4WD Pty Ltd v McNamara - [2009] SASC 274

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master)
4WD PTY LTD v MCNAMARA
[2009] SASC 274
Judgment of The Honourable Justice Anderson
3 September 2009
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - PROCEDURAL REQUIREMENTS
PROFESSIONS AND TRADES - LAWYERS - REMUNERATION - TAXATION AND ASSESSMENT OF COSTS - APPLICATIONS AND REFERENCES
Appellant was the client of the respondent who is a legal practitioner - respondent issued a statutory demand to the appellant for unpaid legal fees - appellant applied for a taxation of costs and sought to have the statutory demand set aside - this was refused by a master - appellant appealed decision - whether there was a genuine dispute as to the fees - whether statutory demand should be set aside - whether statutory demand under Corporations Act should be allowed to circumvent client's right to a taxation under the Legal Practitioners Act - whether master should have stayed or adjourned statutory demand proceedings until after taxation of costs.
Held: Unnecessary to determine whether genuine dispute as to legal fees existed - statutory demand under Corporations Act should not circumvent client's right to taxation of costs - statutory demand should be stayed until taxation of costs complete - appeal allowed.
Corporations Act 2001 (Cth) s 459E, s 459H and s 459J, referred to.
Jarena Pty Ltd v Sholl Nicholson Pty Ltd (1996) 19 ACSR 425; D A Starke Pty Ltd trading as Starke Lawyers v Yardoo Pty Ltd [2009] SASC 90, applied.

4WD PTY LTD v MCNAMARA
[2009] SASC 274
Magistrates Appeal: Civil
ANDERSON J.
Introduction

The appellant in this matter is a former client of the respondent Mr McNamara, who is a legal practitioner. Mr McNamara claims that he was owed in excess of $600,000 for legal fees rendered by him to the appellant in relation to 17 different matters in which he acted for the appellant.
When these amounts remained unpaid, Mr McNamara issued a statutory demand under s 459E of the Corporations Act 2001 (“the CA”). The demand was issued on 17 December 2008. On 7 January 2009 the appellant filed an application to set aside the statutory demand pursuant to s 459G of the CA.
On 15 January 2009 the appellant applied in the Supreme Court for an adjudication of costs pursuant to r 272 of the Supreme Court Civil Rules 2006 and s 42(1) of the Legal Practitioners Act 1981 (“the LPA”). Later the appellant sought to have the application to set aside the statutory demand adjourned until after the adjudication of costs was heard.
On 6 April 2009 a master refused that application and proceeded to hear the application to set aside the statutory demand. In reasons published on 15 June 2009 the master refused the appellant’s application to set aside the demand.
This appeal has two bases. First, it is an appeal which claims that the application to set aside the statutory demand…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2009] SASC 274
Decision Date: 3 September 2009

CaseChat Overview and Summary

In the case of 4WD Pty Ltd v McNamara, the appellant, 4WD Pty Ltd, was a client of the respondent, a legal practitioner. The respondent issued a statutory demand to the appellant for unpaid legal fees. The appellant subsequently applied for a taxation of costs and sought to have the statutory demand set aside. This application was refused by a master. The appellant appealed this decision, raising questions about whether there was a genuine dispute regarding the legal fees, whether the statutory demand should be set aside, and whether the statutory demand under the Corporations Act should be allowed to bypass the client's right to a taxation of costs under the Legal Practitioners Act. The court was also asked to consider whether the master should have stayed or adjourned the statutory demand proceedings until after the taxation of costs.

The court found that it was unnecessary to determine whether a genuine dispute regarding the legal fees existed. It held that the statutory demand under the Corporations Act should not bypass the client's right to a taxation of costs under the Legal Practitioners Act. The court decided that the statutory demand should be stayed until the taxation of costs was complete. Consequently, the appeal was allowed.

The court reasoned that the master had erred in proceeding with the statutory demand without first addressing the appellant's request for a taxation of costs. The court relied on the authority of Jarena Pty Ltd v Sholl Nicholson Pty Ltd, which held that winding up proceedings should not be used to bypass the safeguards contained in legislation governing the recovery of legal costs. The court also noted that the master had not referred to any authority for taking the course he did, despite the availability of relevant decisions such as Starke and Jarena. The court concluded that the statutory demand should be stayed until the taxation of costs was complete and that the appeal should be allowed.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

ANDERSON J

In the view I take, it is not necessary to analyse the reasoning used by the master in reaching his conclusion that there was no genuine dispute. He did this based on affidavit evidence and the lack of any response to an affidavit by the respondent which he regarded as important. I will deal with the matter on the basis of whether he should have embarked upon that exercise under the CA prior to dealing with the request for adjudication of costs by the appellant. If the master erred then it would follow that the statutory demands should be set aside, stayed or adjourned and that the adjudication of costs should then be expedited.The decision of 6 April 2009 The 6 April 2009 decision was made in chambers and no reasons were published. However, the master in recording the formal order included in his remarks the following:The issue before me is whether there should be an adjudication under R272 which will involve preliminary issues under S42(6), as sought by the pltf, or whether the 459G application should be resolved without prior adjudication. There is no clear cut best course of action but I consider that on balance the deft should be allowed to have the 459G proceedings argued out before any adjudication proceeds. However, if in the course of the 459G application it appears that the pltf is being subjected to an abuse of process that may be a reason for me to determine the 459G application in its favour. Accordingly I rule that the 459G application should proceed to full argument and the R272 application should be deferred while this occurs. The master did not refer to any authority for taking the course he did. The appellants argue that he should have followed the reasoning in Starke in which Judge Withers applied the reasoning of Heerey J in the Federal Court decision of Jarena Pty Ltd v Sholl Nicholson Pty Ltd 19 ACSR 425. Judge Withers’ decision was delivered only three days prior to the master’s decision of 6 April 2009. The decision in Jarena, however, was delivered in 1996.The authority of Jarena and Starke Heerey J in Jarena dealt with a similar situation to the one faced by the master in this matter. That was again a statutory demand served on clients by solicitors in respect of outstanding legal fees. His Honour gave consideration to the procedure under the Victorian Supreme Court Act 1986 relating to the recovery of legal costs, and held that it would be wrong if the safeguards contained in that legislation could be bypassed by solicitors utilising winding up proceedings. Accordingly His Honour set aside the statutory demands utilising s 459J(1)(b) of the CA on the basis that there was “some other reason why the demand should be set aside”. In Jarena His Honour was satisfied that there was a dispute as to the rate at which the solicitors were to perform the work. His Honour reasoned that the work to be performed was to be charged on a time basis but there was a dispute as to the rate. His Honour said at 427:Now it is true that there is no “proceeding to recover the costs” in this court brought by the solicitor within the meaning of s 61(4). The only proceeding in this court is one brought by the applicants to set aside the demands. Nevertheless it seems to me that I can and should, for the purpose of exercising the discretion conferred by s 459J(1)(b) of the Law, take into account the policy behind s 61 of the Supreme Court Act, which seems to me that even if a client does not avail himself or herself of the right to request a bill, nevertheless the statute provides a second line of defence should the solicitor take any proceedings. That provision was obviously enacted by the Victorian Parliament with a view to providing protection for clients against solicitors. I think it would be wrong if that protection could be effectively bypassed by utilising winding up proceedings. I will therefore set aside the demands.

Ratio Decidendi

Legal Principle Established

Established by: ANDERSON J

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