FEDERAL COURT OF AUSTRALIA
Bagshaw v Scott [2005] FCA 104
COSTS – indemnity costs – where any extant causes of action vested in applicant’s trustee in bankruptcy – whether proceedings commenced or continued in circumstances where the applicant should have known he had no chance of success
LEGAL PRACTITIONERS – duty to court not to initiate or continue an action unreasonably where it has no chance of success – where limited instructions and evidence to support actions – whether dereliction of duty by solicitor for applicant – whether proceedings initiated or continued unreasonably – whether solicitor for the applicant should be jointly liable for costs – solicitor liable with respect to one of the claims
COURTS AND JUDICIAL SYSTEM – substitution of judge in heard proceeding –where parties did not object to substitution of judge
Bankruptcy Act 1966 (Cth) ss 58(1), 116(1)(a)
Federal Court of Australia Act 1976 (Cth) s 43Federal Court Rules O 11 r 1B, O 62 r 9
Law Society of New South Wales’ Solicitors’ Rules, Rule A35A159 of 2002 v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 1087 referred to
Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance (1986) 10 FCR 177 followed
Bagshaw v Jefferson (Trustee) [2002] FCA 955 referred to
Brennan v Brennan (1953) 89 CLR 129 referred to
Buckingham Gate International Pty Ltd v Australia New Zealand Banking Group Ltd (2000) 35 ACSR 411 referred to
Chua Chee Chor v Chua Kim Young [1963] 1 All ER 102 referred to
Coleshill v Manchester Corporation [1928] 1 KB 776 referred to
Cook v Pasminco Ltd (No 2) (2000) 107 FCR 44 followed
Cotogno v Lamb (No 2) (1986) 3 NSWLR 221 referred to
Daemar v Industrial Commission of New South Wales (No 2) (1990) 22 NSWLR 178 cited
De Sousa v Minister for Immigration, Local Government & Ethnic Affairs (1993) 41 FCR 544 followed
Deputy Commissioner of Taxation v Levick (1999) 168 ALR 383 referred to
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 followed
Gersten v Minister for Immigration & Multicultural Affairs [2000] FCA 922 referred to
Hamod v State of New South Wales [2002] FCAFC 97 referred to
Kumar v Minister for Immigration & Multicultural & Indigenous Affairs (No 2) (2004) 133 FCR 582 followed
Levick v Deputy Commissioner of Taxation (2000) 102 FCR 155 followed
McMahon v Livingstone [2001] NSWSC 55 referred to
Orr v Holmes (1948) 76 CLR 632 referred to
Pegler v Dale [1975] 1 NSWLR 265 cited
Re Bendeich (No 2) (1994) 53 FCR 422 referred to
Re British Reinforced Concrete Engineering Co Ltd’s Application (1929) 45 TLR 186 referred to
Ridehalgh v Horsefield [1994] Ch 205 referred to
Rondel v Worsley [1969] 1 AC 191 referred to
Scott v Bagshaw [2002] FCA 276 referred to
Stone v ACE-IRM Insurance Broking Pty Ltd [2003] QCA 218 referred to
Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 followed
Vasram v AMP…
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- AGLC
- Bagshaw v Scott [2005] FCA 104
- Case
- [2005] FCA 104
- Decision Date
CaseChat Overview and Summary
In the matter of Bagshaw v Scott, the dispute involved multiple parties, including Mr Bagshaw, his former trustees in bankruptcy, and several respondents, including Mr Scott and others. The central issue was whether Mr Bagshaw, after his discharge from bankruptcy, had standing to bring certain proceedings against the respondents. Additionally, the court had to determine whether Mr Graham, Mr Bagshaw's solicitor, was personally liable for costs due to his conduct in initiating the proceedings.
The primary legal issues revolved around the vesting of Mr Bagshaw's causes of action in his trustee in bankruptcy upon his bankruptcy, and whether these causes of action remained vested despite his discharge from bankruptcy. Furthermore, the court had to assess whether Mr Graham acted reasonably and within the scope of his professional duties when he initiated the proceedings on behalf of Mr Bagshaw, and whether Mr Graham's failure to conduct proper independent inquiries warranted personal liability for costs.
The court examined Mr Graham's actions and found that while he had instructions and formed a view that there was a basis for the proceedings, he failed to conduct adequate independent inquiries to substantiate the serious allegations made against the respondents. Despite this, the court determined that Mr Graham did not act with deliberate unreasonableness or abuse of process, and thus, Mr Graham was not personally liable for costs in relation to Mr Scott and Ms Hermanson. However, the court found that Mr Graham's failure to conduct proper inquiries regarding the allegations against the third, fourth, and sixth respondents warranted personal liability for costs. Consequently, the court varied the costs orders to reflect these findings.
In summary, the court concluded that while Mr Bagshaw's causes of action were vested in his trustee in bankruptcy, certain proceedings could still be brought after his discharge. However, Mr Graham's conduct in initiating the proceedings was scrutinised, leading to varied costs orders against Mr Bagshaw and Mr Graham.
The primary legal issues revolved around the vesting of Mr Bagshaw's causes of action in his trustee in bankruptcy upon his bankruptcy, and whether these causes of action remained vested despite his discharge from bankruptcy. Furthermore, the court had to assess whether Mr Graham acted reasonably and within the scope of his professional duties when he initiated the proceedings on behalf of Mr Bagshaw, and whether Mr Graham's failure to conduct proper independent inquiries warranted personal liability for costs.
The court examined Mr Graham's actions and found that while he had instructions and formed a view that there was a basis for the proceedings, he failed to conduct adequate independent inquiries to substantiate the serious allegations made against the respondents. Despite this, the court determined that Mr Graham did not act with deliberate unreasonableness or abuse of process, and thus, Mr Graham was not personally liable for costs in relation to Mr Scott and Ms Hermanson. However, the court found that Mr Graham's failure to conduct proper inquiries regarding the allegations against the third, fourth, and sixth respondents warranted personal liability for costs. Consequently, the court varied the costs orders to reflect these findings.
In summary, the court concluded that while Mr Bagshaw's causes of action were vested in his trustee in bankruptcy, certain proceedings could still be brought after his discharge. However, Mr Graham's conduct in initiating the proceedings was scrutinised, leading to varied costs orders against Mr Bagshaw and Mr Graham.
Orders
Orders of the court
The costs orders of Beaumont J of 17 May and 20 August 2004 are varied as follows:
1. The applicant pay the first respondent’s costs of the proceedings, such costs to be assessed on an indemnity basis.
2. The applicant pay the fifth respondent’s costs of the proceedings, such costs to be assessed on an indemnity basis.
3. The applicant pay the third, fourth and sixth respondents’ costs of the proceedings, such costs to be assessed on a party and party basis.
4.
Background
Background to the litigation
More specific obligations are expressed in the succeeding Advocacy Rules.THE FACTUAL BACKGROUND Upon his bankruptcy, any extant causes of action of Mr Bagshaw vested in his trustee in bankruptcy pursuant to s 58(1) of the Act and so became property divisible among his creditors under s 116(1)(a) of the Act. It remained so vested despite Mr Bagshaw’s discharge from bankruptcy in 2002 (cf. Pegler v Dale [1975] 1 NSWLR 265; Daemar v Industrial Commission of New South Wales (No 2) (1990) 22 NSWLR 178; Stone v ACE-IRM Insurance Broking Pty Ltd (2003) QCA 218). The status of Mr Scott’s proof of debt in Mr Bagshaw’s bankruptcy has been summarised in an affidavit filed by Mr Scott’s solicitor:‘…Scott commenced separate proceedings in this Court (NG 7940 of 1997) against Bagshaw’s trustees in bankruptcy seeking orders that the Court review those trustees’ decision to reject a proof of debt lodged by Scott and further ordered that Scott be admitted to proof in Bagshaw’s bankrupt estate. These trustees also appealed from the judgment of Whitlam J delivered 20 March 2002. By agreement between Scott and Bagshaw’s trustees in bankruptcy made in or about May 2002, all matters in issue between these trustees and Scott were settled. Pursuant to this agreement, the trustees’ appeal (N279 of 2002) was discontinued, Scott was admitted to proof in Bagshaw’s bankrupt estate, Bagshaw’s interests in the properties the subject of the Proceedings were transferred to Scott by Bagshaw’s trustees in bankruptcy and Scott agreed not to claim for any distribution that may be made to unsecured creditors in Bagshaw’s bankrupt estate.’ The third to sixth respondents (and, by adoption, Mr Scott) contend that the proceedings against them were affected by the ‘insuperable problem of the bankruptcy’, as it was referred to by counsel. This is because, other than the claim against Mr Perry, all causes of action accrued prior to Mr Bagshaw becoming a bankrupt in 1993. They were vested in Mr Bagshaw’s trustee in bankruptcy by reason of s 58(1) of the Act, and absent any assignment from the trustee, Mr Bagshaw had no standing to commence or prosecute the proceedings. The proceedings were, accordingly, liable to be struck out as Mr Bagshaw had no standing to commence or prosecute them. An earlier incarnation of these proceedings in this Court was dismissed in an ex tempore judgment on these grounds by Lindgren J. It was the identification of this ‘insuperable problem’ that, presumably, was a factor striking out by consent of the statement of claim as against the moving respondents.The evidence of Mr Graham There was extensive examination and cross-examination of Mr Graham at the hearing of the notice of motion. Evidence given by Mr Graham is relevantly, in summary:(a)No material change was made to the pleading from the filing of the original statement of claim until the proceedings were respectively dismissed and struck out as against Mr Scott and the third to sixth respondents.(b)Mr Graham appreciated that part of his duties as a solicitor was to form an independent view as to whether there was a proper basis upon which the pleadings should be filed.(c)Mr Graham contended that he did form an independent view that there was a proper basis to file the pleading prior to it being filed on 24 December 2003. Mr Graham’s view was that the importance of forming an independent view was heightened because at that stage he had not delivered a full brief to counsel.(d)Mr Graham believed that it was important, in forming the view as to whether or not a serious allegation like forgery could be maintained, that an independent hand writing expert be retained to look at the material he had in his possession. He believed that such expert evidence would be available prior to a hearing.(e)At the time Mr Graham issued the proceedings, he had the following information:(i)Instructions indicating that a signature (purportedly of Mrs Bagshaw) on the South Australia mortgage was fraudulently made. Mr Graham states that he was shown a true signature of Mrs Bagshaw, which, by visual comparison, did not match that on the mortgage.(ii)Copies of accounting records relating to Mr Scott’s clearing account.(iii)Copies of correspondence from Mr Livingstone regarding Mr Bagshaw in the 1980s. In one letter Mr Livingstone writes to Westpac ‘I will apply extra measures to my secretary as her husband is employed by Westpac. I will also contact Scott and Slattery to put further pressure on Regional Management which will assist you to close Bagshaw down’.(iv)Material indicating that Mr Scott may have perjured himself in an affidavit sworn in related proceedings in the Supreme Court of New South Wales (see McMahon at [26]).(f)On the basis of material before him, Mr Graham formed the view that there had been no mortgages where money was payable to Mr Scott or Mr Livingstone.(g)With respect to the allegations against Ms Hermanson, he visually compared the signature of Mrs Bagshaw with her purported signature on the South Australia mortgage.(h)Mr Graham recognised that allegations of fraud were being made against the moving respondents. With ‘hindsight’ he believes that he had a responsibility to make the inquiries, independently of his client, but he did not make independent inquiries.(i)In ‘hindsight’ he agreed that the purpose of making independent inquiries was to search for, among other things, documents on the public record which may give an idea as to whether or not very serious allegations should be made against individuals; he agreed that in ‘hindsight’ he should ‘possibly’ have made inquiries of the public record.(j)Notwithstanding that he knew that a judgment had been obtained in the Supreme Court of New South Wales by which Westpac obtained possession of one of the properties the subject of these proceedings, he did not take steps to seek out a copy of the judgment of the Supreme Court of New South Wales.(k)He knew that the cause of action against Mr and Mrs Thomas and Ms Hermanson arose prior to 1993 and that Mr Bagshaw became bankrupt in October 1993 but did not take any steps to ascertain whether, upon discharge, Mr Bagshaw was entitled to bring any action.(l)Mr Graham did not turn his mind at all to the question whether Mr Bagshaw was able, as a discharged bankrupt, to maintain the proceedings.(m)Mr Graham knew that the assertions being made by Mr Bagshaw were assertions which would, if true, give rise to a cause of action against Westpac. He gave advice to Mr Bagshaw that Westpac would be a proper party, but Mr Bagshaw gave instructions not to sue Westpac. No rationale was given by Mr Bagshaw for this decision and Mr Graham agreed that, at the time, the instructions sounded ‘a bit odd’ and it ‘concerned’ him. However, in accordance with those instructions he did not join Westpac as a party to the proceedings but did join the Westpac employees, Mr Thomas, Ms Hermanson and Mr Perry.(n)Even though he knew that there were contested proceedings involving Mr Bagshaw and Westpac, and that there was possibly a consideration by a superior court of record as to issues between Mr Bagshaw and Westpac, Mr Graham did not investigate any consideration by those other Courts prior to signing the 15B certificate.(o)Mr Graham conceded that there were other independent inquiries that he could have made in relation to the allegations made in the ASC.(p)Mr Graham drafted and certified the ASC based upon instructions given to him by Mr Bagshaw.(q)Following the advice of senior counsel, Mr Graham reached the view on the morning of the hearing of the third to sixth respondents’ application for summary disposal that there was an insufficient factual basis available to support the pleading.
Evidence
Evidence Before The Court
It was the identification of this ‘insuperable problem’ that, presumably, was a factor striking out by consent of the statement of claim as against the moving respondents.The evidence of Mr Graham There was extensive examination and cross-examination of Mr Graham at the hearing of the notice of motion. Evidence given by Mr Graham is relevantly, in summary:(a)No material change was made to the pleading from the filing of the original statement of claim until the proceedings were respectively dismissed and struck out as against Mr Scott and the third to sixth respondents.(b)Mr Graham appreciated that part of his duties as a solicitor was to form an independent view as to whether there was a proper basis upon which the pleadings should be filed.(c)Mr Graham contended that he did form an independent view that there was a proper basis to file the pleading prior to it being filed on 24 December 2003. Mr Graham’s view was that the importance of forming an independent view was heightened because at that stage he had not delivered a full brief to counsel.(d)Mr Graham believed that it was important, in forming the view as to whether or not a serious allegation like forgery could be maintained, that an independent hand writing expert be retained to look at the material he had in his possession. He believed that such expert evidence would be available prior to a hearing.(e)At the time Mr Graham issued the proceedings, he had the following information:(i)Instructions indicating that a signature (purportedly of Mrs Bagshaw) on the South Australia mortgage was fraudulently made. Mr Graham states that he was shown a true signature of Mrs Bagshaw, which, by visual comparison, did not match that on the mortgage.(ii)Copies of accounting records relating to Mr Scott’s clearing account.(iii)Copies of correspondence from Mr Livingstone regarding Mr Bagshaw in the 1980s. In one letter Mr Livingstone writes to Westpac ‘I will apply extra measures to my secretary as her husband is employed by Westpac. I will also contact Scott and Slattery to put further pressure on Regional Management which will assist you to close Bagshaw down’.(iv)Material indicating that Mr Scott may have perjured himself in an affidavit sworn in related proceedings in the Supreme Court of New South Wales (see McMahon at [26]).(f)On the basis of material before him, Mr Graham formed the view that there had been no mortgages where money was payable to Mr Scott or Mr Livingstone.(g)With respect to the allegations against Ms Hermanson, he visually compared the signature of Mrs Bagshaw with her purported signature on the South Australia mortgage.(h)Mr Graham recognised that allegations of fraud were being made against the moving respondents. With ‘hindsight’ he believes that he had a responsibility to make the inquiries, independently of his client, but he did not make independent inquiries.(i)In ‘hindsight’ he agreed that the purpose of making independent inquiries was to search for, among other things, documents on the public record which may give an idea as to whether or not very serious allegations should be made against individuals; he agreed that in ‘hindsight’ he should ‘possibly’ have made inquiries of the public record.(j)Notwithstanding that he knew that a judgment had been obtained in the Supreme Court of New South Wales by which Westpac obtained possession of one of the properties the subject of these proceedings, he did not take steps to seek out a copy of the judgment of the Supreme Court of New South Wales.(k)He knew that the cause of action against Mr and Mrs Thomas and Ms Hermanson arose prior to 1993 and that Mr Bagshaw became bankrupt in October 1993 but did not take any steps to ascertain whether, upon discharge, Mr Bagshaw was entitled to bring any action.(l)Mr Graham did not turn his mind at all to the question whether Mr Bagshaw was able, as a discharged bankrupt, to maintain the proceedings.(m)Mr Graham knew that the assertions being made by Mr Bagshaw were assertions which would, if true, give rise to a cause of action against Westpac. He gave advice to Mr Bagshaw that Westpac would be a proper party, but Mr Bagshaw gave instructions not to sue Westpac. No rationale was given by Mr Bagshaw for this decision and Mr Graham agreed that, at the time, the instructions sounded ‘a bit odd’ and it ‘concerned’ him. However, in accordance with those instructions he did not join Westpac as a party to the proceedings but did join the Westpac employees, Mr Thomas, Ms Hermanson and Mr Perry.(n)Even though he knew that there were contested proceedings involving Mr Bagshaw and Westpac, and that there was possibly a consideration by a superior court of record as to issues between Mr Bagshaw and Westpac, Mr Graham did not investigate any consideration by those other Courts prior to signing the 15B certificate.(o)Mr Graham conceded that there were other independent inquiries that he could have made in relation to the allegations made in the ASC.(p)Mr Graham drafted and certified the ASC based upon instructions given to him by Mr Bagshaw.(q)Following the advice of senior counsel, Mr Graham reached the view on the morning of the hearing of the third to sixth respondents’ application for summary disposal that there was an insufficient factual basis available to support the pleading.
Decision
Reasons for decision
BENNETT J
Although Mr Graham states that, in ‘general terms’, he advised Mr Bagshaw of the ‘seriousness of the allegations’ and the possibility of an adverse costs order, it is not suggested by Mr Graham that he gave advice to Mr Bagshaw as to any perceived weakness in his case. It may have been different if he had done so and Mr Bagshaw had rejected that advice (Ridehalgh v Horsefield [1994] Ch 205).conclusions on liability of the solicitor for costsMr Scott Mr Graham did have instructions from Mr Bagshaw indicating that Mr Scott may have perjured himself in earlier proceedings and formed a view as to an available cause of action. He did not make proper enquiries to obtain other material. He did, apparently, believe that such material would be obtained in the future, prior to a hearing. There was a plethora of material from earlier litigation. Mr Graham did not consider the legal position but assumed that, as Mr Bagshaw had been discharged from bankruptcy, the cause of action against Mr Scott could be brought in Mr Bagshaw’s name. Mr Graham made a judgment, albeit a flawed judgment, about the evidence to support the allegations and about the legal position. The allegations concerned property and a proof of debt in circumstances where the instructions from Mr Bagshaw were that no money was owing and the property had been wrongfully transferred. Mr Graham formed the view, based on instructions, that no moneys had been payable to Mr Scott. I am not satisfied that Mr Graham deliberately or consciously decided to commence proceedings against Mr Scott without any recognition of the absence of a prospect of success. I am not satisfied that Mr Graham’s conduct was so unreasonable that it attracts an order that he pay costs personally. As the Full Court observed in Levick at [44], there must be something more than acting on behalf of a client with little or no prospect of success. There must be something akin to abuse of process such as using the proceeding for an ulterior purpose or without any, or any proper, consideration of the prospects of success.Ms Hermanson Mr Graham was instructed that Mrs Bagshaw had not signed the South Australia mortgage. He was given a reason why she could not have signed it. He visually compared the signature on the mortgage with that of Mrs Bagshaw and formed the view that they did not match. In those circumstances, despite the fact that the pleading was not well drawn, Mr Graham is not, in my view, liable personally to pay the costs of Ms Hermanson.The third, fourth and sixth respondents On no basis can it be said that the instructions that Mr Graham received were sufficient to found the allegations against Mr and Mrs Thomas and Mr Perry. The allegations were serious and included fraud. Mr Graham had a responsibility to make his own inquiries independently of his client and he simply did not make them. There was not a skerrick of evidence sufficient to base any cause of action against Mr and Mrs Thomas as pleaded or the orders sought against them.
Ratio Decidendi
Legal Principle Established
Established by: BENNETT J
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