Cao v Goldsmith
[2015] FCCA 1700
•23 June 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| CAO v GOLDSMITH | [2015] FCCA 1700 |
| Catchwords: LEGAL PRACTITIONERS – Allegation of negligence – solicitor advocate – immunity from suit – work out of court concerning conduct of case. |
| Legislation: Bankruptcy Act 1966, s.40 |
| Cao v Liu [2013] NSWDC 172 Dekkan v Evans [2008] FCA 1004 Bhagat v Global Custodians Ltd [2002] FCA 223 Re Capsanis; Capsanis v Owners – Strata Plan 11727 [2000] FCA 1262 Naghten v Commonwealth Bank of Australia [1998] FCA 635 |
| Applicant: | PING CAO |
| Respondent: | BARRIE GOLDSMITH T/AS GOLDSMITH LAWYERS |
| File Number: | SYG 350 of 2015 |
| Judgment of: | Judge Cameron |
| Hearing date: | 26 May 2015 |
| Date of Last Submission: | 26 May 2015 |
| Delivered at: | Sydney |
| Delivered on: | 23 June 2015 |
REPRESENTATION
| Counsel for the Applicant: | Ms Y. Guo |
| Solicitors for the Applicant: | Fitzpatrick Solicitors Pty Ltd |
| Solicitors for the Respondent: | Mr B. Goldsmith of Goldsmith Lawyers |
ORDERS
The application be dismissed.
| FEDERAL CIRCUIT COURT AT SYDNEY |
SYG 350 of 2015
| PING CAO |
Applicant
And
| BARRIE GOLDSMITH T/AS GOLDSMITH LAWYERS |
Respondent
REASONS FOR JUDGMENT
Introduction
On 13 February 2015 the applicant, Mr Cao, commenced this proceeding seeking to set aside a bankruptcy notice issued on 19 January 2015. The bankruptcy notice was founded upon a judgment entered on 14 January 2015 in the Supreme Court of New South Wales in respect of professional costs owing to the respondent, Mr Goldsmith, who had acted for Mr Cao in defamation proceedings in the District Court of New South Wales against Shengrong Liu (“Ms Liu”). The underlying debt arose out of an order of the District Court in those earlier proceedings and out of a related costs assessment process.
Mr Cao’s application to set aside the bankruptcy notice has been made pursuant to s.40(1)(g) of the Bankruptcy Act 1966 (“Act”) on the basis that he has a counter-claim, set-off or cross-demand against Mr Goldsmith which exceeds the amount of the judgment debt owed by him. Relevantly, Mr Cao alleges that he has a bona fide counter-claim against Mr Goldsmith arising out of the latter’s allegedly negligent conduct of the defamation proceedings.
Legislation
Section 40(1)(g) of the Act provides:
40 Acts of bankruptcy
(1) A debtor commits an act of bankruptcy in each of the following cases:
…
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia—within the time specified in the notice; or
(ii) where the notice was served elsewhere—within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;…
Rule 3.02(2) of the Federal Circuit Court (Bankruptcy) Rules 2006 states:
3.02 Setting aside bankruptcy notice (Bankruptcy Act s 41(6A), (6C) and (7))
…
(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.
Background facts
Unsuccessful defamation proceedings
As recorded earlier, Mr Goldsmith acted for Mr Cao in the latter’s District Court defamation proceedings against Ms Liu. The defamation claim was based on an email ostensibly sent by Ms Liu on 20 November 2011 to members of the Chinese Professional Club of Australia, of which Mr Cao was a member. On 30 May 2013 Ms Liu’s husband, Mr George Yu, admitted in cross-examination in the District Court proceedings that it was he who had sent the email.
The next day, on behalf of Mr Cao, Mr Goldsmith applied to the trial judge, Judge Walmsley, for a costs order against Mr Yu. The following exchange ensued:
MR GOLDSMITH: Your Honour, yesterday morning I foreshadowed the prospect of an application for costs of these proceedings against Mr Yu. Given his admission, or his confession, yesterday afternoon that it was he, in fact, who established the email address and sent the email, I’ve received instructions to make that application. Your Honour, what I seek to put on –
HIS HONOUR: A bit late now, isn’t it?
MR GOLDSMITH: I’m sorry?
HIS HONOUR: A bit late now, isn’t it? You should have sued him from the very beginning. It was obvious that he was a possible alternative defendant. It was an obvious case for suing both of them in the alternative. Just can’t understand why you didn’t do it?
MR GOLDSMITH: Because there was simply no evidence whatsoever –
HIS HONOUR: Well your client regarded him as a possible person who sent the emails.
MR GOLDSMITH: As a possible person and there was no evidence whatsoever to support that allegation.
HIS HONOUR: Well, you say that. You say that. I just cannot understand why he was not joined as an alternative defendant in the appropriate way which has been done for generations.
On 6 September 2013 Judge Walmsley found that Mr Cao had not proved that the email in question had been sent by Ms Liu (Cao v Liu [2013] NSWDC 172). His Honour found that Mr Cao would have been awarded compensatory damages of $30,000 had he sued the right person. On 16 September 2013 Mr Goldsmith filed a notice ceasing to act.
On 25 September 2013 Mr Cao sought costs orders against Mr Yu and Mr Goldsmith, which included an application that all costs between him and Mr Goldsmith be disallowed. The claim against Mr Goldsmith was based principally on the allegation that Mr Goldsmith had acted negligently in failing to join Mr Yu as a defendant in the defamation proceedings.
On 1 October 2013 Mr Cao was ordered to pay Ms Liu’s costs which were subsequently agreed at $105,000.
The application that Mr Yu and Mr Goldsmith pay Mr Cao’s costs was listed for hearing on 17 March 2014 and on 13 March 2014 Mr Goldsmith’s representatives sought an order that Judge Walmsley disqualify himself from hearing the costs application, based on an allegation of apprehended bias arising from the 31 May 2013 exchange quoted earlier. The disqualification application also relied on the following statement in his Honour’s judgment of 6 September 2013:
… But as the evidence shows, there was an obvious alternative defendant who could have been sued but was not.
On 13 March 2014 Mr Cao withdrew his costs motion against Mr Goldsmith who in turn withdrew his application for disqualification. On 20 March 2014 Judge Walmsley ordered Mr Yu to indemnify Mr Cao for such costs as he was ordered to pay to Ms Liu and for any costs paid or payable to Mr Goldsmith. Mr Yu appealed against the costs judgment and the Court of Appeal has reserved its decision.
On 9 January 2015 two Certificates of Determination of Costs were issued, one of which appears to have concerned those of Mr Goldsmith’s fees of the defamation action which remain unpaid. On 14 January 2015 Mr Goldsmith obtained a judgment for $140,474.40 from the Supreme Court of New South Wales in reliance on that costs certificate and on 19 January 2015 the bankruptcy notice was issued for a debt of $135,619.07. On 26 January 2015 it was served on Mr Cao.
Non-joinder of Mr Yu, before and after 30 May 2013
Mr Cao contended that he had pressed Mr Goldsmith to join Mr Yu but had been told that this could not be done because such an allegation was not supported by the evidence. In this connection Mr Cao referred to a number of emails he had sent to Mr Goldsmith in 2012 and 2013 concerning the likelihood that Mr Yu had been the author of the email but which also recognised the absence of evidence on the point. He also quoted an email from Mr Goldsmith dated 28 April 2013 which said:
I have no doubt, and the Judge has no doubt, that Mr Yu wrote the e-mail. However, he tried to disguise it by using the Nancy Liu e-mail address. However, that has now ‘come back to bite him’ but he still does not realise that and the evidence (upon which cases are decided) all points to the defendant. The costs are increasing and increasing. You should, in my view, simply take the matter to trial and let the Judge decide.
On 30 May 2013 Mr Goldsmith wrote to Mr Cao in light of Mr Yu’s evidence of authorship of the email, addressing the possibility of filing an application for an extension of time to join Mr Yu in the defamation proceedings and saying, amongst other things:
If you wish to contemplate such a course, then it may be appropriate for us to seek to file the appropriate motion tomorrow and we would advise the Judge that an affidavit in support will be filed later on. If the filing of that motion, and all other circumstances, do not prompt the making of a reasonable and sensible offer, then, you can simply withdraw the motion.
Mr Cao replied by email the same day and instructed Mr Goldsmith to file that notice of motion. Mr Goldsmith deposed to various considerations which led to the application they had discussed not being foreshadowed to the court or filed at that time.
Subsequently:
a)in an email dated 2 June 2013 Mr Cao indicated that he was still considering his options and stated that he was happy to have Mr Goldsmith’s advice on filing a new claim against Mr Yu;
b)on 4 June 2013 Mr Goldsmith sent Mr Cao a draft letter addressed to Etheringtons, Ms Liu’s legal representatives, in anticipation that they would also be instructed to act for Mr Yu. Amongst other things, that draft stated:
We are further instructed to put Mr Yu on notice that, if the current defamation claim is dismissed, our client will file an application to extend the time within which to commence defamation proceedings against Mr Yu;
c)in an email dated 7 June 2013 Mr Cao instructed Mr Goldsmith to write to Etheringtons informing them that he would be seeking an extension of time to lodge a defamation claim against Mr Yu should his claim be dismissed;
d)on 13 June 2013 Mr Goldsmith sent to Etheringtons a letter of the same date advising of Mr Cao’s instructions concerning joinder of Mr Yu;
e)on 19 July 2013 Mr Cao emailed Mr Goldsmith’s office saying:
Are you going to consider making effort to add Mr Yu into the proceedings? Barrie advised me other day in our telephone conference, said it is inappropriate, which was opposite to his previous position. I still don’t understand his point in this regard though probably I should;
f)Mr Goldsmith responded by email on 20 July 2013 as follows:
Not at this time. Firstly, to try and add Mr Yu, you will need to apply for leave to extend the time, given that the 12 month limitation period has expired. I doubt very much that this Judge [who had announced that he was retiring] will want to hear and determine such an application, such that, in my view, it is inevitable that he will refuse to hear such an application as part of these proceedings and, instead, he will indicate that, if you wish to pursue such an application, you should file an application in the normal way (a new application with a new Court file number). Secondly, even if leave were granted, and a claim were made against Mr Yu, he would be entitled to defend and inevitably he would file a defence to include a defence of qualified privilege. That ‘blows up’ further the case. For those reasons, in my view, it is not appropriate, and there is no benefit to be achieved. Further, at this time, I do not want to provide any indication to the Judge that there is any form of concession that you have (currently) sued the wrong person.
g)in an email dated 22 July 2013 Mr Cao expressed his reservations about joining Mr Yu as a co-defendant in the defamation proceedings and said that he wanted to “understand [the issue] more”.
It appears that Mr Cao at no point thereafter instructed Mr Goldsmith to attempt to bring proceedings against Mr Yu for defamation.
Limitation period
It was agreed that Mr Goldsmith had not advised Mr Cao before November 2012 that the limitation period for defamation actions in New South Wales was twelve months.
Consideration
In order for Mr Cao to succeed in his application under s.40(1)(g) of the Act, amongst other things, he needed to satisfy the Court that he had a counter-claim, set-off or cross-demand which:
a)equalled or exceeded the amount of the judgment debt; and
b)could not have been set up in the action or proceeding in which the judgment or order was obtained.
The existence of such a claim is to be determined by reference to three somewhat overlapping matters, namely, whether the postulated claim:
a)manifests a prima facie case;
b)which has a fair chance of success; and
c)is genuine or bona fide: Re Glew; Glew v Harrowell (2003) 198 ALR 331.
In Glew v Harrowell Lindgren J summarised those issues in the following terms:
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. (at 334 [12].
Existence of a prima facie and bona fide claim
Mr Cao submitted that his postulated claim against Mr Goldsmith had three limbs:
a)the failure to join Mr Yu;
b)the failure to advise of the 12 month limitation period before its expiry; and
c)the failure to implement before the conclusion of the defamation action his instructions to file a motion seeking an extension of time within which to bring proceedings against Mr Yu.
Failure to join Mr Yu
It is not sufficient for an applicant such as Mr Cao to depose that he believes that he has a genuine claim (Dekkan v Evans [2008] FCA 1004 at [54]) or even how he proposes to establish it (Bhagat v Global Custodians Ltd [2002] FCA 223 at [53]). Although the Court is not required to undertake a preliminary trial of the claim propounded, it must nevertheless undertake some kind of preliminary assessment of it (Glew v Harrowell at 334 [10]) which means that an applicant must place before the Court material that would justify it interfering with the judgment which founded the bankruptcy notice (Bhagat v Global Custodians Ltd at [53]; Re Capsanis; Capsanis v Owners – Strata Plan 11727 [2000] FCA 1262 at [11]).
Mr Goldsmith submitted that s.347 of the Legal Profession Act 2004 (NSW) had prevented him from joining Mr Yu in the proceedings before his confession on 30 May 2013 because the evidence of such conduct had been insufficient to meet the test which the section imposed. In contrast, Mr Cao submitted that direct evidence of Mr Yu having sent the email had not been necessary, that a circumstantial case could have been mounted against him, and that Mr Goldsmith could have used court processes such as discovery and interrogatories to make out that case.
Section 347 of the Legal Profession Act relevantly provides:
347 Restrictions on commencing proceedings without reasonable prospects of success
(1)The provision of legal services by a law practice without reasonable prospects of success does not constitute an offence but is capable of being unsatisfactory professional conduct or professional misconduct by a legal practitioner associate of the practice who is responsible for the provision of the service or by a principal of the practice.
(2)A law practice cannot file court documentation on a claim or defence of a claim for damages unless a principal of the practice, or a legal practitioner associate responsible for the provision of the legal service concerned, certifies that there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.
…
It has not been demonstrated that, before his confession, any direct evidence of Mr Yu’s authorship of the email was available to Mr Goldsmith or to Mr Cao and I conclude that there was none. Nor has it been demonstrated that a circumstantial case of any substance existed against him before that point. For instance, Mr Cao has not demonstrated in this proceeding what motive could have been alleged in the District Court against Mr Yu so as to establish against him one of the essential elements of a circumstantial case. In that connection the summary statement in [2] of Judge Walmsley’s judgment of 6 September 2013 concerning Mr Yu’s forthright views is too much a passing and unexplained comment for me to base any particular conclusions on it.
In those circumstances I am not persuaded that Mr Goldsmith could, in compliance with s.347 of the Legal Profession Act, have sought to join Mr Yu to the defamation proceedings at any point before Mr Yu said that he had sent the email.
I also reject the suggestion that the availability of discovery and interrogatories justified the joinder of Mr Yu. Some proper basis has to exist for the making of allegations against a person and litigation should not be commenced on what seems to have been no more than a suspicion, ultimately well-founded though it may have been. I also note that Mr Cao did not seek to demonstrate that preliminary discovery would have been ordered.
Mr Cao pointed to the fact that in or about, I infer, 16 September 2013 Mr Goldsmith advised Mr Cao to seek alternative representation because doubt had arisen concerning the appropriateness or accuracy of the advice he had given. Mr Cao argued that this evidence could be taken to support the existence of a prima facie case against Mr Goldsmith but I accept Mr Goldsmith’s submission that this was not a concession of liability and was no more than the proper step to take as he had become personally involved in the case in which he had been retained.
For these reasons I am not persuaded that Mr Cao has a claim against Mr Goldsmith which should, in justice, be permitted to be heard and determined before he is forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.
It should also be recorded that the parties addressed the fact that Mr Cao had not brought proceedings against Mr Goldsmith and it was suggested that this was a matter to be taken into account when considering whether Mr Cao had a claim which justice required be heard before the bankruptcy matter proceeded. Given that Mr Yu has contested the costs order against him and that the Court of Appeal has not delivered its judgment, I accept that Mr Cao sees no pressing need to commence proceedings against Mr Goldsmith. I do not think that the failure to commence such proceedings betokens any particular lack of confidence in the prospects of success which such a claim might have: Naghten v Commonwealth Bank of Australia [1998] FCA 635 at p.7. I find that, rather, such proceedings represent an expense to which, if possible, Mr Cao would prefer not to be put.
Further on this point, Mr Goldsmith submitted that the present application had been filed by Mr Cao to gain time pending the decision of the Court of Appeal. It was submitted that this constituted an improper purpose such that the application to set aside the bankruptcy notice was not genuine and was made in bad faith.I think a better way of looking at the situation is that Mr Cao would prefer not to bring proceedings against Mr Goldsmith but, if pressed, might well do so. The circumstances of this case are uncommon and provide a sufficient explanation for Mr Cao’s inaction to date.
Mr Goldsmith also claimed advocate’s immunity, relying on D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 and Giannarelli v Wraith (1988) 165 CLR 543. Those cases hold that at common law a legal practitioner cannot be sued by his or her client for negligence in the conduct of a case in court or for negligence in work out of court which leads to a decision affecting the conduct of a case in court. Mr Goldsmith submitted that the acts or omissions which Mr Cao would wish to allege were negligent were protected by advocate’s immunity because they were intimately connected with in-court conduct in the sense that they could fairly be said to have amounted to a decision or decisions of a preliminary nature which affected the way the defamation action was conducted at hearing: Keefe v Marks (1989) 16 NSWLR 713 at 719-720 per Gleeson CJ.
Mr Cao referred to White v Forster [2014] NSWSC 1767 which considered Saif Ali v Sydney Mitchell & Co [1980] AC 198 where it had been held that advocate’s immunity did not, on the facts of that case, extend to a barrister’s negligent failure to advise the joinder of a party. Button J said in White v Forster at [62] that there is no hard and fast rule that a lawyer’s failure to sue a particular person or body can never fall within the immunity; it will be a matter in each case of applying the test to the evidence and determining thereby whether the proposed claim falls inside or outside the scope of the immunity. In Saif Ali, the immunity did not apply because the negligent failure to commence against the actual tortfeasor had been independent of the proceeding which had been brought against the wrong party. The one did not depend on the other and so the negligence was not conduct related to such litigation as had been commenced.
Mr Cao gave evidence of the consideration which was given at various times during the defamation proceedings to joining Mr Yu. That consideration concerned the conduct of those proceedings because although it involved a decision to not join Mr Yu in that action, it also involved a decision to proceed only against Ms Liu. That consideration and the acts or omissions which resulted from it, being the two sides of the same coin, therefore attract advocate’s immunity to the non-joinder of Mr Yu in Ms Liu’s proceedings. For that additional reason, I find that Mr Cao does not have a prima facie claim against Mr Goldsmith on the basis advanced.
Failure to advise of the 12 month limitation period before its expiry
As noted earlier, Mr Goldsmith did not contest the allegation that he had not told Mr Cao of the twelve month limitation period for defamation actions in New South Wales. However, Mr Cao did not seek to demonstrate why that omission was negligent or a breach of Mr Goldsmith’s retainer. He also did not seek to demonstrate why, given that there is no evidence of any attempt having been made to seek an extension of time within which to bring proceedings against Mr Yu, any negligence or breach of retainer which that omission represented would yield more than nominal damages.
Failure to implement instructions to seek extension of time
In light of the chronology of events set out above at [14] – [16] it does appear that Mr Goldsmith failed to implement the 30 May 2013 instruction to file a notice of motion. However, that instruction was overtaken by events and I accept that Mr Cao never again instructed Mr Goldsmith to seek an extension of time to bring a claim against Mr Yu. I find that Mr Cao impliedly withdrew the instruction of 30 May 2013 by not pressing it at any later point and by giving subsequent instructions which were inconsistent with it.
Claim exceeding debt
In light of my finding above concerning the existence of a prima facie claim, it is not necessary to consider whether the postulated claim exceeded the debt in respect of which the bankruptcy notice was issued. However, in the event that I am wrong in that finding, I record that in a letter dated 17 December 2014 to Mr Goldsmith Mr Cao particularised the loss and damage said to arise from Mr Goldsmith’s alleged negligence as:
(1)Costs order in favour of Ms Liu in the amount of $105,000.00.
(2)Costs incurred to your firm.
(3)Costs of mitigation being the costs in relation to the motion against Mr Yu seeking a Third Party costs order …
That information does not satisfy r.3.02(2)(b) of the Federal Circuit Court (Bankruptcy) Rules but no point was taken about that.
Although, as Mr Goldsmith submitted, it does not follow that Mr Cao would not have been ordered to pay Ms Liu’s costs even if Mr Yu had been joined as a defendant and it is conceivably possible that Mr Cao was guilty of some unparticularized contributory negligence, it would not be unreasonable to expect that at least some of Ms Liu’s costs would be recoverable in a successful action against Mr Goldsmith for negligence in not bringing Mr Yu into the defamation action at some point. Also, if Mr Yu had been joined, then the costs of the non-party costs application would not have been incurred and so their inclusion in the damages claim is not inappropriate.
Given those conclusions and taking into account the fees of Mr Goldsmith which would be in dispute, which I infer include the fees that have been paid and not just the ones grounding the certificate of assessment on which the bankruptcy notice is founded, I am satisfied that the value of the claim which Mr Cao postulated exceeds the amount set out in that notice.
Claim could not have been brought in antecedent proceedings
Mr Goldsmith submitted that Mr Cao could have set up his counter-claim, set-off or cross-demand in the costs proceedings, through the medium of the motion for non-party costs orders, as he had initially done but which he subsequently withdrew. In that connection Mr Goldsmith submitted that the proceedings which gave rise to the bankruptcy notice were the defamation proceedings, not the Supreme Court proceedings giving effect to the costs order where, he conceded, Mr Cao could not have made a counter-claim, set-off or cross-demand.
Although Mr Goldsmith’s argument has appeal, in Massih v Esber (2008) 250 ALR 648 Flick J held at 659-660 [43]-[46] that the relevant proceeding was the costs assessment and subsequent judgment giving effect to that assessment. Consequently, I am bound to find that Mr Cao could not have set up his claim of negligence in the action or proceeding in which the judgment or order was obtained.
Conclusion
For the above reasons, the application to set aside the bankruptcy notice will be dismissed.
I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Judge Cameron
Associate:
Date: 23 June 2015
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