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Federal Court of Australia |
Last Updated: 20 July 1998
BANKRUPTCY - creditor's petition based on judgment debt - whether Court should go behind judgment debt.
BANKRUPTCY - whether agreed fact that solicitor failed to comply with s 192 of the Legal Profession Act 1987 (NSW) in obtaining underlying judgment required that petition be dismissed - whether debtor truly indebted to solicitor - whether sequestration order ought to be made.
PRACTICE AND PROCEDURE - whether service on debtor of bankruptcy petition, within the precincts of a Court, rendered service invalid.
Bankruptcy Act 1966 (Cth), ss 41, 44, 52.
Bankruptcy Regulations, reg 16.01.
Interpretation Act 1987 (NSW), s 76.
Legal Profession Act 1987 (NSW), ss 173, 192, 193, 195, 208C, 208D.
Legal Profession Regulation 1994 (NSW), reg 22A.
Baldry v Jackson [1976] 1 NSWLR 19 (S Ct/Yeldham J), cited.
Cain v Whyte [1933] HCA 6; (1932) 48 CLR 639, cited.
Dodd v Gillis (1989) 16 NSWLR 623 (S Ct/Yeldham J), cited.
Florence Investments Pty Ltd v H G Slater & Co [1975] 2 NSWLR 398 (Bowen CJ in Eq), cited.
Malleson, Stewart, Stawell and Nankivell v Williams [1930] VLR 410 (Mann J), cited.
Morgan v Meissner [1975] 1 NSWLR 615 (Taylor CJ in CL), cited.
R v Jones; Ex parte McVittie [1931] 1 KB 664, cited.
Re Beckwith; Ex parte Power & Power (a firm) [1993] FCA 317; (1993) 43 FCR 256 (Cooper J), cited.
Re Devy; Ex parte BBC Hardware Ltd (1996) 67 FCR 355 (Hill J), distinguished.
Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 (Gummow J), cited.
Re Ferguson; Ex parte E N Thorne & Co Pty Ltd (in liq) (1969) 14 FLR 311 (Fed Ct of Bkptcy/Gibbs J), cited.
Re Haddad; Ex parte R W Jordan Pty Ltd (Sackville J, 20 August 1997, unreported), cited.
Re King; Ex parte Gallagher Ryan & Maloney [1994] FCA 1448; (1994) 54 FCR 493 (Northrop J), considered.
Re O'Sullivan; Ex parte O'Sullivan v Commonwealth Bank of Australia (1995) 57 FCR 145 (Lindgren J), cited.
Re Tait; Ex parte Commissioner of Taxation (1996) 65 FCR 592 (Lockhart J), cited.
Re Walsh Halligan Douglas' Bill of Costs [1990] 1 Qd R 288 (S Ct/Dowsett J), followed.
Udovenko v Mitchell (FCA/FC, 28 November 1997, unreported), distinguished.
JOHN LLEWELLYN BURRELL T/AS JOHN BURRELL SOLICITORS v ROSS IAN CONNELL
NG 8246 of 1997
SACKVILLE J
17 JULY 1998
SYDNEY
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 8246 of 1997 |
|
BETWEEN: | JOHN LLEWELLYN BURRELL T/AS JOHN BURRELL SOLICITORS
Applicant |
|
AND: | ROSS IAN CONNELL
Respondent |
|
JUDGE: | SACKVLLE J |
| DATE OF ORDER: | 17 jULY 1998 |
| WHERE MADE: | SYDNEY |
THE COURT ORDERS THAT:
1. The estate of the debtor be sequestrated.
2. The petitioning creditor's costs, including any reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 8246 of 1997 |
|
BETWEEN: | JOHN LLEWELLYN BURRELL
t/as JOHN BURRELL SOLICITORS Applicant |
|
AND: | ROSS IAN CONNELL
Respondent |
JUDGE:
SACKVILLE J. DATE: 17 JULY, 1998 PLACE: SYDNEY
The applicant ("the Solicitor") by a petition filed on 31 October 1997, seeks a sequestration order against the estate of the respondent ("the debtor"). The application is founded on the failure of the debtor to comply with a bankruptcy notice issued on 14 May 1997 and said to have been served on the debtor on 9 September 1997. The bankruptcy notice required the debtor to pay within twenty-one days the sum of $8,952.34 due to the Solicitor under a judgment of the Local Court at Kogarah, obtained on 27 June 1997. The debtor has taken no steps to set aside the bankruptcy notice under s 41(6A) of the Bankruptcy Act 1966 (Cth) ("Bankruptcy Act 1987 ").
The Solicitor at all material times has practised on his own account. He acted on behalf of the debtor in relation to a number of matters in 1995 and earlier. The Local Court judgment was founded on two invoices issued by the Solicitor to the debtor on 6 June 1995. One invoice, in the sum of $6,963.00 was for professional costs and disbursements in respect of an appeal by the debtor to the Land and Environment Court. The other, in the sum of $1,106.00 was in respect of a development application lodged by the debtor with Armidale City Council. The judgment debt was $8,952.34, made up of the amount of the two invoices ($8,069.00), interest calculated at 10 per cent per annum from 6 July 1995 to 27 June 1995 ($790.34) and costs ($93.00).
The debtor was unrepresented in these proceedings. He resisted the Solicitor's application for a sequestration order on a number of grounds. While the grounds were not all stated clearly, in substance they are as follows:
(i) The debtor was never properly served with the bankruptcy notice.
(ii) The Solicitor improperly procured the debtor's signature to a costs agreement and had agreed not to charge the debtor for the services covered by the invoices of June 1995. These and other actions of the Solicitor (so it was said) constituted fraud.
(iii) The application for a sequestration order duplicated earlier proceedings instituted by the Solicitor against the debtor.
(iv) Service of the Solicitor's petition was not properly effected.
(v) The Court should decline to make a sequestration order on the ground that the debtor is able to pay his debts (see Bankruptcy Act, s 52(2)(a)).
(vi) The Local Court judgment in favour of the Solicitor had been improperly obtained, because the Solicitor had commenced the Local Court proceedings in contravention of s 192 of the Legal Profession Act (NSW) ("Legal Profession Act"), in that they were commenced less than thirty days after the Solicitor had given the debtor the invoices of 6 June 1995. By reason of the contravention, this Court is entitled to go behind the judgment of the Local Court and should, in any event, decline to make a sequestration order.
The Solicitor was represented on the first day of the hearing by Mr De Buse of counsel. On the second day, the Solicitor was represented by his employed solicitor. I pointed out that this created some difficulties, not least of which was that the employed solicitor had already been cross-examined by the debtor on an adjournment application and was likely to be cross-examined again (a prediction fulfilled on the third day). In the result, the Solicitor was represented on the third day of the hearing by Mr Hogg of counsel. Mr Hogg made certain concessions on behalf of the Solicitor and drew my attention to some authorities bearing on the issues in the proceedings. One concession made by Mr Hogg was that the Solicitor had indeed commenced the Local Court proceedings in contravention of s 192(1) of the Legal Profession Act.
"44(1) A creditor's petition shall not be presented against a debtor unless:
(a) there is owing by the debtor to the petitioning creditor a debt that amounts to $2,000...
(b) that debt, or each of those debts, as the case may be:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii) is payable either immediately or at a certain future time;
(a) ....
...
52(1) At the hearing of a creditor's petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition."
The Legal Profession Act, as in force in June 1995, contained the following provisions:
"173(1)In this Part:
`bill of costs' means a bill of costs for providing legal services, and includes a memorandum of fees.
...
192(1) Proceedings for the recovery of costs by a barrister or solicitor for providing legal services must not be commenced or maintained against any person unless at least 30 days have passed since a bill for those costs was given to the person in accordance with this Division.
...
193(1) The regulations may make provision for or with respect to the form of, and the particulars to be included in, bills of costs.
...
195. A bill of costs may be given to a person in any one of the following ways:
...
(b) by sending it by post to, or by leaving it for the person at, the person's place of business or residence last known to the barrister or solicitor.
208D(1)A costs assessor may determine whether a term of a particular costs agreement entered into by a barrister or solicitor and a client is unjust in the circumstances relating to it at the time it was made."
Regulation 22A of the Legal Profession Regulation which came into force on 12 May 1995, specifies the particulars to be included in a bill of costs, for the purposes of s 193(1) of the Legal Profession Act:
"22A(1)For the purposes of section 193(1) of the Act, the following particulars are to be included in a bill of costs:
(a) A description of the legal service provided.
(b) The total amount of the costs charged.
(c) Any intended claim for interest under section 190 of the Act if the costs are not paid (including the rate of interest).
(d) The work done in providing the legal service.
(e) The period over which that work was done.
(f) The identity of the persons who did that work (including the position of the persons eg partner, associate).
(g) The basis on which the costs have been calculated and charged (whether on a lump sum basis, an hourly rate basis, an item of work basis, a part of proceedings basis or other basis).
(h) The facts relied on to justify the costs charged by reference to the above, the practitioner's skill, labour and responsibility, the complexity, novelty or difficulty of the matter, the quality of the work done or any other relevant matter.
(2) However, the particulars referred to in subclause (1)(d)-(h) need not be included in the bill of costs if:
(a) the total amount of costs charged is the amount, or an amount calculated on the basis, set out in a costs agreement for the legal service made under Division 3 of Part 11 of the Act or disclosed in accordance with Division 2 of that Part, and
(b) the bill of costs refers to the relevant costs agreement or disclosure document."
Prior to 12 May 1995, there appears to have been no provision in the Legal Profession Regulations which prescribed the particulars to be included in a bill of costs. This was the case notwithstanding that Division 11 of the Legal Profession Act, including s 193(1), had been inserted by the Legal Profession Reform Act 1993 (NSW), which came into force (relevantly) on 1 July 1994. It is not entirely clear what form a bill of costs had to take before reg 22A came into force, although it seems that s 192(1) and the definition of "bill of costs" in s 173(1) incorporated the authorities identifying the requirements of a "bill of costs" under earlier legislation: see Malleson, Stewart, Stawell and Nankivell v Williams [1930] VLR 410 (Mann J); Re Beckwith; Ex parte Power & Power (a firm) [1993] FCA 317; (1993) 43 FCR 256 (Cooper J), at 265-266 and authorities cited there; Morgan v Meissner [1975] 1 NSWLR 615 (Taylor CJ at CL); Florence Investments Pty Ltd v H G Slater & Co [1975] 2 NSWLR 398 (Bowen CJ in Eq), at 401-403.
Finally, it is necessary to note the terms of s 76(1) of the Interpretation Act 1987 (NSW):
"(1) If an Act or instrument authorises or requires any document to be served by post (whether the word `served', `give' or `send' or any other word is used), service of the document -
(a) may be effected by properly addressing, pre-paying and posting a letter containing the documents; and
(b) in Australia...is, unless evidence sufficient to raise doubt is adduced to the contrary, taken to be effected on the fourth working day after the letter was posted; and
(c) ...".
On or about 11 July 1996, the debtor filed a motion seeking to set aside the judgment of the Local Court. That motion was struck out on 21 August 1996. It appears that the debtor did not appear at the hearing of the motion.
On 20 September 1996, the debtor filed a second motion to set aside the judgment. The debtor appeared on this occasion, but the motion was dismissed after a contested hearing.
A third motion to set aside the judgment was filed on 21 March 1997. This motion annexed a draft defence which asserted, inter alia, that the debtor intended to rely on the Solicitor's failure to comply with s 192(1) of the Legal Profession Act "in that [he] commenced proceedings within a period of time prohibited by such section".
The third motion was heard on 4 April 1997. It appears that the debtor was present. Once again, the debtor's motion to set aside the judgment was refused. The evidence does not reveal whether the learned magistrate addressed the debtor's claim that the Solicitor had contravened s 192(1) of the Legal Profession Act, or whether the motion was refused on other grounds.
On 15 December 1997, the debtor applied ex parte to the Local Court to stay execution of the judgment. That application was granted. On 23 December 1997, the Solicitor applied to vacate the stay order and, on 9 January 1998, the Local Court did so. It does not appear whether that order was made following a contested hearing.
The debtor's application for a costs assessment raised two principal contentions. First, the debtor acknowledged that he had signed costs agreements in March 1995, but contended that the agreements should be determined to be unjust pursuant to s 208D of the Legal Profession Act, and set aside. Doubtless the debtor took this step because he was aware of the terms of s 208C of the Legal Profession Act. Section 208C(1) requires a costs assessor to decline to assess a bill of costs if the disputed costs are subject to a costs agreement that complies with Part 11, Division 3 of the Act. However, s 208C(3) qualifies this, by providing that s 208C does not apply to any provision of a costs agreement that the costs assessor determines to be unjust under s 208D. The debtor's application appears to have assumed that s 208D(1) empowers a costs assessor to set aside a costs agreement. In fact s 208D(1) merely empowers a costs assessor to
"determine whether a term of a particular costs agreement entered into by a barrister or solicitor and a client is unjust in the circumstances relating to it at the time it was made."
Whatever the assumptions underlying the debtor's application, he relied on several grounds to establish what he claimed was the injustice of the costs agreements:
* the Solicitor had required the costs agreements to be executed as a matter of urgency and had deprived the debtor of the opportunity to obtain independent advice;
* the debtor was unable physically to read the agreements before signing them;
* the Solicitor had induced the debtor into signing the costs agreements by claiming that the agreements were needed as proof of income for a bank loan;
* the debtor had made it clear that he would not consider the costs agreements legally binding; and
* copies of the costs agreements had not been provided to the debtor.
In addition, the debtor made a series of objections to the bills of costs. These included claims that the Solicitor had charged for work not undertaken and had charged for services rendered after the debtor had terminated his retainer. The debtor also claimed that the Solicitor had improperly handled "the simple matter", thereby exposing the debtor to an adverse order for costs and that the Solicitor had engaged in sundry corrupt dealings.
By letter dated 1 July 1996, addressed to the Principal Registrar of the Supreme Court, the Solicitor objected to the costs assessment proceeding further, on the ground that the debtor's application was out of time: see Legal Profession Act, s 199(2) (providing for a time limit to be prescribed where costs have been wholly or partly paid); Legal Profession Regulation, reg 25 (prescribing a period of twelve months after the bill was given to the client). Despite this letter, the Principal Registrar referred the matter to a costs assessor, pointing out that the debtor had contended that the invoices had not been served until 9 May 1996. The Registrar observed that if the costs assessor concluded that the invoices had been served at an earlier time, so as to attract s 199(2) of the Legal Profession Act, the matter would then be closed.
By January 1997, the costs assessment remained unresolved. On 24 January 1997, the Solicitor advised the costs assessor that the debtor's motion to set aside the Local Court judgment had been heard on 18 December 1996 and had been dismissed. On 30 January 1997, the assessor wrote to the debtor stating that he could not proceed with the applications for assessment "by reason of the costs claims of the solicitor having become merged in the judgment".
The debtor gave evidence and was cross-examined. I therefore had the opportunity to observe him in the witness box. I regret to say that I formed the view that he was prepared to say almost anything that he thought would or might advance his case, regardless of whether or not he believed the evidence to be true. The debtor was clearly prepared to make accusations of fraud or dishonesty against a variety of people without giving any serious thought to whether such accusations had any factual basis or without caring whether the accusations were or were not true. His evidence was replete with inconsistencies, implausible assertions and explanations that defied credulity. In short, I find that the debtor was an unsatisfactory witness whose evidence should not be accepted on any disputed factual question unless independently supported by cogent evidence.
"Section 52(1)(c) of the Bankruptcy Act provides that, at the hearing of a creditor's petition, the Court must require proof of the fact that the debt or debts on which the petitioning creditor relies are still owing. In Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212, at 223, Barwick CJ (with whom Windeyer and Owen JJ agreed) emphasised the "dominant place the mandatory words of s 52(1) occupy in relation to the making of a sequestration order". Wren v Mahony and the earlier decision of the High Court in Corney v Brien [1951] HCA 31; (1951) 84 CLR 343, demonstrate that a court exercising bankruptcy jurisdiction has the power to go behind a judgment to inquire whether the judgement is founded on a real debt. In Wren v Mahony, Barwick CJ (at 224-225) stated the principle as follows:
`The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor's debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration. It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor's debt is a mere matter of its own discretion. Nothing in Corney v Brien lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt. The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner."
The rationale for this approach is that the making of a bankruptcy order affects not merely the parties to the judgment, but the rights of all creditors: In re Hawkins, Ex parte Troup [1895] 1 QB 404, at 408-409, cited in Wren v Mahony, at 223; Corney v Brien, at 347, per Dixon, Williams, Webb and Kitto JJ, at 355, per Fullagar J.
The existence of the judgment is prima facie evidence of the debt and a court will not go behind the judgment as a matter of course: Wolff v Donovan, at 486. A court will, however, more readily go behind a judgment obtained by default, than one obtained following a hearing on the merits: Corney v Brien, at 347, 356-357; Wolff v Donovan at 486; J L Goldring, "Going Behind a Judgment" (1973) 47 ALJ 377, at 378-379. The fact that a debtor has unsuccessfully applied to set aside the judgment, does not necessarily mean that a Court hearing the creditor's petition should not go behind the judgment, particularly where the refusal does not follow an investigation of the merits: Re Johnson; Ex parte Greendale Engineering and Cables Ltd (1967) 11 FLR 335 (Fed Ct of Bkpcy/Gibbs J), at 341. In Corney v Brien, Fullagar J said (at 358) that, where the judgment is by default, the Court will always go behind the judgment if there is what it regards as a bona fide allegation that no real debt lay behind the judgment. This may perhaps state the principle somewhat too strongly, but it emphasises that, if the merits of the case have not been considered, the Court exercising bankruptcy jurisdiction will be more willing to address whether the underlying debt exists."
The invoices dated 6 June 1995 were expressed to supersede four earlier bills of costs rendered by the Solicitor to the debtor. The first invoice of 6 June 1995, which claimed $6,963 in respect of the Land and Environment Court appeal, replaced three earlier bills of costs rendered, respectively, on 6 February 1995, 2 March 1995 and 3 May 1995. The second invoice of 6 June 1995, which claimed $1,106 in respect of a development application to Armidale City Council, replaced a bill of costs previously rendered on 2 March 1995. The June invoices did not, however, simply replicate the contents of the earlier bills of costs. Not only was the work done set out in much greater detail and the hours devoted to each task particularised, but the amounts charged to the debtor were greater. This was because the debtor increased the hourly charges from $130 to $160, by reason of the failure of the debtor to pay the earlier accounts. This increase was in accordance with the terms of the two costs agreements signed by the debtor on or about 2 March 1995. The costs agreements provided for the Solicitor to charge an hourly rate of $160, but this was to be discounted to $130 if the account was "accepted by [the client] without substantive dispute and provided [the] accounts are paid promptly".
The invoices dated 6 June 1995 were posted to the debtor on that date. By virtue of s 76(1) (b) of the Interpretation Act they are deemed to have been given to the debtor no earlier than 10 June 1995. The Local Court proceedings were instituted by the Solicitor on 6 July 1995. Thus, they were instituted before the thirty day period referred to in s 192(1) of the Legal Profession Act had expired, given that that period commenced no earlier than 10 June 1995.
As I have noted, Mr Hogg conceded on behalf of the Solicitor that the Local Court proceedings had been instituted in contravention of s 192 of the Legal Profession Act. The basis of this concession was not made explicit. Clearly enough, Mr Hogg accepted that the bills superseded by the invoices of 6 June 1995 did not constitute "bills of costs" for the purposes of s 192(1) of the Legal Profession Act, at least in relation to the minimum time required by s 192(1) for the institution of the Local Court proceedings. Mr Hogg's acceptance of this proposition presumably was based on the fact that the earlier bills had been superseded by the invoices of 6 June 1995, which charged the client the higher amounts authorised by the costs agreements of 2 March 1995. It is not clear whether Mr Hogg also intended to concede that reg 22A of the Legal Profession Regulations, which came into force on 12 May 1995, applied to bills rendered in respect of work undertaken or completed before that date. In any event, given that the only bills rendered by the Solicitor for the amounts claimed in the Local Court proceedings were those of 6 June 1995, I think that the appropriate course is to accept the concession made on behalf of the Solicitor.
The concession made by the Solicitor is a very powerful factor supporting the debtor's claim that I should go behind the Local Court judgment. The authorities indicate that provisions such as s 192(1) of the Legal Profession Act do not take away a solicitor's right to payment for fees, but they do prevent the solicitor recovering fees or disbursements for professional services: Re Beckwith, at 268-269; Re Devy; Ex parte BBC Hardware Ltd (1996) 67 FCR 355 (Hill J), at 356-357. The Local Court proceedings should not have been instituted before the expiration of the thirty day period prescribed by s 192(1). Had the point been taken in a timely fashion by the debtor, the proceedings would have been dismissed.
There are three further factors suggesting that I should go behind the Local Court judgment. First, the judgment was obtained in the absence of the debtor, although it was likely that he chose to absent himself. Secondly, the debtor made three unsuccessful attempts to set aside the judgment. On the third occasion he specifically raised the apparent contravention of s 192(1) of the Legal Profession Act. There is no evidence that the Local Court considered the merits of this contention. Thirdly, the debtor has been denied the opportunity of a costs assessment because the costs assessor ruled that any entitlement to an assessment had merged in the Local Court judgment.
Notwithstanding the view I have formed of the debtor's evidence, he has made serious allegations against the solicitor which, if accepted, would undercut the Solicitor's claims that the debtor is indebted to him in respect of professional fees. In these circumstances, the appropriate course is to go behind the Local Court judgment to ascertain whether the debtor is truly indebted to the Solicitor.
The Solicitor firmly denied these allegations. He maintained that the debtor had taken the costs agreements away with him and had signed them of his own accord, after having had a full opportunity to consider them. The Solicitor rejected the suggestion that he had given the debtor assurances of the kind alleged. He acknowledged that, as his records showed, he had made an arrangement not to charge the debtor for certain work performed on the latter's behalf. But this work had not been the subject of the June 1995 invoices. The Solicitor also denied that the agreements had been altered after they had been signed by the debtor.
The Solicitor was cross-examined at some length by the debtor. In my opinion, the Solicitor gave his evidence truthfully and his account ought to be accepted. I think that the Solicitor can properly be criticised for having failed to appreciate the strength of the debtor's claim, made in connection with the third application to set aside the Local Court judgment, that the Solicitor had instituted the proceedings in contravention of s 192(1) of the Legal Profession Act. However, I reject the suggestion that the Solicitor instituted the proceedings knowing that by so doing he was contravening s 192(1). I agree with the debtor's submission that it was inappropriate for the Solicitor to rely on the Local Court judgment to frustrate the debtor's application for a costs assessment, since by that time the Solicitor was or should have been aware that the Local Court proceedings had been improperly instituted. But the Solicitor's reliance on the Local Court judgment does not, in my view, undermine his credit. The Solicitor's determination to recover his fees from a difficult and mendacious former client led him to overlook the importance of adhering strictly to the requirements of the Legal Profession Act. However, that is not the same thing as dishonesty.
Having regard to my assessment of the debtor's credit as a witness, I have no hesitation in accepting the Solicitor's account of the relevant events. I find that the Solicitor did not impose pressure on the debtor to execute the costs agreements and did not procure his signature to those agreements by misrepresentations. Nor did he alter the costs agreements in the ways suggested by the debtor.
The debtor claimed that the Solicitor had charged for work that he had not performed and that, in any event, he (the debtor) had paid for the services in kind by performing work at the Solicitor's request. On all of these issues I accept the Solicitor's evidence in preference to that of the debtor. I also reject the debtor's claim that the Solicitor had improperly charged for work after the debtor had terminated his services on or about 18 April 1995. There is nothing to suggest that the services provided after that date (such as preparing and filing a Notice of Ceasing to Act) were not reasonably necessary to complete the Solicitor's retainer. Nor is there anything to suggest that the Solicitor acted negligently or in breach of his duty in connection with the Land and Environment Court proceedings. The invoices of 6 June 1995 were compiled in accordance with the costs agreements of 2 March 1995 signed by the debtor.
On the assumption that the invoices were required to comply with the requirements of reg 22A of the Legal Profession Regulation, it seems to me that they did. The particulars required by reg 22A(1)(a)-(c) were provided. The remaining particulars specified by subpars (d)-(h) of reg 22A did not have to be included, since the costs charged were in accordance with the costs agreements of 2 March 1995. In any event, the particulars specified in subpars (d)-(h) were provided. If the invoices had to comply, not with reg 22A, but with the requirements of the general law relating to a bill of costs, in my view the invoices of 6 June 1995 did so comply: see Re Walsh Halligan Douglas' Bill of Costs [1990] 1 Qd R 288 (S Ct/Dowsett J), at 293-295; cf Morgan v Meissner.
It is well established that the debt on which a petition and sequestration order are based must be one which existed at the date of the relevant act of bankruptcy: Re Tait; Ex parte Commissioner of Taxation (1996) 65 FCR 592 (Lockhart J), at 595 and cases cited. The act of bankruptcy in the present case was the failure to comply with the bankruptcy notice which (as discussed below) was served on 9 September 1997. If the Local Court judgment is put to one side, the debtor was indebted to the Solicitor at the relevant date in the amount of fees claimed in the invoices of 6 June 1995, together with interest on that sum calculated in accordance with the invoices (which recorded the terms of the costs agreements).
Mr Hill's account was supported by another licensed commercial agent, Mr Kavanagh. Mr Kavanagh said that he had been called by Mr Hill on a mobile phone in order to assist him in relation to the service of the debtor. Mr Kavanagh gave evidence generally supportive of Mr Hill's account.
The debtor's account was that he was aware that someone had followed him from the Land and Environment Court, but assumed that it was a reporter who had been harassing his family. He said that he ran to the centre of Macquarie Street and then proceeded south towards the Supreme Court building, without stopping. He claimed that the person following him did not attempt to pursue him. I should add that on the first day of the trial the debtor sought an adjournment on the ground that he wished to adduce evidence from a Mr McAlister who would be able to support his account. Notwithstanding that the proceedings were ultimately adjourned (for other reasons), the debtor called no evidence from Mr McAlister.
I think that the substance of Mr Hill's evidence ought to be accepted. His evidence was supported by notes made by him shortly after the event. There was no real dispute that Mr Hill followed the debtor into Macquarie Street, with a view to serving him with a bankruptcy notice and other documents. Indeed, in cross-examination, the debtor acknowledged that the person attempting to approach him was carrying documents and said something to him. The only disputed factual issue is whether Mr Hill actually reached the debtor and attempted the place the documents, including the bankruptcy notice, under his arm.
I have taken into account that there were some inconsistencies in Mr Hill's evidence. For example, when he did not have his affidavit in front of him, he departed from its contents in certain respects. He seemed to be uncertain, for example, whether he had waited for the debtor inside the Land and Environment Court courtroom, or outside that courtroom. Nonetheless, I think that his evidence ought to be accepted, in preference to that of the debtor. I have already given my assessment of the debtor's credibility.
I should say that I did not find the evidence of Mr Kavanagh to be particularly helpful. He was unclear as to when he prepared his affidavit and the extent of his reliance upon Mr Hill's notes or draft affidavit. Mr Kavanagh also departed in significant respects from the account given in his affidavit. I would not have been content to rely upon his evidence, if there had been no other material relating to a question of service of the bankruptcy notice. However, as I have said, I think that Mr Hill's account, in substance, ought to be accepted.
I find that Mr Hill did place the copy of the bankruptcy notice and other documents under the debtor's arm and that the debtor refused to accept those documents. I also find that Mr Hill told the debtor that the documents that were to be served included the bankruptcy notice. In these circumstances, I find that the debtor was served with a sealed copy of the bankruptcy notice on 9 September 1997: see Bankruptcy Regulations, reg 16.01; Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 (Gummow J), at 359-360.
The present proceedings are based on the further act of bankruptcy by the debtor, namely, his failure to comply with the requirements of the bankruptcy notice issued on 14 May 1997 and, as I have found, served on 9 September 1997. There is no impediment to the Solicitor filing fresh proceedings for a sequestration order, based upon a further act of bankruptcy by the debtor.
The debtor submitted that service of documents in the precincts of the Supreme Court rendered the service invalid. I do not think that this is the law: R v Jones; Ex parte McVittie [1931] 1 KB 664; Baldry v Jackson [1976] 1 NSWLR 19 (S Ct/Yeldham J), at 23-25; Re O'Sullivan; Ex parte O'Sullivan v Commonwealth Bank of Australia (1995) 57 FCR 145 (Lindgren J), esp at 149. In my view, service of the Solicitor's petition was duly effected on the debtor.
The debtor admitted in cross-examination that he had debts of about $5 million. He said that he was pursuing claims in the Courts worth $20 million, but it was not shown that these claims have any prospects of success or any commercial value whatsoever. I am not satisfied that they do have any such value.
I am not satisfied that the debtor is able to pay his debts. On the contrary, I find that he is insolvent.
The Significance of Non-Compliance with s 192(1) of the Legal Profession Act 1986
As I have explained, it is appropriate in the circumstances of this case to go behind the Local Court judgment in order to determine whether there was a debt due to the solicitor. I have found that there was. Nonetheless, a further question arises, namely, whether the solicitor's contravention of s 192(1) of the Legal Profession Act has any further significance for the application for a sequestration order against the debtor.
There is at least one authority that suggests that the contravention has no further significance. In Re King; Ex parte Gallagher Ryan & Maloney [1994] FCA 1448; (1994) 54 FCR 493 (Northrop J), a firm of solicitors had failed to comply with s 61 of the Supreme Court Act (Vic). In the circumstances of that case, s 61 prohibited solicitors from commencing proceedings to recover costs until a bill had been served in a particular form. The solicitors had not served such a bill. Nonetheless, the solicitors obtained judgment in the Magistrates Court, in the absence of the client. An application to set aside the judgment was refused by the Magistrates Court.
Northrop J held that non-compliance with s 61(1) of the Supreme Court Act 1967 merely made the claim for costs unenforceable; it did not go to the validity of the claim. In his Honour's view, provisions such as 61 of the Supreme Court Act do not prevent a petition being granted, provided that the debt was in existence when the judgment was obtained. Northrop J cited the observations of Gibbs J in Re Ferguson; Ex parte E N Thorne & Co Pty Ltd (in liq) (1969) 14 FLR 311 (Fed Ct of Bkptcy), at 320:
"The object of going behind a judgment is not to inquire whether the proper procedure was followed to obtain it, but to determine whether the debtor in reality owed the creditor the moneys which the judgment held that he owed. Once it is found that the debtor was really indebted to the petitioning creditor in the amount for which judgment was given, any irregularities or procedure, however important they may have been had they been relied upon in the proceedings in which the judgment was obtained, cease to be of importance."
Northrop J reached the following conclusion (at 497):
"In these circumstances, in my opinion, the non-compliance by the judgment creditor with the provisions of s 61 of the Supreme Court Act does not affect the validity of the judgment. The debt is owed. There is evidence of its existence. It is sufficient to support the bankruptcy notice and the making of the sequestration order. In those circumstances, the ground of opposition as stated on behalf of the judgment debtor is refused."
Northrop J did not refer in his reasons to s 44(1)(b) of the Bankruptcy Act.
A Full Court of this Court, in Udovenko v Mitchell, (28 November 1997, unreported), relied on s 44(1)(b) to reach a different result in a case very similar to Re King, although the Court did not refer to the latter case. In Udovenko v Mitchell, a solicitor failed to comply with the then s 198 of the Legal Profession Act (the equivalent to s 192), in that he commenced proceedings against clients for the recovery of fees without giving them an itemised bill at least thirty days before instituting the proceedings. Nonetheless, the solicitors obtained a judgment against the clients, either in default of appearance or on a summary basis. The solicitor sought sequestration orders against the estates of the clients, relying on the clients' failure to comply with a bankruptcy notice which required payment of the judgment debt. It was common ground that the solicitor had never provided an itemised bill to the clients in a form which complied with s 198 of the Legal Profession Act.
Carr J delivered a judgment with which Davies and Foster JJ expressed agreement, although Davies J added some remarks with which Foster J also agreed. Carr J held that the solicitor was not entitled to a sequestration order. The solicitor had not shown that he was owed a liquidated sum payable either immediately or at some future time, within s 44(1)(b) of the Bankruptcy Act.
His Honour's reasoning is summarised in the following passage (at 11-12):
"The cases show that a court of bankruptcy needs to be satisfied that the petitioning creditor is owed the money on which the petition is founded before it changes the legal status of a person to that of a bankrupt. In appropriate circumstances, a judgment against that person in favour of the petitioning creditor will not be enough: Corney v Brien [1951] HCA 31; (1951) 84 CLR 343; Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212.
In the present matter, I do not think that the debt upon which Mr Mitchell relied had been sufficiently established and quantified in law to form the foundation of a bankruptcy notice, let alone a sequestration order based upon failure to comply with that bankruptcy notice. Until the procedure referred to in s 198 has been complied with, Parliament has, in mandatory terms (`shall not') prohibited a solicitor from commencing or maintaining proceedings for recovery of costs....
In my view, a solicitor claiming his fees in contravention of the section which was s 198 but is now s 192 of the Legal Profession Act cannot be said to have a debt which is `payable either immediately or at a certain future time' within the meaning of that phrase in [s 44(1)(b)]. He or she must first give to the client a bill of costs and thereafter at least 30 days must have passed."
Carr J expressly approved of the reasoning of Hill J in Re Devy. That was a case in which a solicitor instituted proceedings to recover fees from a client in contravention of s 22 of the Costs Act (Qld) ("Costs Act"), a provision similar to s 192(1) of the Legal Profession Act. There was no evidence that the solicitor had ever sent a bill of costs to the client. Hill J held that
* the solicitor's claim was for a liquidated sum;
* s 22 of the Costs Act did not prevent the solicitor acquiring a right to payment of her fees, but did prevent her from bringing an action to enforce the right until the statutory preliminaries were satisfied; and
* the claim was not payable by the client until a bill in proper form was rendered and the time in which a request for taxation might be made had expired.
His Honour reasoned as follows in concluding that s 44(1)(b) of the Bankruptcy Act was not satisfied (at 360):
"In the present case, it is clear that at no relevant time (and the reference to `relevant time' includes the time at which the act of bankruptcy is said to have been committed) could Ms Gurnsey be described as a person having a right to sue, such that her right would by a sequestration order be converted to a right to prove in the estate. Her right to sue had been removed by statute and would arise only when a bill in proper form had been sent and the time in which a request to tax that bill had passed. Accordingly, I am of the view that she has not established that she is a creditor with a liquidated debt which is payable either immediately or at a certain time in the future. The most that can be said is that she had a debt which could become payable at an uncertain time in the future, dependent upon whether she presented a bill, and either that bill was taxed or the time within which taxation could be requested had passed."
It will be seen that the facts of the present case are different from those in Udovenko v Mitchell and Re Devy in one significant respect. In this case, the invoices given by the Solicitor to the debtor shortly after 6 June 1995 complied with Part II, Division 4 of the Legal Profession Act. Moreover, more than thirty days had elapsed between the time of service of the invoices on the debtor in mid June 1995 and the issue and service of the bankruptcy notice in 1997. (I should make it clear that, if it matters, I reject the debtor's evidence that he never received the invoices of 6 June 1995. I find that he received them a few days after they were posted.) Thus at the time of the issue and service of the bankruptcy notice and at all times thereafter, including the presentation of the creditor's petition, the Solicitor had given the client a bill of costs complying with the Legal Profession Act and the statutory period of thirty days had elapsed.
It seems to me that this factual difference distinguishes both Udovenko v Mitchell and Re Devy from the present case. Any barrier created by the Legal Profession Act to the enforcement of the Solicitor's right to recover his fees had been removed by mid-July 1995. From that time on, unlike the solicitors in each of the earlier cases, the Solicitor in this case had both a right to payment of his fees and a right to recover them. I do not think that the fact that an irregularly obtained Local Court judgment was in place detracts from this conclusion.
These conclusions do not, however, completely resolve the matter. Section 52(2)(b) of the Bankruptcy Act provides that if the debtor satisfies the Court that "for other sufficient cause a sequestration order ought not to be made" it may dismiss the petition. The principles governing the application of a predecessor to s 52(2)(b) were stated in a judgment of Henchman J sitting as a Judge in Bankruptcy for the Southern District of Queensland, approved by all members of the High Court in Cain v Whyte [1933] HCA 6; (1932) 48 CLR 639. Henchman J approached the question (at 645-646):
"with the full appreciation that, prima facie, on proof of the matters mentioned in sec. 56(2), the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order."
See also Ling v Enrobook Pty Ltd (1997) 74 FCR 19 (FC), at 24-25.
I should say at once that I have been troubled by the Solicitor's contravention of s 192(1) of the Legal Profession Act and his reliance on the Local Court judgment to frustrate the debtor's application for a costs assessment in the Supreme Court of New South Wales. Once the issue was squarely raised by the debtor, on his application to set aside the Local Court judgment, the appropriate course for the Solicitor was to have recognised that the proceedings had been improperly instituted and to have acted accordingly. The point of provisions such as s 192(1) of the Legal Profession Act is to preclude a solicitor from recovering fees for professional services unless a bill has been sent in appropriate form and the client has an opportunity to assess the reasonableness of the charges and to seek taxation of the bill: Dodd v Gillis (1989) 16 NSWLR 623 (S Ct/Yeldham J), at 626. It is true that the debtor did not seek to tax the invoices of 6 June 1995 for more than twelve months and that I have rejected his explanation for delaying so long. Nonetheless, had it not been for the Local Court judgment, the debtor may well have instituted his application for a costs assessment earlier than he did.
On balance, however, I have concluded that a sequestration order should be made. The debtor did not seek to set aside the bankruptcy notice served on him, notwithstanding that by that time he was fully alive to the issue arising under s 192(1) of the Legal Profession Act. His failure to do so presumably resulted from his refusal to accept service of the bankruptcy notice, a matter for which he was entirely responsible. In these proceedings, the debtor has had the opportunity to agitate his claims that the Solicitor has acted improperly and that he was not truly indebted to the Solicitor. He put forward a variety of claims, all of which I have rejected. It is clear that the debtor is insolvent. There is a public interest in having his affairs administered under the Bankruptcy laws. Accordingly, the discretion conferred by s 52(2)(b) of the Bankruptcy Act should be exercised in favour of the making of a sequestration order.
I am satisfied that the debtor committed the act of bankruptcy alleged in the petition. I am satisfied as to the other matters referred to in s 52(1) of the Bankruptcy Act. I make a sequestration order against the estate of the debtor. I order that the Solicitor's costs, including reserved costs (if any), be taxed and paid in accordance with the Bankruptcy Act.
|
I certify that this and the preceding twenty-one (21) pages are a true copy of the Reasons for Judgment herein of the Honourable
Justice Sackville |
Associate:
Dated: 17 July, 1998
|
Counsel for the Applicant: | Mr B De Buse (1 June 1998)
Mr A C Hogg (6 July 1998) |
| Solicitor for the Applicant: | John Burrell Solicitors |
| Counsel for the Respondent: | Self Represented |
| Date of Hearing: | 1 June, 3 and 6 July, 1998 |
| Date of Judgment: | 17 July, 1998 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1998/829.html