Black v Mills (No 2)
[2015] FCCA 1973
•21 July 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BLACK v MILLS (No.2) | [2015] FCCA 1973 |
| Catchwords: PRACTICE AND PROCEDURE – Application under r.16.05(2)(a) of the Federal Circuit Court Rules 2001 (Cth) to set aside sequestration order made in the absence of the bankrupt – whether the bankrupt has given reasonable explanation for not appearing at hearing – whether bankrupt has reasonably arguable prospects of establishing she is solvent – whether bankrupt has reasonably arguable prospects of establishing there are substantial reasons for questioning whether behind the judgment on which the creditor’s petition is based there was in truth and reality a debt due to the creditor – orders set aside. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5(2), 52(2)(a) Federal Circuit Court Rules 2001 (Cth), r.16.05(2)(a) |
| Deputy Commissioner Of Taxation v Caporale [2013] FMCA 5 Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 Lawman v Queensland Building Services Authority [1999] FCA 1781 McVey, re Ex Parte Carswell & Company (unreported 22 May 1996) FCA MZYEZ v Minister for Immigration and Citizenship [2010] FCA 530 Re Eather; Ex parte Palada (unreported 30 May 1996) FCA Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 St George Bank Ltd v Helfenbaum [1999] FCA 1337 Stankiewicz v Plata [2000] FCA 1185 Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 |
| Applicant: | RICHARD BLACK |
| Respondent: | BERNADETTE MILLS |
| File Number: | SYG 3051 of 2014 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 14 July 2015 |
| Date of Last Submission: | 17 July 2015 |
| Delivered at: | Sydney |
| Delivered on: | 21 July 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr C K Stewart |
| Solicitors for the Applicant: | R D Black & Associates |
| Respondent appeared by telephone. |
ORDERS
Pursuant to r.16.05(2)(a) of the Federal Circuit Court Rules 2001 (Cth) orders 1 and 2 of the orders made on 14 April 2015 are set aside.
The respondent, Bernadette Mills, pay the costs of the applicant, Richard Black, incurred at the hearing of 14 April 2015 which have been thrown away by reason of order 1 of these orders.
The costs of the application in the case filed on 19 June 2015 be costs in the cause.
The matter stand over to a date to be fixed for directions.
A copy of these orders be given to the Official Receiver in Sydney within 2 days.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3051 of 2014
| RICHARD BLACK |
Applicant
And
| BERNADETTE MILLS |
Respondent
REASONS FOR JUDGMENT
Introduction
On 14 April 2015 his Honour Judge Nicholls made a sequestration order against the estate of Ms Bernadette Mills. His Honour made the order in the absence of Ms Mills. By an application in a case filed on 19 June 2015, Ms Mills, who is not legally represented, now seeks an order under r.16.05(2)(a) of the Federal Circuit Court Rules 2001 (Cth) (Rules) that the sequestration order be set aside.
Principles
The principles that govern the Court’s exercise of the power under r.16.05(2)(a) of the Rules were considered by Ryan J in MZYEZ v Minister for Immigration and Citizenship:[1]
In circumstances where . . . a proceeding has been dismissed in a party’s absence and reinstatement is sought, a discretion falls to be exercised by the court before which the application for reinstatement is returnable. That discretion requires the consideration of three factors, and whether, on balance, they tend for or against the reinstatement. Those factors are:
(a) whether there was a reasonable excuse for the party’s absence from the hearing in which the proceeding was struck out;
(b) the existence and nature of any prejudice which might flow to the other party from the reinstatement, and the extent, if any, to which that prejudice can be assuaged by an adjournment, an order for costs or other relief which the court is empowered to grant;
(c) whether the applicant has a reasonably arguable prospect of success on the substantive application.
[1] [2010] FCA 530 at [7]
Although this passage refers to the dismissal of an application following an applicant’s not appearing at a hearing, the same principles apply where an order is made against a respondent who does not appear at a hearing.
I will first consider Ms Mills’ explanation for her not having attended the hearing. That will require me to set out the procedural history of the matter.
Procedural history
The respondent to the application in a case, Mr Black, is a solicitor. On 8 November 2014 he filed with the Court a creditor’s petition. The act of bankruptcy on which that petition relied was Ms Mills’ failure to comply with a bankruptcy notice that was served on her on 9 October 2014. The bankruptcy notice demanded payment of $17,664.60. That represents the amount of a judgment for $12,904.45 entered on 15 November 2010 in favour of Mr Black in the Local Court at Sutherland, together with interest. Of that amount, $12,826.45 represents the legal fees that had been assessed as owing by Ms Mills to “RICHARD BLACK T/AS FORSHAWS NEILL”.
Ms Mills was served with the creditor’s petition on 8 November 2014. She appeared before a Registrar of the Court on the first return date of the creditor’s petition on 9 December 2014. Ms Mills appeared by telephone because she resides in Western Australia. The petition was adjourned to 3 February 2015. On that day there was an appearance for Mr Black, but Ms Mills did not appear. The Registrar made the following orders:
1.The petition be referred to a Judge for hearing on a date to be advised.
2.The application be provisionally listed for directions only before a Registrar on 2pm on Tuesday, 17 February 2015 at Law Courts Building, Queens Square Sydney.
3.Solicitor for Applicant to send written notification to the Respondent (or their solicitor on record) of details of the time, date and place of the next Court date and the details of any orders made today and if seeking to proceed to provide an affidavit proving this notification before the next Court date.
The matter came before Judge Nicholls on 25 March 2015. Mr Black appeared, but there was no appearance by or on behalf of Ms Mills. His Honour adjourned the matter for hearing on 14 April 2015. His Honour did so because there was no evidence Mr Black had complied with order 3 of the Registrar’s orders of 3 February 2015, and his Honour was otherwise not satisfied Ms Mills had been given reasonable notice of the hearing.
On 27 March 2015 Mr Black sent to a letter to Ms Mills by email which stated the following:[2]
I advise that on 25 March 2015 His Honour Judge Nicholls of the Federal Circuit Court of Australia, Sydney Registry adjourned the above proceedings to 14 April 2015 at 2 pm when he will hand down Judgment.
The telephone number of the Registry is 9230 8567. The Court Registry address is – Level 17, Law Courts Building, Queens Square, Sydney NSW 2000
[2] Affidavit of R Black, 08.04.2015, annexure “A”
Ms Mills received the letter from Mr Black. She responded by sending an email to Mr Black on 31 March 2015 offering to pay $12,000 in full settlement of Mr Black’s claim.
Explanation for non-appearance
In support of her application to set aside the sequestration order, Ms Mills filed an affidavit she affirmed on 15 June 2015. Annexed to that affidavit is a document titled “Chronology”. During the hearing, counsel for Mr Black sensibly agreed that the matters asserted in the “Chronology” should be treated as having been sworn and thus treated as forming part of Ms Mills’ affidavit.
In the “Chronology” Ms Mills asserts that at the conclusion of the hearing before the Registrar on 9 December 2014 (when, as I have already said, Ms Mills appeared by telephone) “I made it very clear that I requested to be involved via telephone for all hearings related to this matter and my phone number was confirmed as I reside in WA”. Ms Mills also says that she was not informed of the hearing that took place on 3 February 2015.
Ms Mills accepts she received Mr Black’s letter of 25 March 2015. She says:
I was informed by Richard Black via email that there was a hearing on the 25th of March and the decision was to be handed down on the 14th of April, I was distraught that I was not part of the proceedings as per my understanding at the initial hearing.
Then the following hearing was held and for reasons unknown to me I was not called as per the understanding upon the first hearing . . .
There is not before the Court any transcript of the hearing before the Registrar on 9 December 2014; nor have I been able to find on the electronic file the Court maintains in the matter any record of a request that Ms Mills be contacted by telephone at any future hearing. There is, therefore, no evidence that contradicts Ms Mills’ evidence that at the hearing before the Registrar she made it clear she expected to be involved by telephone at all hearings in the matter.
Ms Mills says she received the orders made by Judge Nicholls on 14 April 2015. She says that “for reasons unknown to me I was not called as per the understanding upon the first hearing”. She emailed Mr Black but to “no avail”. Ms Mills says she was mediating with an insurer in relation to a costs order made in her favour in a previous proceeding, and Ms Mills had agreed to accept $180,000 in settlement of her claim for costs, but her lawyers informed Ms Mills that they could not act for her because she had been made bankrupt. Ms Mills then contacted the Court by telephone and, eventually, filed the application in the case that came before me on 14 July 2015.
Counsel for Mr Black submits that Ms Mills has not demonstrated a reasonable excuse for her not attending the hearing before Judge Nicholls on 14 April 2015. He submits Ms Mills could have called the Court herself when the Court did not call her at 2 pm. In any event, counsel submitted that Ms Mills did appear, because she was given notice of the date and time of the hearing.
Ms Mills was not cross-examined; and I have no reason not to accept Ms Mills’ evidence that she expected to be contacted by the Court on 14 April 2015. I nevertheless do not find her explanation reasonable. After she received Mr Black’s letter of 25 March 2015 Ms Mills was aware that, for whatever reason, the Court did not contact her on 25 March 2015. Ms Mills, therefore, had no reasonable grounds for expecting that, without any further action from her, the Court would contact her at 2 pm on 14 April 2015. Ms Mills ought to have taken steps after she received Mr Black’s letter of 25 March 2015 to ensure that she would appear by telephone at the hearing on 14 April 2015.
Even if the Court had contacted Ms Mills at 2 pm on 14 April 2015, and Ms Mills appeared by telephone, there is nothing to suggest Ms Mills would have been in a position on that day to defend the application for a sequestration order. There is certainly nothing to suggest Ms Mills would have been in a position to put before the Court all of the matters on which she now relies to set aside the sequestration order. It is likely Ms Mills would have had to apply for an adjournment. It is not possible for me to say whether Judge Nicholls would have granted an adjournment. If his Honour would have done so, however, it is likely it would have been on terms that Ms Mills pay the costs thrown away because of the adjournment.
That I have found Ms Mills has given no reasonable explanation for her not appearing before Judge Nicholls on 14 April 2015 does not mean I must exercise my discretion against setting aside the sequestration order. I must consider whether Ms Mills would have reasonable prospects of defeating an application for a sequestration order if I were to set aside the sequestration order made on 14 April 2015.
Prospects of defeating an application for sequestration order
Ms Mills identifies two grounds for resisting the making of a sequestration order. The first is that she is solvent.
Reasonable prospects of proving solvency?
Paragraph 52(2)(a) of the Bankruptcy Act 1966 (Cth) (Act) provides that the Court may dismiss a creditor’s petition if it “is satisfied by the debtor” that the debtor “is able to pay his or her debts”. Paragraph 52(2)(a) of the Act does not use the word “solvent”;[3] nor does it use the words “as and when they become due and payable”.[4] Nevertheless, s.52(2)(a) has been construed as requiring the Court to be satisfied the debtor is “solvent” in the sense of not being “insolvent” as that term was explained in Sandell v Porter:[5]
Insolvency is expressed in s.95 [of the Bankruptcy Act 1924] as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they may fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak to the likelihood of any of the debtor’s assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due.
[3] Being a term which is defined in s.5(2) of the Act.
[4] Which is part of the definition of “solvent” in s.5(2) of the Act.
[5] [1966] HCA 28; (1966) 115 CLR 666 at 671. The cases which so construed s.52(2)(a) were identified by Cowdroy J in Rigg v Baker [2006] FCAFC 179 at [104]. His Honour referred to Lawman v Queensland Building Services Authority [1999] FCA 1781 (Full Court at [21]); Stankiewicz v Plata [2000] FCA 1185 (Full Court at [30]); St George Bank Ltd v Helfenbaum [1999] FCA 1337 at [22]; Re Eather; Ex parte Palada (unreported 30 May 1996 FCA, Cooper J); McVey, re Ex Parte Carswell & Company (unreported 22 May 1996 FCA, Cooper J) and International Alpaca Management Pty Ltd v Ensor [1999] FCA 72.
Some of the principles for determining whether, on this approach, a debtor is able to pay his or her debts were identified by Driver FM (as his Honour then was) in Deputy Commissioner Of Taxation v Caporale as follows (omitting references):[6]
The inquiry emphasises that it involves a consideration of the ability to command cash resources through his or her own assets. The Court must also look at the level of the debtor’s recurrent expenses and earnings in addition to whether there are cash resources from assets.
A respondent debtor bears the onus of proving to the Court that their assets are sufficient to pay their liabilities as and when they become due and payable. It is not sufficient to simply show an excess of assets over liabilities. The respondent debtor must also establish that their assets are available to be realised and that they are capable of ready realisation.
[6] [2013] FMCA 5 at [23] and [24]
The material that Ms Mills has filed in support of her application does not establish she is in a position to pay her debts. Rather, there is evidence that Ms Mills may not be able to pay her debts. In an email to Mr Black of 31 March 2015, Ms Mills stated:
I have no equity, we are on centrelink and had our home valued last month.
If you choose to throw good money after bad then that is something you need to be accountable for.
On the other hand, there is material that suggests Ms Mills might be able to establish she is in a position to pay her debts. First, in the same email, Ms Mills offered to pay Mr Black $12,000. That amount is less than the amount demanded in the bankruptcy notice; but the reason Ms Mills did not offer the full amount is that she disputes paying interest on the amount. Second, in the “Chronology”, Ms Mills refers to her having participated in a mediation with an insurer in which she agreed to accept $180,000 in settlement of a claim for costs, but that she is not in a position to access any part of that amount because of the sequestration order that was made against her.
In my opinion, particularly given the last matter, Ms Mills would have reasonably arguable prospects of establishing she is able to pay her debts if I were to set aside the sequestration order.
Reasonable prospects of proving substantial reason to doubt debt owing?
The second ground on which Ms Mills says she would have opposed the making of the sequestration order is that she contests the judgment debt on which the creditor’s petition relies.
A bankruptcy court has power to go behind a judgment. The circumstances where it will do so were described by Barwick CJ in Wren v Mahony:[7]
The judgment is never conclusive in bankruptcy. . . . But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment. . . . The Court’s discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.
[7] [1972] HCA 5; (1972) 126 CLR 212 at pages 224-225
Ms Mills’ stated grounds
The grounds on which Ms Mills says she contests the judgment debt is that she “was never issued with any documentation to inform me of any sale of Forshoreneil [sic] solicitors, further anything that states he is legally entitled to benefit from any contract between myself and Forshoreneil [sic] solicitors” and that Mr Black “has presented himself as various entities including various companies and as a sole trader with various Australian Business numbers . . . over a period of time inclusive of this matter subsequently I am unsure if I owe any entity any money at this stage”.[8] To make some sense of these grounds, it is necessary to set out the evidence that is before me. First, I consider Ms Mills’ evidence.
[8] Affidavit of B Mills, 15.06.2015, [2]
Evidence filed on behalf of Ms Mills
According to Ms Mills, in 2007 she retained Mr Malcolm Carr, a solicitor, to commence proceedings on her behalf against a developer and a builder for damage done to land Ms Mills acquired in 2001. Mr Carr then conducted a legal practice under the name of “Forshaws Neill Solicitors”. In 2009 Ms Mills received a telephone call from Mr Black before a hearing and asked her who the parties were in her matter, and what the matter was about. Ms Mills says she expressed disappointment and curiosity about who Mr Black was. Mr Black said he had purchased Mr Carr’s firm Forshaws Neill Solicitors, and he was representing Ms Mills.
Ms Mills says she then was in contact with the Law Society of New South Wales to seek alternative representation. She had no communication from Mr Black, and he never returned her calls over a period of a few weeks. Mr Black attended a hearing as Ms Mills’ solicitor without any instructions from her, or any “cost assessment in place”.[9] On the evening of a hearing, Ms Mills spoke with Mr Black by telephone who told Ms Mills that he was ceasing to act. On the following day, Ms Mills’ case was dismissed for non-appearance. Ms Mills then retained Mills Oakley to act on her behalf. Ms Mills paid Mills Oakley approximately $8,000 to have her matter reinstated.
[9] Affidavit of B Mills, 15.06.2015, annexure “B”
After her case was dismissed for non-appearance, Ms Mills received an invoice from Mr Black for approximately $20,000. Ms Mills says she disputed and contested the invoice “as I never had a contract with Richard Black or a cost agreement, I had spoken to him no more than three times and no progress was made on my matter”.[10] Ms Mills further says “there was no evidence of the sale of Forshoreneil [sic] that I had consistently asked him for”.[11] Ms Mills says Mills Oakley advised her to undergo a costs assessment, informing her that Ms Mills “should only have an outstanding amount to Forshoreneil [sic] of approximately $2,500.00 to which I agreed”.[12] The costs assessor, however, assessed costs “of approximately $12,000 of which I still dispute”.[13]
[10] Affidavit of B Mills, 15.06.2015, annexure “B”
[11] Affidavit of B Mills, 15.06.2015, annexure “B”
[12] Affidavit of B Mills, 15.06.2015, annexure “B”
[13] Affidavit of B Mills, 15.06.2015, annexure “B”
On 14 June 2015 Ms Mills sent an email to Mr Carr asking for certain information about the sale by Mr Carr to Mr Black of Forshaws Neill Solicitors.[14] Mr Carr responded by email sent on 15 June 2015.[15] Mr Carr also made an affidavit. In that affidavit, Mr Carr deposed that from 1989 to 1993 he was the owner of a legal practice known as “Forshaws Solicitors”, and that in 1993 he changed the name of that practice to “Forshaws Neill Solicitors”.[16] In early 2008 Mr Carr received a bankruptcy notice, and became bankrupt on 20 August 2008.[17] Mr Carr said that before his bankruptcy, he entered into an agreement with Mr Black to sell his practice, and the agreement he deposes was made is annexed to his affidavit.[18] Recital D to the agreement provides that “Malcolm [Carr] agrees to sell the practice to . . . Richard [Black]”, and recital E states that the “purchase price is $40,000”.[19]
[14] Affidavit of B Mills, 15.06.2015, annexure “A”
[15] Affidavit of B Mills, 15.06.2015, annexure “C”
[16] Affidavit of M D Carr, 06.07.2015, [1]
[17] Affidavit of M D Carr, 06.07.2015, [4]
[18] Affidavit of M D Carr, 06.07.2015, [5]
[19] Affidavit of M D Carr, 06.07.2015, annexure “B”
Mr Carr annexed to his affidavit a letter dated 17 December 2009 from the lawyer for Mr Carr’s trustee in bankruptcy to Mr Black which stated as follows:[20]
[20] Affidavit of M D Carr, 06.07.2015, annexure “C”
We are instructed by the Trustee to make a formal demand on you to deliver up the legal practice of Forshaws Neill Solicitors to the Trustee within the next 14 days, including but not limited to, the following:
a.account of all fees and disbursements paid to the firm since 21 January 2008 (date of act of bankruptcy)
b.all work in progress
c.all monies received in payment of outstanding debtors since 21 January 2008
d.all trust monies received and/or disbursed since 21 January 2008
e.all furniture, fittings and equipment of the practice
The Trustee makes this demand on the grounds that the alleged transfer of the practice to Richard Black on 2 July 2008 was at the time:
(a)a void transfer of property within the meaning of s121 of the Bankruptcy Act, and/or in the alternative
(b)constituted an “undervalued transaction” within the meaning of s120 of the Bankruptcy Act.
We enclose the trustee’s cheque for $2,000.00 by way of refund of the deposit paid by you in relation to the alleged transfer.
Mr Black’s evidence
In his affidavit of 7 July 2015 Mr Black deposes that he is owed outstanding fees for “work performed in 2009 before [Ms Mills] instructed Mills Oatley [sic], Solicitors”.[21] Mr Black asserts that the issues Ms Mills “now seeks to agitate were dealt with in the Costs Assessment that gave rise to the Judgment”.[22] Mr Black annexes the costs assessor’s reasons dated 5 November 2010.[23] He asserts there had been a costs disclosure to Ms Mills.[24] Mr Black says that in 2012 Ms Mills telephoned Mr Black and said that she would pay Mr Black at the conclusion of the Supreme Court proceedings in which Ms Mills was then engaged.[25] Ms Mills telephoned Mr Black and said that the defendant in the Supreme Court proceedings had appealed, and asked Mr Black to wait until after the appeal.[26] On 21 March 2014 Ms Mills applied to the Local Court at Sutherland for an order to pay the debt by instalments, but the Court rejected her application.[27]
[21] Affidavit of R Black, 07.07.15, [7]
[22] Affidavit of R Black, 07.07.15, [9]
[23] Affidavit of R Black, 07.07.15, [9]
[24] Affidavit of R Black, 07.07.15, [9]
[25] Affidavit of R Black, 07.07.15, [12]
[26] Affidavit of R Black, 07.07.15, [13]
[27] Affidavit of R Black, 07.07.15, [14]
Mr Black also gave evidence of the sale of the practice Forshaws Neill Solicitors. Mr Black says that Mr Carr was declared bankrupt but obtained a stay of the sequestration order.[28] On 11 and 17 September 2008 Mr Carr approached Mr Black and requested that Mr Black help Mr Carr “post his bankruptcy”.[29] On 18 September 2008 Mr Carr sent an email which was as a follows:[30]
[28] Affidavit of R Black, 07.07.15, [19]
[29] Affidavit of R Black, 07.07.15, [20]
[30] Affidavit of R Black, 07.07.15, [20]; annexure “B”
We have spoken often about working closer and to become more profitable by taking advantage of our different strengths. I certainly get more offers of instructions that I want.
I propose you purchase Forshaws Neill for $50,000.
You pay $2000 per month over two years and two months.
I will earn this $2000 extra each month to enable you to pay for . . . FN, the moneys will go to my trustee.
Lesley and Karen remain.
It seems I am not restricted in what I can earn providing I pay so much after a certain amount to the trustee.
The accounts are then in your name.
I would ask that we are conservative on drawing to begin with until you have paid $20.000 [sic] because I would be building up the newly structured practice.
The onus is on me to make it work.
If I get up in England next year I would be out of bankruptcy and we could continue in partnership.
I will need a payment of $10,000 immediately to pay the mortgage on my office this month.
Cash flow should be alright after this payment.
Look forward to hearing from you.
It appears that Mr Black accepted his offer by 8 October 2008. I say that because Mr Black deposes that he was the principal of Forshaws Neill Solicitors from 8 October 2008 to 30 June 2010. That is supported by a Department of Fair Trading Form 6 Application to Change Proprietors of a Business Name for Forshaws Neill Solicitors signed by Mr Carr on 3 October 2008.[31] That Mr Black purported to be the principal of Forshaws Neill Solicitors is supported by other documents.
[31] Affidavit of R Black, 07.07.15, [22]; annexure “D”
Mr Black has also given evidence of what occurred to the practice of Forshaws Neill Solicitors after he purportedly became principal. He deposes that the practice “dwindled then ceased in June 2010”.[32] By that stage, a dispute arose between Mr Black and Mr Carr in which Mr Black alleged Mr Carr had taken “most of the current files without clients’ authority”. The dispute was resolved by what Mr Black deposes was a tripartite agreement made at a meeting that was arranged by Mr Ray Collins, from the Law Society’s Professional Standards section, and Mr Jim Milne, from the Office of the Legal Services Commissioner (OLSC).[33] Under that agreement, Mr Carr undertook that he would within seven days provide signed authorities for those Forshaws Neill Solicitors’ files he will continue to hold to Mr Black and OLSC, and that all other current files would remain with Mr Black.[34]
[32] Affidavit of R Black, 07.07.15, [40]
[33] Affidavit of R Black, 07.07.15, [42]
[34] Affidavit of R Black, 07.07.15, [42]
In evidence given under cross-examination, Mr Black said he did not bank the $2,000 cheque the trustee in bankruptcy returned to Mr Black under cover of the trustee’s solicitor’s letter dated 9 December 2009.[35] In 2014, however, the trustee sent to Mr Black a replacement cheque for $2,000, which Mr Black banked.[36]
[35] T32.5
[36] T32.5
Are there substantial reasons for questioning debt?
The question that arises is whether, on the material before me, Ms Mills has reasonably arguable prospects of establishing there are substantial reasons for questioning whether behind the judgment Mr Black obtained against Ms Mills there was in truth and reality a debt due to Mr Black. In my opinion, Ms Mills does have reasonably arguable prospects.
There is no question that some part of the judgment relates to work Mr Carr undertook on behalf of Ms Mills before he became bankrupt. In evidence given under cross-examination, Mr Black said that only the first 43 items of the bill that were the subject of assessment related to work undertaken by Mr Carr. In an email Mr Black sent to the Court after the hearing, Mr Black asserted that these items amounted to $1,520. Mr Black had no leave to communicate this information to the Court. In any event, it is only assertion. Although there is in evidence the costs assessor’s “Reasons in Respect of Assessment of Practitioner/Client Costs & Disbursements”, Mr Black has not put in evidence the actual bill that was the subject of that assessment. Further, there is reason to doubt that it was only the 43 items that related to work undertaken before Mr Carr became bankrupt. One of the items referred to in the assessor’s reasons is an invoice of John Worthington & Associates Pty Ltd dated 24 June 2008 in the amount of $2,079. That was allowed by the assessor.
There is no evidence that suggests that work undertaken by Mr Carr before he was made bankrupt became work for which Mr Black could claim fees or reimbursement from Ms Mills. To the extent there was a purported agreement by Mr Black to purchase Forshaws Neill Solicitors, that agreement, according to Mr Black, was made in late September 2008, after Mr Carr had been made bankrupt. The only person who then had the capacity to assign property of Mr Carr was Mr Carr’s trustee in bankruptcy. There is no evidence the trustee assigned any of Mr Carr’s property to Mr Black. On the contrary, the letter from the trustee’s lawyer dated 17 December 2009 indicates the trustee was of the view that Mr Carr’s practice remained part of the bankrupt estate of Mr Carr.
Thus, at the very least, there are substantial reasons for questioning that $3,599 of the $12,826.45 for which Mr Black obtained judgment – representing some 28% of the judgment debt – was owing by Ms Mills to Mr Black. But there are also reasonably arguable grounds for contending there are substantial reasons for questioning that the work done after Mr Carr was made bankrupt was work for which Mr Black could claim payment from Ms Mills.
First, there are reasonable grounds for arguing that Ms Mills did not agree to Mr Black acting for her. There is no evidence Mr Black or Mr Carr sought any written or other authority that Mr Black act for her. It is reasonably arguable that Mr Black assumed that, as the new principal of Forshaws Neill Solicitors, he did not need any specific authority from Ms Mills for him to undertake work in relation to Ms Mills’ matter; and he needed no such authority because Mr Black considered that Ms Mills held a retainer with Forshaws Neill Solicitors, not Mr Carr, and that that retainer remained on foot after Mr Black acquired the practice.
Second, to the extent it can be said that Ms Mills impliedly assented to Mr Black acting for her, it is reasonably arguable that Ms Mills agreed that he do so as a solicitor of the practice of Forshaws Neill Solicitors, not as a solicitor of some other practice or as a solicitor in his own name. It is reasonably arguable that that is how Mr Black also viewed his relationship with Ms Mills. In evidence given under cross-examination by Ms Mills, Mr Black said that the “legal practice, Forshaws Neill, post Malcolm Carr’s bankruptcy, represented you, of which I was the principal”.[37] This is supported by an email Mr Black sent to Ms Mills’ lawyers, Mills Oakley, on 9 March 2010 in response to an authority signed by Ms Mills that Mills Oakley sent to Mr Black.[38] Mr Black said:
We reply to your letter dated 4 March 2010 with the client’s enclosed Authority. We note that your Authority is directed to R D Black & Associates but at all times, Forshaws Neill acted for Mrs Mills. R D Black & Associates had no involvement in her matter. An authority directed to Forshaws Neill is required.
[37] T32.30
[38] This email was not tendered in evidence during the hearing, but was provided to the Court by Mr Black without leave after the hearing.
If it is reasonably arguable that both Ms Mills and Mr Black considered that Mr Black would undertake work for Ms Mills as a solicitor of the practice of Forshaws Neill Solicitors, then Ms Mills would have reasonable prospects of establishing that Mr Black had no right to sue for the fees for the work he undertook. That is so because his agreement with Mr Carr purportedly pursuant to which Mr Black acquired the practice of Forshaws Neill Solicitors was one which did not vest in Mr Black any right to that practice. The practice was vested in Mr Carr’s trustee in bankruptcy as from 20 August 2008. Accordingly, Ms Mills has reasonably arguable prospects of establishing that the only person who could have sued for the work Mr Black undertook for Ms Mills was Mr Carr’s trustee in bankruptcy.
Mr Black’s submissions
Mr Black submitted that the issues Ms Mills “now seeks to agitate were dealt with in the Costs Assessment that gave rise to the Judgment”. I disagree. The costs assessor did not consider any claim that, because of Mr Carr’s bankruptcy, Mr Black was not entitled to recover the amounts of the costs and disbursements that were the subject of the costs assessments.
Mr Black submitted he did not commit any fraud. As I understand Ms Mills’ grounds, however, she does not allege fraud against Mr Black. Nothing I have said in these reasons should be taken as implying that I am of the view that any fraud has been committed by anyone, or that there are any grounds for suggesting any fraud has been committed by anyone.
Mr Black also submitted that it is not open to Ms Mills to challenge the costs assessment. Mr Black relies on Ms Mills not having sought a review of the assessment, or not having applied to set aside the bankruptcy notice. As I have noted earlier in these reasons, a bankruptcy court has the power to go behind the judgment on the basis of which a bankruptcy notice is issued if there are substantial reasons for questioning the debt. In my opinion, for the reasons I have already given, Ms Mills has reasonably arguable prospects of successfully contending there are substantial reasons for questioning the judgment debt on the basis of which the bankruptcy notice was issued against Ms Mills.
Mr Black’s application for leave to reopen his case
After the hearing, on 15 July 2015, Mr Black sent an email to my Associate seeking leave to reopen his case. At my request, my Associate responded by informing Mr Black that I refused the application, stating that I would give my reasons later. These are my reasons.
The principles governing the exercise of the discretion to permit a party to reopen his or her case were summarised by Kenny J in Inspector-General in Bankruptcy v Bradshaw where her Honour said:[39]
[39] [2006] FCA 22 at [24]
The authorities indicate that, broadly speaking, there are four recognised classes of case in which a Court may grant leave to reopen, although these classes overlap and are not exhaustive. These four classes are:
(1) Fresh evidence.
(2) Inadvertent error.
(3) Mistaken apprehension of the fact.
(4) Mistaken apprehension of the law.
Her Honour also said:[40]
The overriding principle requires that the Court consider whether, taken as a whole, the justice of the case favours a grant of leave to reopen.
[40] [2006] FCA 22 at [24]
Mr Black did not in his email refer to these principles; he only identified the evidence he wished to adduce, and gave an explanation for why the evidence was not available at the hearing. I will consider each item of evidence Mr Black identified, and the reason Mr Black gave for not adducing the evidence at the hearing.
The first item of evidence is the email Mr Black sent to Ms Mills’ lawyers on 9 March 2010 to which I have already referred. The second are two documents, one titled “FORSHAWS NEILL Standard Costs Agreement” and the other titled “FORSHAWS NEILL Standard Costs Disclosure”, both dated 29 July 2009. The Standard Costs Disclosure document contains the following statement:
Mr Richard Black will be responsible for your matter. You may contact either one of them regarding your matter and your legal costs. Other persons may assist the above-named solicitors from time to time. Please see our disclosed charge out rates.
The third item of evidence is file notes of conversations Mr Black had with Mr Carr which Mr Black says disprove paragraphs 11, 12, and 13 of Mr Carr’s affidavit. The fourth item of evidence is evidence that will show that “the Business Name, Forshaws Neill . . . had negative commercial value”.
In his email Mr Black said that it was due to “three health conditions” that he could not reasonably have had this evidence before the Court on 14 July 2015. I do not accept that statement. Mr Black filed an extensive affidavit on 8 July 2015, and another affidavit on the morning of the hearing. If Mr Black’s health conditions did not prevent him from preparing and filing those affidavits, it is difficult to see how his health conditions prevented him from adducing at the hearing the matters he applies for leave to adduce after the hearing.
In any event, I am not satisfied it is in the interests of justice that I should permit Mr Black to adduce the additional evidence; and that is so because they have no bearing on the issues I have to decide. Accepting that the costs agreement and the email Mr Black sent to Mills Oakley on 9 March 2010 show that Ms Mills was aware of Mr Black’s involvement, these documents do not reduce Ms Mills prospects of establishing Ms Mills did not retain Mr Black to represent her; nor do they reduce the prospects of Ms Mills establishing that, to the extent Ms Mills agreed to Mr Black acting for her, Mr Black did so as a solicitor of the Forshaws Neill Solicitors practice, and that the only person who could have sued for the fees attributable to the work done by Mr Black was Mr Carr’s trustee in bankruptcy. As to the proposed evidence of Mr Black’s telephone conversations with Mr Carr, they relate to paragraphs of Mr Carr’s affidavit that I rejected and on which I have not relied. And the evidence of the commercial value of the name “Forshaws Neill” is irrelevant.
Mr Black sent another email to the Court on 17 July 2015, without the leave of the Court. It raises no submissions that have any bearing on the issues I must decide on this application.
Conclusions
In my opinion, Ms Mills would have reasonably arguable prospects of resisting a sequestration order being made against her estate if I were to set aside the sequestration order made on 14 April 2015. Ms Mills has reasonably arguable prospects of establishing she is solvent; and she has reasonably arguable prospects of establishing there are substantial reasons for questioning whether, behind the judgment Mr Black obtained in the Local Court against Ms Mills, there is in truth and reality a debt due to Mr Black.
If the sequestration order made on 14 April 2015 is set aside, Mr Black will suffer some prejudice. That prejudice will be the costs he incurred at the hearing of 14 April 2015. The prejudice, however, can be remedied with an appropriate order for costs. If the sequestration order is not set aside, on the other hand, Ms Mills will suffer serious prejudice. She will be subjected to the obligations, costs, disruptions, and stigma associated with being a bankrupt. Further, she has given evidence that she is a licenced finance broker and she will lose her licence if she is made bankrupt.
There are also the interests of Ms Mills’ trustee in bankruptcy that I should consider. According to the evidence of Ms Mills, she informed the trustee of her intention to set aside the sequestration order. On the basis of that evidence, I am satisfied that the trustee is aware that Ms Mills has applied to set aside the sequestration order, and that the trustee will not suffer any prejudice if the sequestration order made on 14 April 2015 is set aside.
In my opinion, it is in the interests of justice that I should set aside the sequestration order made on 14 April 2015. I should do so on terms that Ms Mills pay the costs Mr Black incurred at the hearing of 14 April 2015 that will be thrown away as a result of the sequestration order being set aside. I will so order. I also propose that the costs of the application in a case be costs in the cause.
I certify that the preceding sixty (60) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 21 July 2015
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