Court for several months not to take any steps to recover possession of the property prior to the completion of these proceedings without three days' written notice. I asked for and accepted this undertaking in lieu of dealing with successive motions by the Abrams for an interim injunction to restrain its sale. The alleged debt being not far below the claimed value of the security, BNZ is now anxious to put itself into the position of being able to exercise its power of sale.

5. These proceedings were commenced on 9 June 1992 with the filing by the Abrams of an application and statement of claim against BNZ and two individuals who, although unidentified by the pleading, are or were BNZ employees. Notice was also given of a motion to restrain the sale pending the disposition of the action but this was refused by Justice Hill in Chambers that day. The application seeks a declaration that the debt of $170,000 was not owed at any time from 18 April 1989, unspecified damages of $5 million, interest including compound interest, and costs. It also sought to restrain the exercise of the power of sale under the mortgage. No relief was sought against the second and third respondents.

6. The statement of claim was 55 pages long and contained in addition annexures A to R amounting to more than 100 pages. The annexures included a number of newspaper and magazine articles, some extracts from the record of the Federal Parliament, some documents of banks other than BNZ, a number of letters of various kinds, and some documents or part documents whose authorship was not apparent. There was extensive reliance on and quotation of the Bible, especially the Old Testament, the Magna Carta and very old English statute law going back to the Middle Ages. Almost all of the statement of claim and all the annexures were irrelevant to and could not found any justiciable claim and to the relief sought. Whatever was left could not have made out any claim known to the law. There was no mention of the second respondent at all but serious allegations against the third respondent were made.

7. On 24 July 1992 BNZ moved for summary dismissal of the proceedings or for the statement of claim to be struck out. On the same day the Abrams again applied for an interim injunction to restrain the sale of the secured property. On 28 July 1992, they applied for judgment in default of a defence and for the relief sought in the application. Their motion also sought an order (no doubt by way of declaration) "that the mortgage documents were not properly executed and are void and unenforceable". All three motions were returned on 30 July 1992 when after argument I ruled that BNZ's motion logically demanded to be taken first.

8. As Mr Abram was appearing in person and the statement of claim bore only his and his wife's names as authors, I first invited the Abrams to consider amending their statement of claim and offered them an adjournment to do so. I explained to Mr Abram that as far as I was aware, no part of the Bible, however hallowed and weighty the message, could provide a basis for an action at law and that without an amendment it was difficult if not impossible to understand the claim. I suggested that an amendment was the only way to defeat BNZ's motion.

9. The invitation and offer were accepted and an amended statement of claim dated 7 August 1992 was filed. This was superseded by a further amended statement of claim dated and filed on 11 August 1992. The motions were adjourned first to 7 August, when leave to file an amended statement of claim was granted, and then to 25 August 1992 when written submissions on BNZ's dismissal/strike out motion were ordered. These were completed on 14 September 1992 and judgment was then reserved. The Abrams' motions were adjourned to the date of judgment on BNZ's motion. Mr Abram rejected a suggestion that he and his wife seek legal advice and disavowed any interest or wish to amend the statement of claim further.

10. Meanwhile on 21 August 1992, they had moved for the summary dismissal of BNZ's dismissal/strike out motion, for expedition of their own motion for default judgment, and for certain other orders (again presumably by way of declarations) that certain notices apparently given by BNZ under the Credit Act 1984 "be deemed not to have been given". The motion was supported by an affidavit of Mr Abram although much of the affidavit is irrelevant to it. This motion was, on 25 August, adjourned along with the Abrams' other motions.

11. On 27 November 1992, BNZ's solicitors wrote to the Abrams advising that after 14 days from that date, they intended to commence proceedings for vacant possession of the St Clair property for the purpose of exercising BNZ's power of sale unless the Abrams could demonstrate that they possessed the means to meet any judgment given in the bank's favour on the mortgage. A copy of the letter was sent to me. A reply from the Abrams dated 1 December 1992, while taking issue with some of the assertions made by BNZ, did not provide the assurance sought other than to assert that the property was worth considerably more than the bank had stated. I saw that reply only recently.

12. On 31 December 1992, BNZ's solicitors replied to the Abrams letter of December 1. Amongst other things it gave notice that an order for possession would be sought on or after 1 February 1993. A copy was sent to me. On 8 January 1993, in my absence overseas, Mr Abram applied to Justice Burchett for an interim injunction to restrain the proposed ejectment proceedings but the application was adjourned to 25 January to await my return. On 25 January BNZ acceded to my request that it desist from taking action until this judgment could be delivered. It was indicated that that would be on or shortly after 8 February.

13. The substance of the amended statement of claim under consideration commences with paragraph 6. It states:

The alleged debt was created by the First Respondent as a
book-entry credit at no cost to the First Respondent and
thus the First Respondent has no right whatever to claim
payments in cash currency of the Commonwealth of Australia
in return for book-entry credit created out of thin air and
totally unbacked by either real wealth or security in the
hands of the First Respondent.

14. Thirteen paragraphs of "particulars" are given. Two of the paragraphs list documents said to prove that "book-entry credit is created out of nothing by banks including that of the first respondent". The other 11 particulars assert the mechanism used to create the alleged book-entry credit not amounting to cash or actual money. This activity is said to falsify the figures "illegally, immorally and improperly" stated by BNZ in its records as its "assets" or "capital". The particulars say that up to 1 January 1992 the actual cash held by BNZ at any one time was about one fifteenth of what it alleged it held. Thereafter, because of an international banking conspiracy, as much as 96% of BNZ's "asset or capital strength" has become fictional. It seems then to be suggested that what was therefore lent to the Abrams was not money or money's worth but a wholly fictional credit. All these machinations are alleged to have been kept secret by BNZ.

15. Paragraph 7 of the statement of claim alleges that the mortgage did not state, as apparently it should, that in fact it was a "barter contract" in which BNZ created a book-entry credit at no or virtually no cost to itself in exchange for cash and security from the Abrams. The mortgage is therefore said to be false and misleading in contravention of sections 52, 52A and 53 of the Trade Practices Act and two New South Wales statutory provisions, section 4 of the Contracts Review Act 1980 and section 88F of the Industrial Arbitration Act 1940 (now section 275 of the Industrial Relations Act 1991). A further claim under these statutes is made in paragraph 9 which alleges that the Abrams were misled into believing that they were receiving legal tender for their loan when instead BNZ tendered "bad cheques" with the intention of circulating them as money "and book-entry credits".

16. Alternatively the same claims are made by paragraph 8 under the Australian Constitution. The particular breach is said to be the Magna Carta which is magnanimously described as the foundation of the Constitution. It is said inter alia that if the Court finds against the claim that BNZ has engaged in a "cost-free creation of book-entry credit", it would have decided "to rule against Magna Carta". In so doing, the Court would be invalidating itself by denying the Constitution of the Commonwealth of Australia on which the Court "relies for its powers and authority". If the Court finds that BNZ "can legally create book-entry credit", the Abrams offer to execute their own "book-entry Certificate" in full satisfaction of their obligations to BNZ. Their pro forma certificate was supplied. A similar reliance on the Magna Carta is found in paragraph 15.

17. Paragraph 10 appears to allege a conspiracy between the BNZ and the other respondents "to ruin the Applicants to enable the First Respondent to sell the Applicant's (sic) property and matrimonial home at far beneath its value to a party or parties working in profit sharing conjunction with the Respondents for their private gain and profit". The target sum of this conspiracy is said to be $441,900 made up of $141,900 being the alleged "payments made in legal tender currency" by the Abrams (presumably by way of deposits to the account of interest), and $300,000 being the alleged value of their property. Because of the banking machinations described in paragraph 6, the Abrams allege that BNZ only provided 4% of the loan in true cash or $6,800. A comparison or proportionalising of the two amounts leads to the assertion that the bank thus made for itself the extortionate profit of almost 6,500%, a degree of usury which no court would consider enforcing. No true particulars of the alleged conspiracy are given.

18. Paragraph 11 alleges that the mortgage was altered without the Abrams' consent and is therefore void. The particulars provide the details of the supposed alterations but it is not necessary to set them out here. Moreover, paragraph 12 alleges that the Abrams were induced to sign the mortgage by representations made by BNZ's solicitor that the mortgage "was only a formality and would never be called upon". It was only obtained "to keep the bank happy and it will never be used". One of the "particulars" of this claim is that the mortgage was not properly executed and is therefore unenforceable. This seems to be a similar allegation to those made in the particulars to paragraph 11. To like effect is the claim in paragraph 13 that the mortgage breaches section 154 of the Credit Act 1984 (NSW) in that the details of the witness to the mortgage and of who lodged it are not readily legible.

19. Paragraph 14 alleges that BNZ is, like other Australian banks, "institutionally dishonest and habitually engaged in illegal and immoral practices". As a consequence, "no reliance may be placed on anything said or submitted in evidence" by any of the respondents or any of BNZ's employees. The particulars contain the points of view of a number of different people supposedly supporting or tending to support this proposition, and presage the tendering of many of the documents attached to the original statement of claim but later omitted. Two documents actually tendered and admitted into evidence on the motion were BNZ's publicity pamphlet for the mortgage arrangement which the Abrams accepted and a letter from BNZ explaining the product. Even assuming the admissibility of all this material, none of it provides any semblance of evidence to establish the alleged conspiracy and fraud.

20. BNZ first submitted that paragraphs 11 and 13 do not allege a "federal matter" within section 19 of the Federal Court Act. As it also argued that no cause of action is disclosed by any of paragraphs 6 to 15 inclusive, and some of those paragraphs do allege matters which on their face are within jurisdiction, it is appropriate to consider that contention first. If any such paragraph survives the scrutiny required by BNZ's motion, any non-federal matters may be entertained under the pendent or accrued jurisdiction of the Court.

21. BNZ submitted that the whole statement of claim is vexatious and groundless. This is demonstrated, BNZ said, by the fact that the Abrams successfully applied for the loan and executed a mortgage knowing that their home thereby secured the loan and would be at risk if they defaulted. The loan moneys were applied to discharge the Abrams' existing liability to the National Australia Bank, from which they were thereby released along with their house as its security, and they then proceeded to draw on the available balance for the following three years.

22. BNZ dismissed as untenable to support any of the proposed causes of action the allegations concerning "book-entry credit", "barter contract", deceitful and misleading representations because of the non-cash nature of the loan, "alterations" to and dating of the mortgage and the failure to execute it properly, and reliance on the Credit Act. The Credit Act is inapplicable by reason of section 18 which exempts overdraft accounts and because section 30 limits the Act's reach to loans under $20,000. Any causes of action based on the allegations of an agreement not to enforce the mortgage and of dishonesty by BNZ are described as unsustainable. There was said to be nothing to support the allegations of conspiracy and gross fraud and therefore no grounds for any relief sought on those bases.

23. The Abrams' submissions made copious reference to statements and publications which were not tendered and are not in evidence. I cannot therefore consider them. Nevertheless, over the objection of counsel for BNZ to whom I made my intentions known in court, I have read them and other material supplied to me by Mr Abram by post. They do not support the Abrams' case in any way. A judgment of Justice Martin V Mahoney of Credit County Township, Scott County, Minnesota USA in First National Bank of Montgomery v Daly given on 6 December 1968, is quoted by the Abrams at some length. It provides no support for the statement of claim. The submissions also refer to "the aforementioned cases from Australia, USA, Canada and New Zealand". No decisions at all were in fact earlier quoted from Australia, Canada and New Zealand, but later in the submissions some Australian and US authority is quoted. I have considered these references but regret that I can find in them nothing helpful to the Abrams' arguments or my task in the present proceedings.

24. In disputing and taking issue with matters asserted on behalf of the third respondent, the Abrams' submissions allege that she has engaged in perjury, conspiracy and fraud. No particulars of such serious charges are pleaded and no facts alleged to sustain them. The only possible conclusion to draw is that as they are completely unsupported by evidence, the allegations are manifestly false.

25. Parts of a submission allegedly made by the National Australia Bank to the Parliamentary Inquiry into the Australian Banking Industry, which is not in evidence, are attacked as "blatant lies and ... prima facie evidence of contempt of federal parliament". That bank is not a party to these proceedings. In the circumstances it would be wrong for me to come to any final judgment on these allegations but I can certainly say that no such conclusions can be drawn from the material presented.

26. The submissions contain the Abrams' approval of a statement concerning Magna Carta apparently made by former US President George Bush to the Australian Parliament on 2 January 1992, together with extracts from judgments of Justices Frankfurter and Goldberg formerly of the US Supreme Court. None of these powerful endorsements of justice has any relevance or gives any support to the statement of claim.

27. The decision of Justice French in Fisher and Anor v Westpac Banking Corporation and Ors, unreported 18 August 1992, to strike out what the Abrams accept was a similar statement of claim, which I drew to the attention of the parties, is challenged on the basis, also alleged against me, that his Honour misunderstood the facts and argument. The Abrams say that unlike the Fishers, they will appeal if Justice French's judgment is followed or confirmed here. The identical argument to the principal one advanced here was also rejected by Justice Spender in Napier v National Australia Bank, unreported 16 April 1992. Similar proceedings were dismissed in Arnold and Anor v State Bank of South Australia and Ors and the dismissal was affirmed on appeal (Burchett, Hill and Drummond JJ., unreported 18 November 1992). There have been other such cases in the Court. I respectfully adopt the reasoning in those cases and their Honours' explanation of the law.

28. Despite direct questioning from me on the subject, Mr Abram could not explain how cheques paid into an account could fail to represent, convey or transfer real money when he admitted that his own pay cheques were converted by him into cash, via bank accounts, to pay household expenses. He provided no explanation as to how BNZ can be successfully accused of converting into non-cash credits its and the Abrams' own cash deposits into the particular account when they themselves regularly drew out cash from the account to buy for example the food eaten by his family. He was unable to explain how a bank commits conspiracy and fraud by using and permitting the use of cheques, or how statutory reserve deposits and other interbank arrangements represent or disclose a diversion or conversion of cash into fictional credits.

29. The "book-entry credit" propositions in the amended statement of claim are unsupported by evidence and, in my opinion, are insupportable in law. These assertions provide no tenable cause of action for a declaration that the mortgage is unenforceable. There is also no arguable case that the mortgage is void because of defects in its form, appearance or execution. The claims of misleading advertising, conduct and statements, and of conspiracy, fraud and dishonesty, are not sustainable. Neither the Magna Carta, the Australian Constitution nor the Credit Act can found a relevant claim for the relief sought.

30. As I cannot see any way in which the amended statement of claim can be further amended to cure its defects, and in any event as the Abrams have expressly refused to amend further, the application and all motions except the BNZ motion for the summary dismissal of the proceedings will be dismissed with costs. I can only echo for this case Justice French's expressions of regret in Fisher that the applicants appear to have been the sincere victims not of the bank but of "legal quackery offered by unqualified persons".