Black v Mills (No.3)
[2017] FCCA 380
•3 March 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BLACK v MILLS (No.3) | [2017] FCCA 380 |
| Catchwords: COSTS – Creditor’s petition dismissed by consent after creditor recovered by garnishee process judgment the subject of the creditor’s petition – creditor applies for an order for costs – whether debtor acted unreasonably in contesting creditor’s petition – whether creditor was bound to obtain sequestration order – application for costs dismissed. |
| Legislation: Legal Profession Act 2004 (Cth), ss.352(1), 357(1), 367(1), 368(1), 368(5), 372 |
| Cases cited: Black v Mills (No.2) [2015] FCCA 1973 Re Minister for Immigration & Ethnic Affairs; Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 |
| Applicant: | RICHARD BLACK |
| Respondent: | BERNADETTE MILLS |
| File Number: | SYG 3051 of 2014 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 17 February 2016 |
| Delivered at: | Sydney |
| Delivered on: | 3 March 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr C K Stewart |
| Solicitors for the Applicant: | Richard Black and Associates |
The respondent appeared in person
ORDERS
The applicant’s application for costs is dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3051 of 2014
| RICHARD BLACK |
Applicant
And
| BERNADETTE MILLS |
Respondent
REASONS FOR JUDGMENT
Introduction
On 13 October 2015 I made an order that the creditor’s petition be dismissed. I made that order by consent after the creditor, Mr Black, satisfied by garnishee process the Local Court judgment on which the creditor’s petition was founded (Judgment). In these reasons for judgment, I consider Mr Black’s application that the respondent, Ms Mills, pay Mr Black’s costs.
These reasons should be read with my reasons for judgment in Black v Mills (No.2) (previous reasons).[1] I there concluded Ms Mills had reasonable prospects of successfully resisting the creditor’s petition. In particular, I concluded Ms Mills had reasonably arguable prospects of establishing she is solvent; and of establishing there are substantial reasons for questioning whether, behind the Judgment, there is in truth and reality a debt due to Mr Black. The basis of my second conclusion were my findings that:
a)part of the Judgment represented fees for work Mr Carr, and not Mr Black, had carried out;[2]
b)there were reasonable grounds for arguing Ms Mills did not assent to Mr Black acting for her; [3] and
c)assuming Ms Mills impliedly assented to Mr Black’s acting for her, it was reasonably arguable Ms Mills agreed that Mr Black do so, not on his own account, but as a solicitor in the practice of Forshaws Neill Solicitors, a practice that was vested in Mr Carr’s trustee in bankruptcy.[4]
[1] [2015] FCCA 1973
[2] [2015] FCCA 1973 at [39]-[41]
[3] [2015] FCCA 1973 at [42]
[4] [2015] FCCA 1973 at [43]-[44]
Principles
Mr Black applies for an order for costs in circumstances where the Court has not determined the merits of the creditor’s petition. The principles that should guide the Court’s discretion in deciding whether to order costs in these circumstances, therefore, are those that were stated by McHugh J in Re Minister for Immigration & Ethnic Affairs; Ex Parte Lai Qin.[5]
[5] [1997] HCA 6; (1997) 186 CLR 622 (Qin)
In Qin the applicant applied to set aside a decision of the Refugee Review Tribunal that affirmed a decision not to grant the applicant a protection visa; but she withdrew her application after the Minister for Immigration and Ethnic Affairs decided to grant the applicant a protection visa. The applicant applied for her costs. McHugh J said:[6]
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action…
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried… But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
[6] [1997] HCA 6; (1997) 186 CLR 622 at page 642
From this passage, the following principles apply when determining an application for costs where the court has not determined the merits:
a)The court should not try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or “extra-curial action” they have avoided.
b)In some cases, however, the court may be able to conclude that one of the parties had acted so unreasonably that the other party should obtain the costs of the action.
c)In some cases, the court may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.
Thus, in determining whether I should order Ms Mills to pay Mr Black’s costs, I am not to try a hypothetical hearing. Whether or not I should order costs will depend on my being satisfied Ms Mills acted so unreasonably that Mr Black should obtain an order for costs, or that Mr Black was almost certain to have succeeded if the creditor’s petition had been fully tried.
The parties’ submissions
Both Mr Black, who appeared by counsel, and Ms Mills, who represented herself, conducted the hearing on costs as if it were a final hearing on the merits of the creditor’s petition.
Mr Black, for his part, adduced evidence, and made the following submissions:
a)Ms Mills filed no evidence of solvency; and, in any event, there is “compelling evidence that at the time of the hearing of the Creditor’s Petition she was insolvent”.[7]
[7] Applicant’s Submissions on Costs 17 February 2016, [2]
b)There was evidence Ms Mills assented to Mr Black undertaking work for her.[8] Mr Black relies on a costs disclosure agreement dated 29 July 2009,[9] which Ms Mills does not dispute she received. He also relies on “numerous attendances where” Ms Mills and her husband continued to instruct Mr Black after the date of the fee disclosure.[10] The attendances are noted in the itemised bill of costs.[11] Mr Black also relies on other correspondence after 31 January 2010 which, he submits, proves Ms Mills knew Mr Black had taken over and was practising as Forshaws Neill Solicitors.[12]
[8] Applicant’s Submissions on Costs 17 February 2016, [4]
[9] Affidavit of R Black, 12.02.2016, [16], pages 22-31
[10] Applicant’s Submissions on Costs 17 February 2016, [3(d)]
[11] Affidavit of R Black, 12.02.2016, pages 57-69
[12] Affidavit of R Black, 12.02.2016, [21]
c)Mr Black had title to sue for work he performed because he had acquired from Mr Carr the legal practice known as “Forshaws Neill Solicitors”. Mr Black relies on:
i)a deed dated 24 June 2010 made between him and Mr Carr which recites, among other things, that in 2008, at Mr Carr’s request, Mr Black acquired an equitable interest in “Forshaws Neill Solicitors”;[13]
ii)a “tripartite agreement” made between Mr Carr, Mr Black, and the Law Society of New South Wales, the purpose of which is stated to be “to secure the payment of Black’s unpaid costs . . . from files taken by Carr from Forshaws Neill”;[14]
iii)a statement Mr Carr made in an affidavit filed in the District Court of New South Wales on 11 November 2009 that Mr Carr “presently works as an employed solicitor for Richard Black, solicitor, who now owns Forshaws Neill”;[15]
iv)a deed of assignment “purportedly dated 2 July 2008 but executed by Malcolm Carr post his bankruptcy, probably in December 2008” by which Mr Carr purported to assign all outstanding fees owed or which may be owed to Forshaws Neill Solicitors by a Mr Forrest and Forrest Engineering Solutions Pty Ltd;[16]
v)a file note of a conversation between Mr Black and Ms Mills in which Mr Carr is recorded as insisting that Ms Mills has “to pay FN for all work”, and that Mr Carr “has T’ee approval to bill her for all items pre his b’ruptcy & and the practice can have these fees”;[17]
vi)emails between Mr Black and Mr Carr about Mr Carr costing the work he performed for Ms Mills;[18] and
vii)emails between Mr Black and Mr Carr on 29 September 2010 which Mr Black submits “contains an admission that my Agreement with Malcom Carr did not come into effect until October 2008”.[19]
[13] Affidavit of R Black, 12.02.2016, page 1
[14] Affidavit of R Black, 12.02.2016, [3], pages 3-5
[15] Affidavit of R Black, 12.02.2016, [4], page 7
[16] Affidavit of R Black, 12.02.2016, [5], page 8
[17] Affidavit of R Black, 12.02.2016, [6], page 9
[18] Affidavit of R Black, 12.02.2016, [7], page 10
[19] Affidavit of R Black, 12.02.2016, [12], pages 15-17
In the course of the hearing, I asked Mr Black’s counsel of the grounds on which Mr Black contended he was entitled to charge for work that Mr Carr had undertaken before Mr Carr had been made bankrupt.[20] Counsel submitted[21] Mr Black relied on what purports to be a file copy of a pro forma letter dated 7 October 2008, which was as follows:[22]
[20] T102.10; T112.40 (17 February 2016)
[21] T102.20; T112.40-T113.25 (17 February 2016)
[22] Affidavit of R Black, 12.02.2016, [14], page 20
Dear Client
RE; Forshaws Neill, Solicitors
I inform that as of 3 October 2008 I acquired the law practice Forshaw Neill Solicitors at Sutherland that continues with me as principal in place of Malcolm Carr. Malcolm Carr will remain at the practice.
You have the option of deciding whether you want to instruct this practice or instruct another Solicitor. Feel free to call during working hours to discuss the continuation of your matter.
Yours faithfully
Richard Black
Solicitor
Mr Black, in his affidavit, asserts this was a “pro forma letter to clients of Forshaws Neill”.[23]
[23] Affidavit of R Black, 12.02.2016, [14]
I also asked counsel for Mr Black what right Mr Black submits he had to conduct the practice of Forshaws Neill Solicitors given that its proprietor, Mr Carr, had been made bankrupt at the time Mr Black purported to acquire the practice.[24] Counsel submitted the practice had been transferred to Mr Black with the permission of Mr Carr’s trustee in bankruptcy.[25] Counsel also relied on Mr Black’s deposing that Mr Carr “gave sworn testimony on 17 February 2012 that he had the Trustee’s permission to assign the Business Name, Forshaws Neill Solicitors” to Mr Black, and that Mr Carr “also gave his own testimony that he had the Trustee’s permission to sell the practice Forshaws Neill Solicitors to me”.[26]
[24] T113.35 (17 February 2016)
[25] T114.10 (17 February 2016)
[26] Affidavit of R Black, 12.02.2016, [8]
Did Ms Mills act unreasonably or was Mr Black almost certain to succeed?
These two questions are related. Whether or not Ms Mills acted unreasonably in contesting the creditor’s petition turns, to a substantial degree, on whether Mr Black was almost certain to succeed on the creditor’s petition.
There is merit in Mr Black’s criticism of Ms Mills’ not having filed evidence or, at least, sufficient evidence to support her contention that she was solvent. I am not prepared, however, to hold Ms Mills acted so unreasonably as to warrant an order for costs being made against her. First, Ms Mills is not legally represented. Second, Mr Black was able to satisfy the Judgment. Third, there is no evidence of any other creditor who has not been paid by Ms Mills. All this prevents me from being satisfied Ms Mills was unreasonable in seeking to resist the creditor’s petition on the ground that she was solvent. It also prevents me from being satisfied Mr Black was almost certain to defeat Ms Mills’ claim she was solvent.
There is nothing Mr Black submitted to me that showed an arguable basis for his being entitled to recover fees for work Mr Carr had undertaken before he was made bankrupt. The pro forma letter on which Mr Black relied could not arguably support such claim. Apart from Mr Black’s assertion that a letter in that form was sent “to clients of Forshaws Neill Solicitors… informing them of the sale of the practice and giving them the option to stay with the practice of instruct another Solicitor”, there is no evidence Ms Mills received such letter; and even if she did, the letter unequivocally suggested that the recipient would have to elect Mr Black to act as the recipient’s solicitor. Ms Mills was bound to succeed to the extent she claimed $3,599 of the Judgment was not truly a debt Ms Mills owed to Mr Black; and Ms Mills acted reasonably to the extent she claimed Mr Black did not undertake this work on her instructions.
The evidence reveals there is room for argument about whether, after Ms Mills’ first contact with Mr Black, Ms Mills impliedly assented to Mr Black acting for her. It was not almost certain, however, that Mr Black would succeed on that issue; and Ms Mills acted reasonably in seeking to resist the making of a sequestration order on the ground that she did not expressly or impliedly retain Mr Black to perform work for her. Although Ms Mills acknowledges she received the fee disclosure letter dated 29 July 2009, and the disclosure stated Mr Black “will be responsible for your matter”, the letter did not state that Mr Black was the proprietor of the practice of Forshaws Neill Solicitors; and the evidence of contact between Mr Black and Ms Mills does not contain any statement from Mr Black that he had become the proprietor of Forshaws Neill Solicitors.
Mr Black raised no arguable case that, in light of Mr Carr’s having purported to agree to sell the practice of Forshaws Neill Solicitors after he had become bankrupt, Mr Black acquired title to the assets and goodwill of that practice. At the time he purported to agree to sell the goodwill and assets of the practice, therefore, Mr Carr did not have title in the goodwill or assets, because Mr Carr’s interest in the goodwill and assets had already vested in his trustee in bankruptcy. Re Mark Lazarus[27] is authority for the principle that, on a sequestration order being made against a solicitor, the solicitor’s interest in the goodwill and assets of the practice the solicitor conducts vests in the solicitors’ trustee in bankruptcy.
[27] Re Mark Lazarus (1940) 11 ABC 249
In Lazarus the widow of a solicitor, who was also the administratrix of the solicitor’s estate, carried on the deceased solicitor’s practice through her son, who also was a solicitor. She conducted the practice for one year before it was revealed the deceased solicitor was insolvent. An order for the administration of the solicitor’s estate in bankruptcy was made. The trustee in bankruptcy applied for, among other things, an order that an account be taken of all money received or earned by the widow and the widow’s son, and all expenses incurred, in the course of the practice after the solicitor’s death. The trustee also sought an order that the goodwill of the practice, and assets attached to the goodwill, be transferred to the trustee. The Court rejected the respondent’s submission there can be no goodwill to a solicitor’s practice. Lukin J said:[28]
I think I may take judicial notice of the fact that legal practices and the goodwill thereof are bought and sold everyday in this community. I think it is generally accepted that goodwill attaches to a solicitor’s business in the same way as to any other business.
[28] Re Mark Lazarus (1940) 11 ABC 249 at page 257
The Court made a declaration to the effect that the goodwill of the deceased solicitor’s practice together with the books of account and office records of those accounts formed part of the solicitor’s estate, and that the trustee was “entitled to the same and to sell and dispose of the same”.[29]
[29] Re Mark Lazarus (1940) 11 ABC 249 at page 258
In these circumstances, Ms Mills had a reasonably arguable case that Mr Black had no legal right to conduct the practice of Forshaws Neill Solicitors, or otherwise intermeddle with the practice’s assets or clients, and, consequently, had no title to sue Ms Mills for work Mr Black undertook purportedly on behalf of the practice of Forshaws Neill Solicitors.
I noted earlier the submission counsel for Mr Black made that the practice of Forshaws Neill Solicitors had been transferred to Mr Black with the permission of Mr Carr’s trustee in bankruptcy.[30] I also referred to Mr Black’s deposing that Mr Carr “gave sworn testimony on 17 February 2012 that he had the Trustee’s permission to assign the Business Name, Forshaws Neill” to Mr Black, and to a file note of a conversation between Mr Carr and Mr Black that the trustee had approved Mr Carr billing Ms Mills and the practice keeping those fees. This evidence, however, must be assessed against other evidence. Of significance is the letter dated 17 December 2009 from the trustee’s solicitor to which I referred in my previous reasons.[31]
[30] T114.10 (17 February 2016)
[31] [2015] FCCA 1973 at [32]
The letter demanded, among other things, “an account of all fees and disbursements paid to the firm since 21 January 2009 (date of act of bankruptcy)”. That demand is inconsistent with Mr Carr’s recorded assertion that the trustee had approved his billing Ms Mills, and the practice of Forshaws Neill Solicitors keeping money it may recover from Ms Mills. The trustee’s solicitors’ letter also demanded that Mr Black “deliver up the legal practice of Forshaws Neill Solicitors to the Trustee”. That demand is inconsistent with Mr Carr’s recorded assertion that Mr Carr’s trustee in bankruptcy permitted him to assign the business name “Forshaws Neill Solicitor” to Mr Black.
In my opinion, Ms Mills acted reasonably to the extent she relied as a ground for resisting the creditor’s petition Mr Black’s not having acquired title in the goodwill and other assets of Forshaws Neill Solicitors. Mr Black was not almost certain to succeed in obtaining a sequestration order against the estate of Ms Mills.
Nature of Judgment
My previous reasons, and what I have already said in these reasons for judgment, assume this Court, sitting as a court of bankruptcy, could have gone behind the Judgment to determine whether there was in truth a debt owed by Ms Mills to Mr Black. This assumption, however, must be examined, because the Judgment has been entered in relation to a costs assessment which occurred under the Legal Profession Act 2004 (Cth) (LP Act).[32]
[32] The LP Act was repealed by s.167(a) of the Legal Profession Uniform Law Application Act 2014 (Cth) No 16 with effect from 1 July 2015.
Subsection 352(1) of the LP Act provided that a “law practice that has given a bill may apply to the Manager, Costs Assessment for an assessment of the whole or any part of the legal costs to which” a bill that the law practice has provided to a “client” relates. The Manager, Costs Assessment, was required by s.357(1) of the LP Act to refer such application to a “costs assessor”; and, under s.367 of the LP Act, a costs assessor to whom such application was referred was required by s.367(1) of the LP Act to determine “an amount that, in the assessor’s opinion, is a fair and reasonable amount”. That is what occurred in relation to the legal costs Mr Black has sought to recover from Ms Mills. Under s.368(1) of the LP Act, a costs assessor, on making a determination of costs, was required to issue a “certificate that sets out the determination”. Subsection 368(5) of the LP Act provided:
In the case of an amount of costs that has not been paid, the certificate is, on the filing of the certificate in the office or registry of a court having jurisdiction to order the payment of that amount of money, and with no further action, taken to be a judgment of that court for the amount of unpaid costs, and the rate of any interest payable in respect of that amount of costs is the rate of interest in the court in which the certificate is filed.
Section 372 of the LP Act provided:
A costs assessor’s determination of an application is binding on all parties to the application and no appeal or other assessment lies in respect of the determination, except as provided by this Division.
The effect of s.372 of the LP Act was considered by White J in Burrell Solicitors Pty Ltd & Anor v Reavill Farm Pty Ltd & Ors:[33]
Section 372 of the Legal Profession Act… applies in accordance with its terms. The costs assessor’s determination was what was a fair and reasonable amount to be payable by the Champion parties for the services provided by Burrell Solicitors and Mr Robertson. The costs assessor did not determine whether the Champion parties were contractually obliged to pay that amount. Nor did he determine whether their liability to pay that amount was damage suffered by them as a result of Burrell Solicitors’ misleading and deceptive conduct. Nor did the costs assessor determine any other ground for relieving the Champion parties against the consequence of his determination.
The effect of the costs assessor’s determinations and the judgments entered pursuant to them depends on the operation of s 372 of the Legal Profession Act and not upon principles of res judicata, issue estoppel or Anshun estoppel…
The assessment process is not a curial process. A costs assessor is not an officer of the Court. The costs assessor’s certificate is taken to be a judgment but only for the purpose of enforcing the certificate… In Zepinic v Chateau Constructions (Australia) Ltd (No. 2) [2013] NSWCA 227McColl JA said (at [76]):
“[76] The entry of judgment on a filed certificate of a costs assessor or a review panel is a ministerial act, which makes the certificate enforceable as a judgment but otherwise does not alter its legal effect and does not make it a judgment of the Court.”
[33] [2016] NSWSC 303 at [132]
In my opinion, it would have been reasonably open to Ms Mills to argue at the hearing of the creditor’s petition that:
a)the certificate of assessment on the basis of which Mr Black obtained the Judgment was conclusive only on the issue of whether the costs the certificate recorded as having been assessed were fair and reasonable;
b)the certificate of assessment did not purport to determine there was a retainer between Ms Mills and Mr Black; and
c)Mr Black was not entitled to carry out work on Ms Mills’ file as the proprietor of Forshaws Neill Solicitors or recover any fees for such work, given that Mr Black purported to acquire from Mr Carr the practice of Forshaws Neill Solicitors after Mr Carr went into bankruptcy and his interest in the goodwill and other assets of that practice had vested in his trustee in bankruptcy.
It follows, therefore, that Mr Black was not almost certain to succeed on the creditor’s petition on the ground that the Judgment was based on the registration of a costs assessor’s certificate pursuant to the LP Act.
Other matters
Mr Black submitted he was entitled to recover on a quantum meruit.[34] Whether or not he was entitled to so recover, however, would have depended on whether he undertook the work at the request of Ms Mills. I have already concluded the evidence reveals there is room for argument whether, after Ms Mills’ first contact with Mr Black, Ms Mills impliedly assented to Mr Black acting for her, and that it is not almost certain Mr Black would have succeeded on that issue. It is not almost certain, therefore, that Mr Black would have succeeded in establishing he undertook the work on a quantum meruit.
[34] Applicant’s Submissions on Costs 17 February 2016, [12]
Mr Black also submitted there was evidence Ms Mills has been indemnified for the amount of the Judgment. There is insufficient evidence on the basis of which it could be concluded it is almost certain Mr Black would have succeeded in establishing Ms Mills has been indemnified. Even if, however, it is certain Mr Black would have succeeded in establishing Ms Mills was indemnified, that would not mean it is certain Mr Black would have succeeded on the creditor’s petition. Mr Black will still have needed to resist Ms Mills contention the Judgment was not based a true debt. For reasons I have given, it is not almost certain that Mr Black would have succeeded in resisting that contention.
Finally, on 18 March 2016, after the hearing, Mr Black sent an email to the Registry for the attention of my Associate. In that email, Mr Black sought leave to adduce further evidence. The evidence relates to the transfer of the name of Forshaws Neill Solicitors to Mr Black. I am prepared to accept this evidence shows that the name of Forshaws Neill Solicitors was purportedly transferred to Mr Black. That, however, does not address the question whether Mr Black acquired title to the assets or goodwill of the practice of Forshaws Neill Solicitors, given that Mr Black purported to agree with Mr Carr to acquire the goodwill and assets of that practice at a time when, because of Mr Carr’s bankruptcy, the assets and goodwill had vested with Mr Carr’s trustee in bankruptcy.
Conclusion and disposition
Ms Mills did not act unreasonably in resisting the creditor’s petition; and it is not almost certain Mr Black would have succeeded in obtaining a sequestration order. In those circumstances, I do not agree with Mr Black’s submission that Ms Mills should pay the costs of the proceedings.
I propose, therefore, to order that Mr Black’s application for costs be dismissed.
I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Date: 3 March 2017
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