Alam v QBE Insurance (Australia) Ltd

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FEDERAL COURT OF AUSTRALIA

Alam v QBE Insurance (Australia) Ltd [2018] FCA 1560

Appeal from: QBE Insurance (Australia) Ltd v Alam and Ors [2018] FCCA 691
File number: NSD 552 of 2018
Judge: LEE J
Date of judgment: 11 September 2018
Catchwords: BANKRUPTCY – appeal – observations on importance of bankruptcy jurisdiction and for bankruptcy not to be used as a debt collecting mechanism in relation to solvent debtors – unusual circumstances of orders for costs made by District Court judge giving rise to debt which required consideration being given as to whether the debt resulted from a miscarriage of justice – fundamental defect in bankruptcy notice – appeal allowed and application for sequestration order against three debtors dismissed
Legislation:

Bankruptcy Act 1966 (Cth) ss 37(2), 52(3)
Civil Procedure Act 2005 (NSW) s 99(2)(b)

FCR 4.19(3)

Cases cited:

Adams v Lambert (2006) 228 CLR 409

Ashton v Pratt (No 2) [2015] NSWCA 134

Azar v Kathirgamalingan [2012] NSWCA 429

Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8; (2017) 343 ALR 632

Curtis v Singtel Optus Pty Ltd [2014] FCAFC 144; (2014) 225 FCR 458

Endresz v Australian Securities and Investments Commission [2014] FCA 1139

Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18

Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71

Lowbeer v De Varda [2018] FCAFC 115

Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 261 CLR 132

Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163

Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372

Date of hearing: 11 September 2018
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 74
Counsel for the Appellants: Mr J C Hewitt
Counsel for the Respondent: Mr D K Ratnam
Solicitor for the Respondent: HWL Ebsworth Lawyers

ORDERS

NSD 552 of 2018
BETWEEN:

MUHAMMAD ALAM

First Appellant

QAMAR JAHAN SATTAR

Second Appellant

SAQIBA SATTAR

Third Appellant
AND:

QBE INSURANCE (AUSTRALIA) LTD ACN 003 191 035

Respondent

JUDGE:

LEE J

DATE OF ORDER:

11 SEPTEMBER 2018

THE COURT ORDERS THAT:

1.The appeal be allowed.

2.The orders of the Federal Circuit Court of Australia made on 22 March 2018 in proceedings SYG2595/2017 be set aside.

3.The creditor’s petition dated 16 August 2017 against each of the appellants be dismissed.

4.The respondent pay any of the appellants’ recoverable costs of the proceedings in the Federal Circuit Court of Australia in an amount to be agreed or assessed.

5.The respondent pay the appellants’ costs of the appeal in a gross sum to be fixed.

6.For the purpose of Order 5:

(a)within 7 days the appellants are to provide to the associate to Justice Lee, by email, any material in support of the amount of the lump sum costs order;

(b)within 14 days the respondent is to provide to the associate to Justice Lee, by email, any material in response in relation to…

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Details
Case
[2018] FCA 1560
Decision Date

CaseChat Overview and Summary

The appeal in Alam v QBE Insurance (Australia) Ltd concerned the bankruptcy jurisdiction and the use of bankruptcy as a debt collection mechanism. Muhammad Alam and Saqiba Sattar, the appellants, brought proceedings against QBE Insurance (Australia) Ltd in the District Court of New South Wales over an insurance claim related to a fire incident. After judgment was entered in favour of the appellants, the District Court judge ordered them to pay QBE’s costs on an indemnity basis, leading to a significant debt. This debt arose from a perceived miscarriage of justice due to a fundamental defect in the bankruptcy notice.

The legal issues before the court were whether the bankruptcy jurisdiction should be used as a debt collecting mechanism for solvent debtors and whether the debt resulted from a fundamental defect in the bankruptcy notice. The court also had to consider the implications of the District Court’s costs orders on the appellants’ financial standing.

The court found that the bankruptcy jurisdiction should not be used for solvent debtors, and the debt incurred due to the costs orders was a result of a fundamental defect in the bankruptcy notice. The court concluded that the orders were made in circumstances amounting to a miscarriage of justice, and thus the appeal was allowed. Consequently, the application for a sequestration order against the three appellants was dismissed, and the orders of the Federal Circuit Court were set aside.

The final orders of the court included allowing the appeal, setting aside the orders made by the Federal Circuit Court, dismissing the creditor’s petition against the appellants, and directing the respondent to pay the appellants' costs of the appeal and the Federal Circuit Court proceedings. The court also provided for the determination of the lump sum costs order based on the material provided by the parties and required the former trustee to have liberty to relist the proceedings for any application related to their costs and expenses.

Orders

Orders of the court

1. The appeal be allowed.

2. The orders of the Federal Circuit Court of Australia made on 22 March 2018 in proceedings SYG2595/2017 be set aside.

3. The creditor’s petition dated 16 August 2017 against each of the appellants be dismissed.

4. The respondent pay any of the appellants’ recoverable costs of the proceedings in the Federal Circuit Court of Australia in an amount to be agreed or assessed.

5. The respondent pay the appellants’ costs of the appeal in a gross sum to be fixed.

6. For the purpose of Order 5:

(a) within 7 days the appellants are to provide to the associate to Justice Lee, by email, any material in support of the amount of the lump sum costs order;

(b) within 14 days the respondent is to provide to the associate to Justice Lee, by email, any material in response in relation to the material provided to the Court in accordance with Order 6(a).

7. After receipt of the material in accordance with Order 6, the amount of the lump sum costs order will be determined on the papers.

8. These sealed orders of the court be served by the solicitors for the respondent forthwith upon the solicitors for the Trustee.

9. Within 7 days of the date of the service of the sealed orders on the former trustee in bankruptcy of the appellants, the former trustee have liberty to relist the proceedings to make any application the former trustee wishes to make in relation to his costs and expenses.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

It is with these matters in mind that I come to the somewhat remarkable circumstances of the present case.B RELEVANT BACKGROUND The first appellant (Muhammad Alam) and the second appellant (Saqiba Sattar) brought District Court proceedings against the respondent (QBE) in relation to an insurance claim arising from a fire which occurred after their residence was burgled and set on fire while they were overseas. A judge of the District Court of New South Wales delivered judgment in relation to the insurance claim in March 2016. In circumstances which do not need to be recounted for present purposes, QBE’s submissions were treated by the District Court judge as a concession that it would “surrender to a judgment”. As a consequence, judgment was entered in favour of the first and second appellants against QBE in the amount of $131,281.24. The District Court proceedings were then stood over for a hearing of applications as to costs. Regrettably, this is the point when matters started to go awry. Costs orders were made in December 2016 and a 61 page judgment was delivered giving reasons for those orders (Costs Judgment). For reasons set out at considerable length, the District Court judge ordered the first and second appellants to pay QBE’s costs of the proceedings on an indemnity basis from 17 November 2014 on the grounds that a Calderbank offer made on that date (in an amount of $250,000) had not been accepted. The costs order was made in the gross sums of $133,007.07 and $8,643 for a total award of $141,470.97. A singular aspect of the Costs Judgment in seen from a further order that was made by the District Court judge. The first and second appellants sought costs orders against their former solicitors, Legal and Company Solicitors, pursuant to a motion filed on 21 July 2016. Without any intended disrespect to the appellants, it is fair to say that the orders sought in the motion were far from pellucid. Essentially, however, two contentions were made: the first was that the third appellant (Qamar Sattar) was not liable for any costs associated with the proceedings by reason of the fact that the third appellant had not validly been appointed as a tutor; and, secondly, that the first and second appellants never received the Calderbank letter which, as explained above, was the foundation for the award of costs. The District Court judge characterised the application as the appellants seeking an order under s 99(2)(b) of the Civil Procedure Act 2005 (NSW) that the appellants’ former solicitors pay to the appellants “the whole or any part of any costs that the ... [appellants] have been ordered to pay to any other person, whether or not the … [appellants have] paid those costs”. Ultimately, the first and second appellants established that there had been “serious neglect, serious incompetence and serious misconduct … within the meaning of s 99(1)”, being the statutory pre-condition to the making of a s 99(2) order. This was because, among other reasons, the solicitor failed to inform the appellants that an offer of settlement had been made and failed to convey the actual terms of the Calderbank offer together with the reasons advanced by QBE as to why the offer ought to be accepted.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The District Court proceedings were then stood over for a hearing of applications as to costs. Regrettably, this is the point when matters started to go awry. Costs orders were made in December 2016 and a 61 page judgment was delivered giving reasons for those orders (Costs Judgment). For reasons set out at considerable length, the District Court judge ordered the first and second appellants to pay QBE’s costs of the proceedings on an indemnity basis from 17 November 2014 on the grounds that a Calderbank offer made on that date (in an amount of $250,000) had not been accepted. The costs order was made in the gross sums of $133,007.07 and $8,643 for a total award of $141,470.97. A singular aspect of the Costs Judgment in seen from a further order that was made by the District Court judge. The first and second appellants sought costs orders against their former solicitors, Legal and Company Solicitors, pursuant to a motion filed on 21 July 2016. Without any intended disrespect to the appellants, it is fair to say that the orders sought in the motion were far from pellucid. Essentially, however, two contentions were made: the first was that the third appellant (Qamar Sattar) was not liable for any costs associated with the proceedings by reason of the fact that the third appellant had not validly been appointed as a tutor; and, secondly, that the first and second appellants never received the Calderbank letter which, as explained above, was the foundation for the award of costs. The District Court judge characterised the application as the appellants seeking an order under s 99(2)(b) of the Civil Procedure Act 2005 (NSW) that the appellants’ former solicitors pay to the appellants “the whole or any part of any costs that the ... [appellants] have been ordered to pay to any other person, whether or not the … [appellants have] paid those costs”. Ultimately, the first and second appellants established that there had been “serious neglect, serious incompetence and serious misconduct … within the meaning of s 99(1)”, being the statutory pre-condition to the making of a s 99(2) order. This was because, among other reasons, the solicitor failed to inform the appellants that an offer of settlement had been made and failed to convey the actual terms of the Calderbank offer together with the reasons advanced by QBE as to why the offer ought to be accepted. An order for costs was also made against the third appellant on the basis that the third appellant “was appointed as the tutor for [the second appellant] in July 2015”. This was despite: (a) the third appellant disputing she had ever been appointed as the first appellant’s tutor; (b) the District Court judge finding that the third appellant was not the tutor when the Calderbank offer was made; and (c) the third appellant denying that she had signed the consent to act as tutor which had been filed in the District Court and purported to bear her signature. The circumstances become even more remarkable when after hearing argument concerning these contentions, one of the orders made by the District Court judge was a direction that the Registrar of the District Court refer the papers to the Director of Public Prosecutions. The District Court judge had noted that the third appellant was an honest witness and her evidence about the consent to tutor being filed without her consent was an allegation not contradicted by the solicitors who were “unable to offer any assistance” on this matter. The apparently false basis upon which the third appellant became a tutor was said by the District Court judge to be “beyond the scope of this judgment”.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.