Anderson v Kirk - [2004] FMCA 330

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ANDERSON v KIRK & ANOR

[2004] FMCA 330

BANKRUPTCY – Application to set aside bankruptcy notice – where applicant debtor bringing proceedings against former solicitors for false and misleading conduct – whether applicant has a counter claim, set off or cross demand – whether the counter claim is such that it is proper and reasonable that bankruptcy proceedings be stayed until claim is determined – whether notice should be set aside on basis that proceedings to aside original judgment have been instituted – whether the validity of the bankruptcy notice can be challenged on the basis that the creditors have been subrogated.

Federal Court of Australia Act 1976
Federal Court Rules 1979
Bankruptcy Act 1966 (Cth), ss.30, 41

Guss v Johnstone [2000] 171 ALR 598
Bhagat v Global Custodians Ltd [2002] FCA 223
Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
Shephard v Chiquita Brands (South Pacific) Ltd [2001] FCA 1394
Re Geard; Ex parte Reid (unreported Sheppard J, 11 February 1994)
Liew v JNS Technologies [1999] FCA 1428
Jenkins v National Australia Bank [1999] FCA 1758
Warner v Frost [1999] FCA 830
Re Nguyen; Ex parte Commissioner of Taxation (1995) 54 FCR 403

Applicant:

DAVID ANDERSON

Respondents:

OM KIRK & E KIRK

File No:

SZ 646 of 2004

Delivered on:

19 May 2004

Delivered at:

Sydney

Hearing date:

19 May 2004

Judgment of:

Raphael FM

REPRESENTATION

For the Applicant:

Applicant in person

Counsel for the Respondent:

G Lucakelli

Solicitors for the Respondent:

Corrs Chambers Westgarth

ORDERS

Application dismissed.
Applicant to pay respondent’s costs to be taxed if not agreed according to the Federal Court Act and Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SZ 646 of 2004

DAVID ANDERSON

Applicant

And

O M KIRK & E KIRK

Respondents

REASONS FOR JUDGMENT

These proceedings involve an application by Mr Anderson to set aside a bankruptcy notice numbered N2930/03 dated 20 November 2003 issued at the request of the respondent, on the basis that he has a counter claim, set off or cross demand that could not be set up in the original action that is equal to or exceeds the amount claimed in the bankruptcy notice, s 41(7) Bankruptcy Act 1966 (Cth) (the “Act”).
Mr Anderson also claims that the bankruptcy notice itself is bad because the creditors are claimed to be Mr and Mrs Kirk when Mr and Mrs Kirk were indemnified in respect of the debt by an insurance company. The debt is in fact solicitor's costs for acting on behalf of Mr and Mrs Kirk through their insurers in some personal injury proceedings in the District Court of New South Wales. I am satisfied that there is nothing in this submission. The insurers are entitled to be subrogated to the rights of Mr and Mrs Kirk and to bring proceedings, including the bankruptcy notice, in their name.
Mr Anderson was injured in a work related accident in about 1988. He commenced proceedings against Mr and Mrs Kirk, who were responsible for the building site upon which the accident occurred.
Those proceedings were originally brought in the Supreme Court of New South Wales but were transferred to the District Court on 17 April 1998. It would appear that at that time very little had occurred in the course of the proceedings. They had not been heard by the time the matter came before His Honour Garling DCJ on 7 August 2000 on a motion to show cause why they should not be dismissed for want of prosecution. However by that time, Mr Anderson had realised the failings of his legal advisers and that he would, in all probability, have a better chance of success against them for their negligence than against the defendants in the action which was in respect of an injury that had occurred some 12 years before.
I have seen transcripts of what occurred before Judge Garling. At some stage during the course of the hearing, Judge Garling asked a question as to whether or not the defendants in the proceedings were insured. He was told by the solicitor for the defendants that they were not. That statement was incorrect. In saying the statement was incorrect, I accept that it could be argued on very narrow grounds that the statement was in fact correct. The defendants had taken out a policy of insurance which had been declined by their insurers. They did this through a broker. In about 1993, the solicitors for the broker, who were the solicitors on the record at the hearing before Judge Garling, wrote a letter to the defendants advising them that indemnity would be granted to them by the broker in the event that the primary insurer declined cover. On this basis it could be argued that the defendants were not insured but the fact was that they did stand to be indemnified in respect of any damages awarded against them.
It is clear from the transcript that the applicant debtor sought an order of dismissal from the court. After some considerable time and discussion this was granted by Judge Garling.
I now understand from the debtor that he later took proceedings against his solicitors and made a settlement with them. One of the orders made by Judge Garling was that the plaintiff to the action, the debtor, paid the defendant’s (the creditors) costs. This order was stayed whilst the debtor took his proceedings against his solicitors. Some time later the debtor became aware that there was insurance for the defendants but he was not aware of the exact circumstances. He made an application to the District Court, effectively to set aside the order of Judge Garling and to restore the matter for hearing.
That application was heard by Acting Judge Bowden. At that time, the debtor raised the fact of insurance and that he was unaware of this in the proceedings before Judge Garling. Judge Bowden gave a very careful and lengthy judgment during the course of which he said at [11]:
“The plaintiff would rather found his case on the power of the court to set aside the judgment that was entered up irregularly and against good faith. This argument is founded on the premise that the reason Judge Garling dismissed the proceedings was because he was told by the defendants' solicitor that the defendants were uninsured whereas in fact the defendants were insured, and if his Honour had known that, he would not or perhaps might not have dismissed the proceedings. Part of this argument depends upon the documents that I have held should be rejected as evidence, but suffice it to say that there is a clear statement by a solicitor of this court that the defendants were not insured.
Although there is a reference to insurers and to brokers, there is no evidence, even in the documents that I have rejected for that matter, that there was anyone being indemnified. Although the lack of insurance was one of the things that his Honour took into account, the reason he dismissed the action was for non‑prosecution.
The matter was not ready. His Honour held that no one could say when it would be ready and it had been suggested that it could never be ready. It is further clear that even if there was an insurer indemnifying the defendants, that does not mean necessarily that costs would be an appropriate remedy. They will not necessarily cure any problem for the defendants or for their insurers, if they had insurers. Insurers have to make provisions, they have to pay dividends, they have re-insurance to arrange and premiums to set.
Also, of course, even an insured person has a strain in being involved in litigation. That attack on the dismissal fails.
I am not satisfied that there can now be a fair trial. In fact I find it most unlikely that there can be. This is not only because of the lapse of time but also because of the actions of the solicitors then acting for the plaintiff in seeking and obtaining access to the defendant’s file, and those of an insurer that had investigated the matter. From that point of view in my judgment, it matters not whether the plaintiff could be e stopped from relying on the evidence, or whether the solicitors had made a binding representation. The fact is, that the plaintiff, as a result of representations, has had access to documents he did not previously have.”
Judge Bowden then went on to stay the costs order that had been made by Judge Garling for a further period so that the debtor could have an opportunity to pursue his former solicitors. The debtor now argues that when that judgment was given, neither he nor Judge Bowden had access to the letter to which I have previously referred which indicates an indemnity was going to be given to the defendants to the action and that if it had been the decision might have been different. I note here that the applicant does not appear to have requested the Court of Appeal to give leave to appeal out of time against the decision of Judge Bowden. Instead what the debtor has done is to commence proceedings in the Supreme Court of New South Wales, making allegations of false and misleading conduct on the part of the solicitors.
It is the existence of these proceedings that creates the counter claim, set off or cross demand pleaded pursuant to s.41(7) of the Act. The proceedings which the debtor has brought in the Supreme Court also make other allegations. Essentially, these allegations are that the creditor's solicitors collected evidence from various people which they intended to bring before the court in the proceedings and created witness statements which ran contrary to earlier statements that had been obtained by, for example, inquiry agents. The debtor puts this as a serious matter indicating misrepresentations to him and conduct which, if found, would ground exemplary damages.
The debt referred to in the bankruptcy notice is the debt which arose out of the assessment of costs which was originally stayed by Judge Garling, stayed again by Judge Bowden, but eventually became due. When those costs were assessed the solicitors were required to provide the costs assessor with a very detailed document setting out how the costs were made up and this is found as exhibit 10 to an affidavit of the debtor filed on 27 April 2004. The debtor states that some of the narrative is inaccurate and bears directly upon the allegations which he made concerning the statements.
In Guss v Johnstone [2000] 171 ALR 598 the High Court considered what a judge in bankruptcy was required to be satisfied of in order to give a debtor the benefit of s.41(7). At [39] the court said:
“ In Vogwell v Vogwell Latham CJ said in relation to a corresponding provision:
The authorities show that the matter to which the court looks is this -whether it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue; in other words, whether it is a claim which is proper and reasonable to litigate:
[40] “The state of satisfaction referred to in s 40(1)(g,) and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.”
It is also necessary for the debtor to do more than merely assert the existence of these claims: Bhagat v Global Custodians Ltd [2002] FCA 223 at [53]. I am afraid that after listening carefully to Mr Anderson and having some sympathy for his situation as a layman who appears to have been badly served by the legal profession, I am unable to reach the state of satisfaction required. In regard to his allegations concerning what occurred before Judge Garling and later before Judge Bowden, I am satisfied that the real reason why the proceedings were dismissed for want of prosecution by Judge Garling and not reinstated by Judge Bowden was that the proceedings were just too old and too unprepared.
The fact that the judge was misled by the answer given by the solicitor does not appear to me, nor did it appear to Judge Bowden, to be an integer of Judge Garling’s decision. When the matter came before Judge Bowden he was aware of the misleading statement. It is true that he refers to the question of indemnity but I do not think that that is an integer of his decision either. The extract that I have set out from his judgment clearly shows that there are a number of reasons why he does not believe the case and one of them is not a failure to have effective insurance or, more accurately, the representation to that effect.
I think it most unlikely that if the letter of 6 August 1993 to which I previously referred was before Judge Bowden, that he would have made any different orders to those that he did make. But that is not all. Mr Anderson had the opportunity to appeal that order of Judge Bowden even though it was very seriously out of time when he discovered the letter. He did not do so, possibly because he realised that the chances of success on the appeal were very small indeed.
As regard to the other matters raised by Mr Anderson, I am not satisfied that even if he was able to make out his allegations it would have any effect on a bankruptcy petition. This is because, it seems to me, that his claim in respect of the actions of the solicitors is really one for a reduction in the amount of the costs which they were awarded. If they were awarded costs for doing work which was not properly incurred, then they should not be entitled to obtain those costs from the unsuccessful plaintiff. Mr Anderson does not see it that way. Mr Anderson believes that what has occurred is a misrepresentation entitling him to damages.
However you put it, it seems to me that the damages would be unlikely to exceed, at least by much, the value of the improperly undertaken work. One must bear in mind that Mr Anderson has not suffered any loss by the fact that statements drafted for people did not mirror statements given by those people to third parties. The case was never heard. In those circumstances it is difficult to see how any debt owed by the debtor to the creditor could be reduced below $2,000 and thus not form a debt capable of founding a sequestration order.
I am also sensible of the fact that service of a bankruptcy notice simply marks the start of a process and that the commission of an act of bankruptcy, while undoubtedly of significance to the debtor, does not affect the actual status of the debtor: Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264; Shephard v Chiquita Brands (South Pacific) Ltd [2001] FCA 1394; Re Geard; Ex parte Reid (unreported Sheppard J, 11 February 1994); Liew v JNS Technologies [1999] FCA 1428; Jenkins v National Australia Bank [1999] FCA 1758; Warner v Frost [1999] FCA 830. The Court in these cases when considering whether to grant an extension of time for compliance with a bankruptcy notice has been mindful of balancing the interests of creditors, noting the potential impact of a later act of bankruptcy in the event that the appeal is unsuccessful and proceedings continue. In Liew v JNS Technologies (supra) Kenny J referred to the comments of Heerey J in Re Nguyen; Ex parte Commissioner of Taxation (1995) 54 FCR 403 at 407:
“Extension of time for compliance with the bankruptcy notice may have important adverse consequences for the judgment creditor. For example, if a sequestration order is subsequently made the commencement of the bankruptcy may be later than would otherwise have been the case, which in turn may affect rights of recovery by the trustee in relation to property.”
The form upon which Mr Anderson brought these proceedings seemed to indicate that he was also making an application under ss.30, 41(6A) of the Act. That is an application to set aside a bankruptcy notice on the basis that proceedings to set aside the original judgment have been instituted. The document that is in the file indicates that that box had been ticked but then the tick had been crossed out and I asked Mr Anderson whether or not he was proceeding with that claim. I did that because Mr Anderson had written a letter to the court which is also on the file indicating that he was proceeding with that claim. The basis upon which Mr Anderson was proceeding with that claim appears to be some relief he was seeking in the Supreme Court proceedings:
“A. An order to rescind the judgment or order to dismiss the plaintiff's personal injury proceedings (3183 of 1998);
B.An order to rescind the costs order for the plaintiff to pay the defendants' costs.”
Mr Lucakelli, who appears on behalf of the creditor, submitted that those orders were simply not available to the Supreme Court of New South Wales in those proceedings. They were orders that only the Court of Appeal could make. I accept that submission. Because I accepted that submission I asked Mr Anderson whether he wished to proceed with the application under s.41(6A). He told me he did not. However, at a very late stage it appears he may have resiled from that statement. So, to the extent that he does wish to do so, I would say that it is not an application that can succeed.
In all these circumstances, I dismiss the application. I order that the applicant pay the respondent’s costs to be taxed if not agreed according to the Federal Court Act and Rules.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: