Bird v Ford
[2010] FMCA 656
•30 August 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BIRD & ANOR v FORD & ANOR | [2010] FMCA 656 |
| BANKRUPTCY – Bankruptcy Notice – whether applicants have established a cross claim equal to or exceeding the amount of the debt – consideration of negligence action commenced against the respondents – whether court should extend time for compliance until determination of Supreme Court proceedings. |
| Supreme Court Act 1970 (NSW), s.69 Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(7) Federal Magistrates Court (Bankruptcy) Rules 2006, r.3.02 |
| Re Glew; Glew v Harrowell of Hunt & Hunt Lawyers (2003) 198 ALR 331 Re Sterling (R & S) also known as Tarisznyas; Ex parte Esanda Limited (1979 – 80) 30 ALR 77 CPB by his tutor Vrede Jane Bird v Campbelltown Anglican School Council [2007] NSWSC 1419 |
| First Applicant: | VREDE JANE BIRD |
| Second Applicant: | PHILLIP GORDON BIRD |
| First Respondent: | DAVID CLIFTON FORD TRADING AS EMIL FORD & CO |
| Second Respondent: | GARRY CEDRIC PRITCHARD TRADING AS EMIL FORD & CO |
| File Number: | SYG 1400 of 2010 |
| Judgment of: | Raphael FM |
| Hearing date: | 25 August 2010 |
| Date of Last Submission: | 25 August 2010 |
| Delivered at: | Sydney |
| Delivered on: | 30 August 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr D J Durston |
| Solicitors for the Applicant: | John Stonham & Co |
| Counsel for the Respondent: | Mr M Cleary |
| Solicitors for the Respondent: | Emil Ford & Co |
ORDERS
Bankruptcy Notice NN2082/10 be set aside.
Respondents to pay the Applicants’ costs to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1400 of 2010
| VREDE JANE BIRD |
First Applicant
| PHILLIP GORDON BIRD |
Second Applicant
And
| DAVID CLIFTON FORD TRADING AS EMIL FORD & CO |
First Respondent
| GARRY CEDRIC PRITCHARD TRADING AS EMIL FORD & CO |
Second Respondent
REASONS FOR JUDGMENT
On 26 March 2007 a young man was expelled from an Anglican school in the Sydney region. His parents were, understandably, upset and concerned. They sought advice and retained solicitors to act on their behalf to reverse the decision and to resolve issues between their son and the school. Attempts to settle the matter without recourse to the courts failed and the solicitors were instructed to commence proceedings in the Supreme Court of New South Wales.[1] The plaintiff sought, through a Further Amended Statement of Claim:
“(i)Judicial review of the decision and relief consequent upon an alleged breach of contract;
(ii)A declaration that the decision is invalid;
(iii)An order in the nature of certiorari setting the decision aside; and
(iv)A mandatory injunction requiring the College to readmit the plaintiff as a student.[2]
[1] CPB by his tutor Vrede Jane Bird v Campbelltown Anglican School Council [2007] NSWSC 1419 per (6)
[2] Einstein J Judgment [3]
The defendant in its defence argued:
(i)Relief in the nature of certiorari is not available to the plaintiff;
(ii)[The college] had no obligation to accord the plaintiff natural justice in making the decision either at law or pursuant to the contract between it and his parents;
(iii) The decision is not in any event affected by bias of any sort;
(iv) The defendant did not breach the contract;
(v)To the extent that the defendant had an obligation to afford the plaintiff natural justice it did so to the standard required in the circumstances. [3]
[3] Einstein J Judgment [5]
Einstein J dealt first with the question of whether certiorari was available. He found that the headmaster’s decision was not amenable to judicial review by way of the prerogative writs or their statutory replacement such as s.69 of the Supreme Court Act 1970 (NSW)[4]. He also found that as the headmaster does not act in a quasi judicial capacity and the functions he discharges are not public or governmental in nature certiorari is not available under s.69 and would not have been available under the common law.[5] His Honour found that the ground of apprehended bias is not available to the plaintiff in order to challenge the decision of the headmaster.[6]
[4] Einstein J Judgment [11(iii)]
[5] Einstein J Judgment [11(iv)]
[6] Einstein J Judgment [11(xii)]
At [62] of his Honour’s reasons he said:
“As I have reached the conclusions:
iThat the rules of natural justice were neither imported into the subject contract by any route at general law, nor by any express or implied term; and
iithat no particular procedural requirements required by the contract were not complied with;
the plaintiff’s case must fail in limine.”
His Honour then went on to consider certain facts before concluding at [67]:
“This evidence is accepted as reliable. It demonstrates that no particular procedural requirements required by the contract were not complied with.”
At [69] his Honour said:
“In relation to the present set of proceedings, this principle [as discussed at 68] furnishes a further reason why the approach taken by the plaintiffs to the question of law is misconceived. It could not be said that Mr Webb’s decision was so aberrant that it could not be classed as rational.”
And finally his Honour opined at [71]:
“There was absolutely no substance in the submissions addressed in support of the proposition that the plaintiffs have established either actual or ostensible bias.”
Having been unsuccessful in their claim the parents were obliged to pay the costs of the school which were eventually settled in the sum of $90,000.00. They were also required to pay their own costs. These were assessed by their solicitor pursuant to the Legal Profession Act 2004 and on 4 May 2010 a judgment was registered in the Local Court in the sum of $58,940.22. On 20 May 2010 the solicitors caused the Official Receiver to issue a bankruptcy notice against the parents claiming a total sum of $59,390.75. The parents now apply to this court to set aside the bankruptcy notice pursuant to s.40(1)(g) and 41(7) of the Bankruptcy Act 1966, (Cth) (the “Act”) arguing that they have a cross claim, cross demand or set off which is equal to or exceeds the amount claimed under the bankruptcy notice and which they were unable to set up in the action or proceedings in which the judgment or order was obtained. It is now recognised that a claim against a solicitor for negligence or breach of contract in the performance of his duty is not a claim which can be set up in the procedures which are found in the Legal Profession Act 2004, the Civil Procedure Act 2005 (NSW), the Uniform Civil Procedure Rules 2005 (NSW) and the Civil Procedure Regulations 2005 (NSW) for the assessment of costs and registration of the resulting assessment as a judgment and this was accepted by both parties to these proceedings.
The debtor applicants submit that the amount of the cross claim in the sum of $90,000.00 is clearly in excess of the amount claimed in the bankruptcy notice and that they would also be seeking the repayment (if payment was made) or other negation of the bill rendered to them by their solicitors. They submit that for these reasons they will come within the purview of s.40(1)(g) and s.41(7) of the Act provided they can satisfy the court that they have a cross claim.
The respondents submit that the applicants’ Application and affidavit in support fails to comply with the requirements of Regulation 3.02 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (the “Rules”) in that the applicants failed to comply with Regulation 3.02(2)(a) and/or (b). The regulation provides:
“(1) An application to set aside a bankruptcy notice must be accompanied by:
(a) a copy of the bankruptcy notice; and
(b) an affidavit stating:
(i) the grounds in support of the application; and
(ii) the date when the bankruptcy notice was served on the applicant; and
(c) a copy of any application to set aside the judgment or order in relation to which the bankruptcy notice was issued and any material in support of that application.
(2) If the application is based on the ground that the debtor has a counter‑claim, set‑off or cross demand mentioned in paragraph 40 (1) (g) of the Bankruptcy Act, the affidavit must also state:
(a) the full details of the counter‑claim, set‑off or cross demand; and
(b) the amount of the counter‑claim, set‑off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c) why the counter‑claim, set‑off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
(3) The application and supporting documents must be served on the respondent creditor within 3 days after the application is filed.”
The applicants filed two affidavits in the matter, the first on 25 June 2010 and the second on 17 August 2010. It first set out the applicants’ allegations concerning the advice received from the solicitors and the nature of the cross claim which they had and made reference to the fact that they intended to commence proceedings in the Supreme Court for professional negligence against the solicitors. The second affidavit annexed a statement of claim which had been issued, but possibly not served, upon the solicitors on 13 July 2010. The applicants had been ordered by this court to file any further affidavits upon which they intended to rely in this application on or before 9 August 2010 and they were thus in breach of that order. It is not clear when the statement of claim first came to the notice of the respondents but they do not appear to have been taken by surprise and their counsel, Mr Cleary, was quite able to make all the necessary arguments against the application with his usual elegance and erudition. I think that between the two affidavits the applicants have effectively complied with the provisions of r.3.02(2)(a) and (b) and would not propose to dismiss the matter on the basis they had not.
The real point in issue between the parties is whether or not the applicants’ claim against the solicitors is one which can be classed as a cross claim or cross demand as that expression was considered by Lindgren J in Re Glew; Glew v Harrowell of Hunt & Hunt Lawyers (2003) 198 ALR 331. Lindgren J in his usual concise and effective manner collected the relevant authorities before explaining the necessary requirements between [9] and [12]. Although his Honour’s reasoning will be familiar to those who practice in this area of the law it bears repetition for the purposes of understanding the findings I am about to make:
“[9]There are authorities suggesting that Glew and Tresidder must satisfy me of the following interrelated and sometimes overlapping matters:
• that they have a ``prima facie case”, even if they do not adduce evidence which would be admissible on a final hearing making out that case: Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 (Ebert) at 350; Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at 438–9 ; 44 FLR 135 at 141 (Brink); Gomez v State Bank of New South Wales Ltd [2002] FCAFC 101; BC200201643 at [17], [18];
• that they have ``a fair chance of success” or are ``fairly entitled to litigate” the claim: Brink at ALR 438–9; FLR 141; Gould v Day [1999] FCA 1650; BC9907767 at [27], [28]; Re Capsanis; Capsanis v Owners — Strata Plan 11727 [2000] FCA 1262; BC200005275 at [11]; and
• that they are advancing a ``genuine” or ``bona fide” claim: Re Capsanis; Capsanis v Owners — Strata Plan 11727 [2000] FCA 1262; BC200005275 at [11].
It may be that the first and second formulations are intended to cover the same ground. In Brink Lockhart J treated (at ALR 438–9; FLR 141) the reference to a ``prima facie case” in Ebert as a reference to ``a fair chance of success”.
[10] In Brink Lockhart J said (at ALR 438–9; FLR 141) that the court is not required to ``undertake a preliminary trial of the counter-claim, set-off or cross demand”. But, clearly, the application of the criteria above requires the court to make some kind of preliminary assessment, though obviously not to determine the counter-claim, set-off or cross-demand finally. And in Guss v Johnstone (2000) 171 ALR 598, Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ stated (at 606):
[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.
[11] Plainly, in order to ``satisfy” the court for the purposes of s 40(1)(g), the debtor is not required to prove, as on a final hearing, the asserted entitlement to recover from the creditor. Accordingly, evidence tendered on an application to set aside is to be tested for admissibility, not as if the proceeding were one in which the debtor's claim was being finally determined, but by reference to the question whether the court should be satisfied that the debtor has a claim deserving to be finally determined.
[12] Perhaps little more can usefully be said than that a debtor must satisfy the court that there is sufficient substance to the counter-claim, set-off or cross-demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.”
In their statement of claim against the solicitors the applicants allege a retainer in the following terms:
“(a)To provide advice in relation to the expulsion of their son from the school.
(b)To advise on the correct and appropriate application to be made to an appropriate Court.
(c)To formulate the appropriate relief to be sought in the Court.
(d)To instigate any proposed proceedings in an appropriate process which sought the appropriate relief.
(e)To ensure that any adverse record in relation to their sons alleged conduct at the school was expunged from the school records.”
The respondents argue that this description of the retainer is not supported by any evidence and is not found in any documentation or affidavit tendered, exhibited or annexed by the applicants. As such this becomes one of the additional things that the applicants must prove in order to be successful in the Supreme Court proceedings and the non-existence of evidence supporting it must be taken into account in my consideration of the alleged cross claim. There is in evidence an affidavit from Mr D C Ford filed on 9 July 2010. This contains a fee agreement. Interestingly, it is a preliminary fee agreement because it specifically excludes commencing court proceedings but it does describe the work that is it to be done as:
“To review the material provided by you, to advise you of the potential for having the expulsion decision set aside and if applicable of the means for doing this and if you require taking steps to have the decision set aside.”
Of course, much more work than that was done. Mr Ford exhibits some emails that he sent to Mr and Mrs Bird from which one can see that a decision to consider court action had clearly been taken by 17 August 2007 (Exhibit D) and which moved along fairly speedily thereafter. In an email of 24 August Mr Ford refers to a new costs agreement relating to those court proceedings but the document is not attached. The email makes reference to a conference with counsel and warns the applicants about the dangers of taking proceedings from a financial point of view. That email was responded to by Mrs Bird who advised that she was unable to make the conference with counsel. She makes reference to the need to obtain a loan to pay the likely costs and says:
“As to what “success” is. I don’t except [sic] to win given the type and character of the woman we are facing.”
If one looks at the particulars of the retainer agreement pleaded in the statement of claim I am satisfied that particular (a) was clearly part of the solicitor’s agreement. In regard to particular (b) I am prepared to infer from the information contained in Mr Ford’s affidavit that he was retained to commence proceedings and would have been required under that retainer to advise on the correct and appropriate application to be made to an appropriate court. Clearly he would not have been retained to advise on an incorrect or inappropriate application. I am also satisfied that it would have been part of his retainer to commence proceedings that those proceedings formulated the appropriate relief to be sought.
When the matter was first argued before me at an earlier hearing and to a limited extent at the hearing on 25 August, it was suggested by the applicants that the gravamen of the judgment of Einstein J was that the proceedings were totally misconceived in the sense that they never had any chance of success because the type of relief which was being sought was clearly and obviously not available. The applicants sought to take strength from the use by his Honour in his judgment of the phrase:
“For these reasons the first plaintiff’s claim for certiorari fails in limine.[7]
And also the use by his Honour of the phrase:
“This principle furnishes a further reason why the approach taken by the plaintiffs to the question of law is misconceived.”[8]
[7] Judgment of Einstein J [20]; see also [62]
[8] Judgment of Einstein J [69]
I would be reluctant to accept this reading of his Honour’s decision. I do not believe that his Honour is saying that the case brought was one totally unsupported by the law. This phraseology would be appropriate if, for example, the plaintiff had brought a claim based upon a piece of legislation that had been repealed prior to the events upon which the claim was based occurring. It is not the same as bringing an action where the current law may not favour the plaintiff but where the decisions that appear to be against him may well be arguable, even if only appeal. That is how the law develops. I have read his Honour’s judgment fully and to my mind when he used the phrase “fails in limine” he meant no more than the fact that having considered and decided on the availability of certiorari in the instant case against the plaintiffs he took the view that the case could not proceed any further. In limine is not defined in Words and Phrases Legally Defined in 4th Edition Lexus Nexus but in the Macquarie Dictionary it is stated to mean “at the outset”. I would also take the view, for the purposes of these proceedings only, that when his Honour made reference to the approach taken by the plaintiffs to the question of law being “misconceived” he meant no more than that their arguments were not sustainable. I do not think that the nature of his Honour’s judgment is such that I could say that it provides a clear indication that the solicitors failed in their duty to the applicants. I should point out that this is not, in any event, the test, it is just that it was a point put by the applicants with which I felt bound to deal.
At the hearing on 25 August the applicants argued that the retainer terms found at paragraph 4(b) of the statement of claim included by inference advice upon the risks of any proceedings. Counsel argued that to that extent the retainer was breached.
In paragraph 12 of the statement of claim the particulars of the breach of retainer and negligence are given. The relevant ones, for the purposes of these proceedings, are:
“(a) Advising the Plaintiffs that an application should be made in the Supreme Court of New South Wales for relief which that Court could not grant.
(b)Commencing proceedings in the Supreme Court of New South Wales (proceedings number 5105 of 2007) which proceedings misconceived and had no prospects of success.”
These breaches reflect the arguments originally put that I have difficulty in accepting and they do not reflect the later argument of the inferred term about a warning.
In taking these matters into consideration for the purposes of a decision based upon the views expressed by Lindgren J in Re Glew I have to consider whether the applicants can satisfy me that there is sufficient substance to their counter claim to make it one which should be permitted to be heard. I am sensible that my understanding of Justice Einstein’s judgment, whilst it may win approval from the creditors, may not be that of a Supreme Court Justice hearing the professional negligence claim. There is clearly an argument to be made about it. I would probably take the same view that Lindgren J took in Glew at [64]:
“With some doubt, I think that Glew and Tresidder have surmounted the relatively low threshold referred to at [9] above. In particular, although their claim may well fail, I think it is one which they are ``fairly entitled to litigate.”
I would actually take a stronger view about the applicant’s prospects in respect of a claim that they had not been adequately warned of the risks of this particular piece of litigation had that been specifically pleaded in the statement of claim with which I was dealing and not in what I believe is foreshadowed to be an amended statement of claim. In a file note attached as Exhibit I to Mr Ford’s affidavit and dated 12 October 2007 he notes:
“I referred her to the New Zealand case and said that this was encouraging. However, I also said that there were cases in Australia which indicated that the position wasn’t clear as to whether the court would intervene where failure to afford natural justice was alleged in relation to private schools. However, I explained that each of those cases involved applications for temporary injunctions and therefore weren’t considered to be good law. I said there were other cases involving private institutions such as the Netball Association and various churches where the courts have intervened. I explained how a precedent worked and how overseas cases have persuasive authority rather than binding authority.”
It would seem to me, having read Einstein J’s decision, that perhaps a bit more than a general discussion was needed before embarking on what has turned out to be expensive and unsuccessful litigation. But, as I have noted, that is not an allegation contained in the statement of claim and should not form part of my decision.
Because, like Lindgren J, I have reluctantly come to the decision that the applicants should be entitled to litigate this claim and have it heard and determined in the usual way rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy, I would set aside the bankruptcy notice. The respondents have suggested that the better course of action would be to extend compliance until after the hearing in the Supreme Court. They suggest that Re Sterling (R & S) also known as Tarisznyas; Ex parte Esanda Limited (1979 – 80) 30 ALR 77 is authority for this method of proceeding. I do not think it is. In that case it was the hearing of the application to set aside the bankruptcy notice that was adjourned; see order 3 of his Honour’s orders. In the instant case the application has been heard. Having determined it the proper course to take is to set aside the notice and order that the respondent’s pay the applicants’ costs to be taxed if not agreed in accordance with the Rules.
I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Raphael FM
Date: 30 August 2010
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