CFB18 v Reader Lawyers & Mediators
[2018] FCA 611
•7 May 2018
FEDERAL COURT OF AUSTRALIA
CFB18 v Reader Lawyers & Mediators [2018] FCA 611
File number: WAD 42 of 2017 Judge: COLVIN J Date of judgment: 7 May 2018 Catchwords: BANKRUPTCY AND INSOLVENCY - application to set aside bankruptcy notice - whether the applicant has a counter‑claim , set‑off or cross demand pursuant to s 40(1)(g) of the Bankruptcy Act 1966 (Cth) - where applicant's alleged off‑setting claim arises from respondent's representation in Family Court proceedings - no offsetting claim
BANKRUPTCY AND INSOLVENCY - Application to extend time to review Registrar's decision - whether there was a deemed extension pursuant to s 41(7) of the Bankruptcy Act 1966 (Cth)
PRACTICE AND PROCEDURE - judgment and orders -judgment containing an account of matters that occurred in Family Court proceedings - whether non‑publication order should be made having regard to s 121 of the Family Law Act 1975 (Cth) - non‑publication order made
Legislation: Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41, 41(3), 41(6A), 41(7), 44(1)(c)
Family Law Act 1975 (Cth) s 121
Federal Court of Australia Act 1976 (Cth) ss 35A(5), 37AE, 37AG(1)
Civil Judgments Enforcement Act 2004 (WA) ss 7, 15
Cases cited: Abigroup Ltd v Abignano [1992] FCA 567; (1992) 39 FCR 74
Attwells v Jackson Lalic Lawyers Pty Ltd [2016] HCA 16; (2016) 259 CLR 1
Chen v Migration Agents Registration Authority (No 1) [2016] FCA 649
Coshott v Prentice (No 2) [2016] FCA 1531
Ebert v Union Trustee Company of Australia Ltd (1960) 104 CLR 346
Ebert v Union Trustee Company of Australia Ltd (1961) 105 CLR 327
Elkateb v Lawindi [2000] FCA 1939
Guss v Johnstone [2000] HCA 26
Hinchcliffe v Commissioner of Police of the Australian Federal Police [2001] FCA 1747; (2001) 118 FCR 308
Lindholdt v Merritt Madden Printing Pty Ltd [2002] FCA 260
Martin v Commonwealth Bank of Australia [2001] FCA 87
Mazukov v University of Tasmania [2004] FCAFC 159
Murdaca v Accounts Control Management Services Pty Ltd [2007] FCA 964
Oreb v Australian Securities and Investments Commission [2016] FCA 321
Palaniappan v Westpac Banking Corporation [2017] FCAFC 121
Re Edelsten; Ex parte Donnelly (1988) 18 FCR 434
Re Glew; Glew v Harrowell [2003] FCA 373
ReSchekeloff; Ex Parte Schekeloff v The Hopkins Group Pty Ltd (1989) 22 FCR 407
Re Shaddock; Ex parte Commonwealth Bank of Australia [1998] FCA 355
Shephard v Chiquita Brands South Pacific Ltd [2004] FCAFC 76
State Bank of New South Wales v Gomez [2002] FCA 1476
Streimer v Tamas (1981) 54 FLR 253
Vogwell v Vogwell (1939) 11 ABC 83
Webb v Hunter [1995] FCA 1443; (1995) 59 FCR 24
Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572
Date of hearing: 19 April 2018 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 93 Counsel for the Applicant: The Applicant appeared in person Counsel for the Respondent: Mr SV Forbes Solicitor for the Respondent: Stewart Forbes Solicitor ORDERS
WAD 42 of 2017 BETWEEN: CFB18
Applicant
AND: READER LAWYERS & MEDIATORS
Respondent
JUDGE:
COLVIN J
DATE OF ORDER:
7 MAY 2018
THE COURT ORDERS THAT:
1.Until further order the applicant be named as CFB18.
2.The time for bringing an application to review the decision of the Registrar dismissing the application to set aside the bankruptcy notice issued by the respondent and served on the applicant on 21 January 2017 be extended until 23 February 2018.
3.The application to review the decision of the Registrar be dismissed.
4.The applicant do pay the costs of the application to review the decision of the Registrar to be assessed if not agreed.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
COLVIN J:
In these reasons, it is necessary to give an account of certain matters that occurred in the course of Family Court proceedings. Section 121 of the Family Law Act 1975 (Cth) makes it an offence to publish any account of part of any proceedings under the Act that identifies a party to the proceedings or a person who is related to, or associated with, a party to the proceedings or a witness. An 'account' is a narrative, description, retelling, or recital of such proceedings: Hinchcliffe v Commissioner of Police of the Australian Federal Police [2001] FCA 1747; (2001) 118 FCR 308 at [53].
The Court has power to make a non‑publication order where it is necessary to prevent prejudice to the proper administration of justice: s 37AG(1) of the Federal Court of Australia Act 1976 (Cth). In deciding whether to make such an order the Court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice: s 37AE. The threshold for making a non‑publication order is high: Oreb v Australian Securities and Investments Commission [2016] FCA 321 at [80] and Chen v Migration Agents Registration Authority (No 1) [2016] FCA 649 at [11].
These proceedings are consequent upon the failure to pay costs orders in Family Court proceedings. The persons who may be affected by the account of matters to be given in these reasons are not parties to these proceedings. They have not been heard on the question of publication of the material in these reasons. Nor is it in the interests of justice that they be joined for that purpose.
In those circumstances, to enable these reasons to be published in accordance with principles of open justice, I have prepared them in a manner that will not identify the participants in the Family Court proceedings if the name of the applicant is not used in any publication and I make an order that in these proceedings the applicant be named as CFB18. No issue arises in relation to the communications that have occurred in the course of the proceedings to date: Re Edelsten; Ex parte Donnelly (1988) 18 FCR 434, 436.
Review of Registrar's decision refusing application to set aside bankruptcy notice
The applicant seeks to set aside a bankruptcy notice. A Registrar of this Court has refused the application. The matter comes before me on a hearing de novo: s 35A(5) of the Federal Court of Australia Act; Martin v Commonwealth Bank of Australia [2001] FCA 87 and Mazukov v University of Tasmania [2004] FCAFC 159.
Three main issues arise. First, the application to review the Registrar's decision was commenced out of time so there is a question whether there should be an extension of time to enable the applicant to bring the application. Second, if time is extended, there is an issue as to the merits of the application. Third, if the application is not successful there is a question whether there should be an extension of time to comply with the bankruptcy notice for the benefit of the respondent.
Chronology of relevant events
The applicant engaged the respondent to act for her in Family Court proceedings in 2014. Some accounts rendered by the respondent were not paid. They were submitted for taxation in the Supreme Court of Western Australia and an amount of $65,000 was determined to be payable. A certificate of taxation issued in September 2016.
A bankruptcy notice was served on the applicant on 21 January 2017. (Although there was uncertainty before the Registrar as to the date of service, before me it was accepted that the notice was served on 21 January 2017 and the application to set aside was brought within time). The applicant applied to set aside the bankruptcy notice on 13 February 2017.
The applicant says that she has a counter-claim, set-off or cross demand (offsetting claim) that exceeds the amount of the judgment debt the subject of the notice.
The set aside application was heard by a Registrar of this Court. Before the Registrar, the respondent submitted that the alleged offsetting claim was not 'effective' or 'real' and therefore it was not a valid application.
The applicant acted on her own behalf on the application to set aside the bankruptcy notice. The Registrar dismissed the application on 23 October 2017 and indicated that reasons 'will follow in due course'.
The Registrar found that the applicant failed to establish that she had an offsetting claim. He ordered that the application be dismissed with costs. No order was made for any extension of time in relation to compliance with the bankruptcy notice. It appears that the Registrar proceeded on the basis that there was an automatic extension under s 41(7) of the Bankruptcy Act 1966 (Cth) and therefore the respondent had six months after the dismissal of the application to present a creditor's petition based upon a failure to comply with the bankruptcy notice.
On 21 February 2018, the applicant retained solicitors. On 23 February 2018, those solicitors made an inquiry concerning the reasons. On 16 March 2018, the Registrar delivered reasons for the orders made on 23 October 2017.
Until she consulted solicitors in February 2018, the applicant did not know that a review of the Registrar's decision refusing the set aside application could be commenced without the publication of reasons and there was a 21 day limit from the date of the Registrar's decision for commencing the review. An application to review the decision was brought on 23 February 2018.
In the meantime, the respondent had presented a creditor's petition on 7 December 2017 (being almost 11 months after the service of the bankruptcy notice). The petition relied upon an alleged act of bankruptcy 'on or before 23 October 2017' (being the date when the set aside application was dismissed by the Registrar). An amended petition was filed on 24 January 2018. The applicant responded stating grounds of objection on 8 February 2018. The applicant initially acted on her own behalf in those proceedings, but lawyers acting for her filed a notice of acting on 23 February 2018.
On 7 February 2017, the applicant issued a writ out of the District Court of Western Australia claiming an amount of about $310,000 being the total of all fees invoiced to the applicant in respect of the Family Court proceedings by the respondent and other lawyers who acted for her subsequently in those proceedings.
On 18 March 2018, an interim suspension of the enforcement of the certificate of taxation was granted by a Registrar of the Supreme Court under s 15 of the Civil Judgments Enforcement Act 2004 (WA).
There has not been a final hearing of the creditor's petition. The petition currently stands adjourned.
Application to extend time to review Registrar's decision
As to the time to commence a review, I note that the order made on 23 October 2017 was formally issued to the applicant and that it was endorsed with a statement that the Rules provide that any application 'for review of the exercise of a power of the Court by a Registrar … must be made within 21 days after the day on which the power was exercised'. It referred to Rule 3.11. However, that rule does not deal expressly with a case where the order is made on one date and reasons published at a later date. Rather, it is necessary to know that the making of the orders on 23 October 2017 was a complete exercise of power even though reasons were yet to be published.
The applicant has provided an explanation for her delay. She acted on her own behalf at the relevant time. It was reasonable for her to expect that reasons were required before an application for review could be commenced, especially where the Registrar indicated when making the decision that reasons would be provided in due course. She acted promptly when she became aware of the position. This is not a case where there was simply an unexplained failure to have regard to the Rules. The applicant, acting on her own behalf, deposes that she was not aware that the operative date for review of the decision was when the orders were made not when the reasons were subsequently published.
The respondent did not act immediately upon the Registrar's decision. A creditor's petition was not presented until December 2017 and it was not until almost the end of January 2018 that the respondent's amended petition was filed. The petition has not been heard. Therefore, the delay has not been to the prejudice of the respondent unless there is some consequence for its creditor's petition that means that costs on presenting the creditor's petition to date have been wasted. For reasons stated at the end of this judgment there is no such consequence.
The issue as to whether there has been a failure to comply with the bankruptcy notice will affect the applicant's position on any hearing of the creditor's petition.
In those circumstances, provided there is sufficient merit in the application to set aside the bankruptcy notice, the interests of justice would be served by extending the time for bringing the application.
The merits of the application to set aside the bankruptcy notice
The claim in the bankruptcy notice was in respect of fees charged by the respondent in acting for the applicant in Family Court proceedings. The proceedings were described as being in two parts. In the first part, the respondent acted for the applicant. In the second part, other lawyers acted.
The applicant's claims
The affidavit filed by the applicant with the set aside application claimed that the respondent firm did not act in a reasonably professional and competent manner.
The affidavit deposed to advice taken from an experienced family lawyer (identified in the affidavit) who acted for the applicant in the second part of the proceedings:
who said [the respondent] caused significant issues that were detrimental to the my family court proceedings and which have contributed to my current situation in the Family Court, such as:
(a)Important evidence was not presented to the court;
(b)Evidence presented to the court and the Single Expert was not done so in the correct manner;
(c)The strategy taken by Readers was very defensive, which positioned me poorly in the proceedings;
(d)[the applicant's lawyers in the second part of the proceedings] were denied access to my files by [the respondent] in their preparation for and during Part 2 … ;
(e)The affidavit prepared by [the respondent] portrayed me as someone that I am not;
(f)Having a para-legal, inexperienced in family law, run my case day-to-day;
(g)The child ought to have seen a clinical psychologist for a period of time prior to trial so that the therapist's evidence could have had greater impact.
There are a number of difficulties with assessing these complaints. First, they are deposed to on information and belief and no affidavit evidence was presented by the experienced family lawyer to support them. Second, they are expressed in very general terms and without any context. Third, in some respects they deal with matters covered by advocate's immunity. No claim can be brought in respect of work done in Court or work initially connected with work in a Court: Attwells v Jackson Lalic Lawyers Pty Ltd [2016] HCA 16; (2016) 259 CLR 1.
The affidavit in support of the application then lists a number of matters that the deponent says the respondent firm would have done if it had acted professionally and competently. They are:
(a)Assisted in obtaining a report from a forensic medical doctor and facilitated all things necessary to make it available to the court through the necessary channels;
(b)As the principal of the firm Ruth Reader was unavailable to act for me for a period of around 2 months after Readers had taken me on as a client. During this period they should have made herself available and/or provided me with the legal assistance of an equally experienced family lawyer to attend to important issues that arose during that pre-trial period;
(c)The principal of Readers, Ruth Reader, provided no assistance/representation to me during the series of initial interviews and meetings with the Department for Child Protection and Family Support (DCPFS);
(d)Insisted on the subpoena of the files of Dr …;
(e)Better managed the time spent on work carried out and the type of works that was done in order to avoid large amounts of work that was wasteful, inefficient and improperly administered;
(f)Taken reasonable steps to ensure the adequate and regular supervision of the work that was carried out by the para-legal, Rachel Milton (Ms Reader's daughter), whom Ms Reader had put in charge of the day-to-day running of my matter, or used an alternative solicitor who had the adequate amount of family law experience necessary to do the work;
(g)Acted within reasonable time on my instructions to bring about the appointment of the Clinical Psychologist Dr … for my [child's] therapy and assessment prior to the trial;
(h)Charged fees in line with those set out in the cost agreement. Ruth Reader would have charged her time at the rate she quoted in my initial discussions with her;
(i)Used Ms Reader to represent me as my barrister as she said she would when I first engaged the services of the firm;
(j)Effectively argued the case of abuse by conducting a more thorough and targeted cross examination of the father;
(k)Instructed the barrister to effectively question the father's behaviour, his motives and, in turn, argue that the evidence of abuse be attributable to him;
(l)Strongly defended me against the actions and accusations of the father's legal team such as countering the arguments that were made about me by the father and his lawyers regarding the photographing of bruises and marks on our [child] and that it was the father who was inflicting these bruises and marks and was causing [the child's] distress;
(m)Refrained from invoicing me for drafting 'Papers for the Judge' as Ms Reader did not finalise this submission and neither did she submit them to the Judge at the close of the trial.
On the basis of these matters the deponent claims that she has an offsetting claim that is 'strongly arguable' that 'arises in both contract and negligence'.
The applicant also claims that by reason of the suspension order in the Supreme Court, the respondent could not proceed on the bankruptcy notice.
Respondent's answer
The respondent disputes the matters raised in the applicant's affidavit. Detailed submissions were made in writing, but the key matters advanced were:
(1)The claims in the District Court proceedings were a recent invention;
(2)Many of the complaints concerned the forensic approach to expert and other evidence about alleged harm to a child of the marriage in circumstances where the evidence of the applicant in the first part of the proceedings (when the respondent acted for the applicant) was that she accepted that there had been no such harm;
(3)Some complaints were about the reasonableness of charges and the extent of time spent and those matters were addressed in the taxation of costs;
(4)The outcome of part 1 of the proceedings (when the respondent was acting) compared to the outcome of part 2 (when other lawyers were acting) is inconsistent with the claims; and
(5)Many of the claims are unsubstantiated general assertions unsupported by evidence and for which there would be no measurable loss even if the claim were established.
Relevant principles
A debtor served with a bankruptcy notice who brings a set aside application within time will not commit an act of bankruptcy in failing to comply with the notice if the debtor satisfies the Court that he or she has a counter-claim, set‑off or cross‑demand equal to or exceeding the amount claimed that he or she could not have set up in the action or proceeding in which the judgment or order for the amount claimed was obtained: s 40(1)(g) of the Bankruptcy Act.
Where an application is made to set aside a bankruptcy notice on the basis of such an offsetting claim, the Court must weigh up considerations as to the legal and factual merit of the claim relied upon by the debtor and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim: Guss v Johnstone [2000] HCA 26 at [40]. The offsetting claim must sound in money and it must be a claim that it is proper and reasonable for the debtor to litigate: Vogwell v Vogwell (1939) 11 ABC 83, 85. It must be raised in the same right as the claim the subject of the bankruptcy notice: Ebert v Union Trustee Company of Australia Ltd (1960) 104 CLR 346, 351‑352. So, for example, a claim made in a trustee capacity can only be met by an offsetting claim against the debtor in the same trustee capacity.
The various formulations in the cases as to what must be established by the party seeking to set aside the notice were summarised by Lindgren J in Re Glew; Glew v Harrowell [2003] FCA 373 at [9]. They include, the existence of a 'prima facie case', 'a fair chance of success' or the party is 'fairly entitled to litigate' the claim and that the party is advancing a 'genuine' or 'bona fide' claim. However, it is not simply a matter of evaluating whether there is a claim with the requisite strength. Rather, the question is whether the claim is of a kind that, in all the circumstances (including the Court's view of the strength of the offsetting claim), it is just to allow the party to pursue rather than face bankruptcy. One aspect of the claim to consider is its strength. A weak claim will not suffice. Otherwise, an assessment of strength is to be considered in the context of other considerations that bear upon the justice of allowing the bankruptcy proceedings to continue without the claim first being determined.
The claim must be articulated in the supporting affidavit filed with the application to set aside. After reviewing the relevant cases, Bromwich J concluded in Coshott v Prentice (No 2) [2016] FCA 1531 at [40] that:
for an application to set aside a bankruptcy notice to be competent and trigger the automatic statutory extension of time for compliance in s 41(7), the offsetting claim must be 'effective' or 'real' at the time the application is made; it must be bona fide; it must on its face show a relevant offsetting claim. Such a jurisdictional requirement for a competent application cannot be supplemented after the time for compliance has expired because that is too late to engage jurisdiction and trigger an extension of time.
The claim may then be supplemented by further affidavits relied upon at the hearing of the application to set aside the bankruptcy notice, but new claims cannot be introduced.
I now consider each of the matters raised by the respondent as to why there is no offsetting claim of the kind required.
A recent invention
In October 2014, when the respondent was undertaking work for the applicant in part 1 of her Family Court proceedings, the applicant sent an email to Ms Reader of the respondent firm in the following terms:
I'm writing to apologise for the delay in my payment of your bill.
There is currently an outstanding amount of $14,273.27 for September.
As well as a further $22,000 to be put into my trust account. This being a total of $36,273.27.
The remaining amount is 3,726.73.
Ruth you have done fantastic work for me and I know you have been extremely generous in the hours you have spent on my case without charging. I only wish I had found you sooner and maybe the situation wouldn't be as critical as it is now.
I give you my word that I will pay you every cent.
I have approached my family (again) to help me out in the interim while I am waiting for my loan money come through [sic]. I will pay $5,000 cash today and $10,000 tomorrow. The $22000 will be put into my trust account by the end of next week.
Again my sincere apologies for the delay in your payment.
The hearing in part 1 took place in November 2014.
Ms Reader received a Christmas card and gift from the applicant in December 2014. The card said 'Thank you for all the work you've put into my case for my most precious [child]. Your dedication and wonderful spirit has lifted me through at times when I thought all was lost'. A separate card was sent to the paralegal who assisted Ms Reader. It said: 'Many thanks for your dedication and support in what was probably the most difficult time of my life'.
The taxation of costs took place in 2016. After the certificate of taxation issued, the applicant sent an email to the respondent stating:
I refer to the Certificate of Taxation in the amount of $67,591.09 (Incl. GST)
You have demanded payment of this amount and threatened to commence legal proceedings against me if I do not comply with the demand.
Not to put too fine a point on it, I simply don't have this amount. If you commence proceedings and get a judgment against me, I still won't have this amount. If you send the bailiff out to seize my goods, he will return empty handed. If you get a Court order for payment, I expect it will be in the vicinity of $100 per fortnight at most.
You have had full access to my financial information, so you know this is true. If you take steps to put me into bankruptcy, the realisation of my property in Bunbury would be lower than the amount I owe on it, given the caveats and mortgage that are currently in place.
As I see it, if you go ahead and do as threatened, whatever the judgment sum, you will not get $67,591.09 from me because I simply don't have it. If you force me into bankruptcy, you will not get nothing from me. This is against a background of having paid your firm over $100,000 in fees to represent me in this action.
The claim the subject of the District Court proceedings was not brought until after the bankruptcy notice was served. However, it appears that the concerns were raised in the course of the taxation of costs because the reasons of the Registrar of the Supreme Court refer to the need for any claim of negligence to be pursued by the applicant based on independent legal advice which she was not in a position to present on taxation. Also, the applicant produced a transcript of the hearing on the application for a suspension order in which reference was made to the issue of whether the respondent was negligent having been raised on the taxation.
Indeed, it appears that the concerns which the applicant now raises arose when the applicant engaged other lawyers to act for her in part 2 of the proceedings because it is the views of the new lawyers that she relies upon to support the claim. The earlier positive statements to the respondent by the applicant in 2014 must be placed in that context.
The applicant also says that she has raised her concerns with the Legal Profession Complaints Committee.
Given that the complaints that the applicant now raises appear to have been raised in the context of the taxation and that they emerged in the context of part 2 of the proceedings when other lawyers took over conduct of the applicant's Family Court proceedings from the respondent, I am not satisfied that this is the kind of case where the allegations have been recently invented in an attempt to stave off the bankruptcy. They substantially precede the service of the bankruptcy notice.
Evidence of the applicant in the part 1 hearing
A considerable number of the complaints that the applicant raises in her affidavit (and which, it seems, are the subject of the District Court proceedings she has commenced) concern the approach to evidence about complaints of harm by the applicant's husband to their child. The matters that the applicant says should have been done but were not done include (a) obtaining evidence from a forensic medical doctor to be made available to the court; (b) providing assistance during interviews and meetings with the Department of Child Protection and Family Services; (c) acting within reasonable time to bring about the appointment of the clinical psychologist for the child of the marriage and assessment prior to the trial; (d) effectively arguing the case of abuse by conducting a more thorough and targeted cross‑examination of the father of the child; (e) instructing the barrister to effectively question the father's behavior and argue that the evidence of abuse be attributed to him; and (f) defending the applicant against accusations concerning the photographing of the child of the marriage and that it was the father who was inflicting bruises and marks on the child.
As to these matters, the respondent refers to the following testimony of the applicant at the hearing in part 1 (redacted as to identifying material):
No. All right. So do I take it then that, now that you've heard the evidence of Mr … and now that you've heard the evidence of his partner and now that you've heard the evidence of …, the nanny, do you now accept that Mr … did not and does not physically harm your [child]?---I do not believe that he physically harms … our [child].
And do you accept - - -?---But that's not to say that, maybe in times of frustration or losing his temper or that, perhaps, in physically disciplining [the child], he has forgotten, perhaps, his strength, that he has inadvertently harmed [the child], but I do not believe that he would deliberately harm our [child].
I didn't ask deliberately harm. I asked, do you accept that Mr …does not - did not and does not - physically harm your [child]. You initially said you accept it, but you then qualified it. And so the qualification, to me, suggests that you don't completely accept it?---I accept that he does not physically harm
In any way?---In any way.
Unreservedly?---Unreservedly.
Why are we then hearing from evidence from Dr ..., for instance, in this trial?---I guess because I've had, as I've explained, many concerns about in terms of marks and bruises that [the child] has presented with, in terms of comments that [the child] has made with - to me over a long, long period of time.
The respondent also adduces evidence as to what occurred in the course of preparation for part 1 of the proceedings. It is in the form of an affidavit provided by Ms Reader in the course of the taxation of costs. It deposes that prior to the involvement of the respondent, the applicant had raised concerns of harm to the child of the marriage. By reason of these matters, the Family Court appointed a single expert. The applicant had provided information to the single expert and the Department of Child Protection and Family Services as to her concerns.
Not long after the appointment of the respondent, the firm had some involvement in taking instructions and presenting the applicant's concerns to the single expert and dealing with the Department of Child Protection and Family Services. After that, concerns were raised by the single expert and the Department about the applicant. The Department reported its emergent concerns that the child may have been experiencing psychological and/or emotional harm in the care of the applicant based on the numerous and repeated medical appointments and physical examinations and photographs of purported injuries.
After this report was received, the applicant for the first time informed the respondent of the extent of photographs that she had provided to the Department. It was described by Ms Reader as a stack some 6 inches in height.
The forensic decisions as to the conduct of part 1 of the proceedings were then made by the respondent.
Against the advice of the respondent, the applicant arranged for a report to be obtained from a forensic medical practitioner and it was presented to the court in the course of part 1 of the proceedings.
In the above circumstances, it appears that the concerns raised by the single expert and the Department and the opinions they formed were the consequence of actions taken before the engagement of the respondent to act for the applicant. They gave rise to a significant and difficult forensic choice to be made. The applicant advances no detail as to why different steps should have been taken by members of the respondent firm when it became involved. Nor does the applicant explain how those steps, if taken, may have materially affected the outcome for the applicant. The complaints raised about the forensic approach to the claims of abuse are general in nature. Having regard to her own evidence at the hearing in part 1 and the uncontested material about the views formed by the single expert and the Department, the material presented by the applicant falls short of identifying a claim as to those matters that has sufficient merit that it would now be just to give the applicant the opportunity to pursue despite her failure to pay the taxed costs the subject of the bankruptcy notice.
In addition, I note that some parts of the complaint concern the forensic choices made by the barrister who appeared at the part 1 hearing. These aspects may well be the subject of advocate's immunity. However, it is not necessary to form a view on this aspect which was only the subject of brief written submissions.
Reasonableness of charges
Other complaints raised by the applicant are to the effect that there was work done that was wasteful, inefficient and improperly administered. There is also a complaint that fees were charged at the wrong rate. There are complaints that charges were incorrectly raised for some matters. These are all concerns that could have been raised in the process of taxation. The applicant must show that there are offsetting claims that could not have been raised in the proceedings that led to the determination of the liability to pay the amount the subject of the bankruptcy notice: Palaniappan v Westpac Banking Corporation [2017] FCAFC 121 at [32]. Therefore, I accept that those complaints do not raise matters that could be the subject of an offsetting claim for the purposes of the Bankruptcy Act.
The outcome of part 1 compared to part 2
At the end of part 1 of the proceedings, the court made interim orders to the following effect:
(1)the applicant and the father had equal shared parental responsibility for the child except that the father had sole parental responsibility for the management and treatment of all the child's medical needs; and
(2)the child was ordered to live with the applicant except for four nights each fortnight for the first six months and six nights each fortnight after six months had passed from the making of the orders.
At the end of part 2 of the proceedings the court made final orders to the following effect:
(1)the father was given sole parental responsibility for the child; and
(2)the child was to live with the father and the applicant's time with the child, subject to compliance with numerous other orders and injunctions, was limited to four nights per fortnight.
The respondent says that the 'best and most objective test' of the representation of the applicant by the respondent is a comparison between these outcomes.
I am cautious about drawing such conclusions based upon these matters. The nature of the outcome achieved in any litigation is a function of many considerations, not the least of which is the merit of the case. Steps taken in the course of part 1 no doubt had significance for the final outcome. I am not persuaded that I should draw any conclusion from such a comparison in assessing the merits of the offsetting claim on which the applicant relies.
Unsubstantiated general assertions
The claim described by the applicant lists a number of complaints without any attempt to deal with issues of causation or quantum of damages. The claim made in the District Court seeks to recover all of the amount paid to the respondent as well as a large amount paid to the solicitors who took over conduct of part 2 of the proceedings. The affidavit of the applicant says baldly that the costs to be paid to her new solicitors 'arise from' the failure of the respondents to represent the applicant in a competent manner. There is no material to support this assertion which amounts to a claim that part 2 of the proceedings would not have been necessary at all. Given that part 1 resulted in interim orders on the basis that there would be a further hearing it is difficult to see how there is any basis for this claim.
Further, as to the amounts for work done by the respondent, there is no claim of any damages beyond the amounts of the fees rendered by the respondent to the applicant. In effect, the claim must be that the work was done so poorly that there is no basis to payment for the work at all (it having been assessed through the taxation process as having been undertaken and being able to be charged for by the respondent based upon agreed arrangements). There is no material before me to support such a claim.
Other matters
Concerns are raised by the applicant about the extent to which work was done by a paralegal. However, the terms of engagement provided for work to be done by a paralegal. There is no material advanced to support the claim that the paralegal involved was inexperienced or not capable of undertaking the work that she undertook for the applicant.
A claim is made that the applicant's new lawyers were denied access to the files held by the respondent when they were preparing for part 2 of the proceedings. However, this is a claim that is unsupported by any particulars. There is no statement as to what was needed or how it affected the conduct of the proceedings. The response provided by the respondent was to the effect a lien was exercised for unpaid fees, that the applicant had digital or hard copies of virtually every document held by the respondent and that the applicant was told that if further documents were requested they would be provided.
A complaint is made that the principal of the respondent was not available as she was on leave. This matter is addressed in affidavit material by the respondent. There is no material presented to dispute that explanation or to explain why there was a consequence for the conduct of part 1 of the proceedings.
Conclusion concerning offsetting claim
Having regard to all of the above matters, I am not satisfied that the applicant has an offsetting claim that meets the requirements of the Bankruptcy Act. The claims made are expressed in general terms. For the most part, the claims made by the applicant are of things that should have been done, but were not done. There is no context given that enables an evaluation of the alleged omissions or whether a reasonable and competent solicitor would have approached the circumstances in a different way. There is no material presented to explain how, given the state of the forensic issues (particularly the opinion of the single expert and the Department) there were omissions that had consequences for the proceedings. Further, a significant number of the matters now raised to support the alleged offsetting claim concern issues that could have been raised in the taxation.
In those circumstances, it would not be just to set aside the bankruptcy notice on the basis of the claim as described by the applicant. Accordingly, I find that there is no offsetting claim of the kind required by s 40(1)(g) of the Bankruptcy Act.
Suspension order
By s 7 of the Civil Judgments Enforcement Act 2004 (WA) (Enforcement Act), the writs, warrants and orders that could be issued or made at common law or in equity or under a written law to enforce or execute a judgment of a court were abolished. They were replaced by statutory provisions for the making of enforcement orders of various kinds: see Part 4. Under s 15, the court that gave a judgment may make an order suspending the enforcement of all or part of the judgment. In context, the reference to 'enforcement' means enforcement under the Enforcement Act. The courts of Western Australia do not have jurisdiction in bankruptcy matters and therefore an order suspending enforcement under the Enforcement Act could not operate by force of that Act to prevent a party from taking steps under the Bankruptcy Act.
However, s 41(3) of the Bankruptcy Act provides that if 'at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed' then a bankruptcy notice shall not be issued. Also, under s 40(1)(g) there can be no act of bankruptcy arising from a failure to comply with a bankruptcy notice unless it was issued by a creditor who has obtained a judgment or order, 'execution of which has not been stayed'. The reference to 'stayed' in these provisions has been construed as including other circumstances which mean that the judgment or order cannot be enforced: Abigroup Ltd v Abignano [1992] FCA 567; (1992) 39 FCR 74, 80 and Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572, 586. So, they include a case where the judgment or order cannot be enforced by reason of order made under s 15 of the Enforcement Act suspending enforcement.
In this case, the order suspending enforcement was made after the issue of the bankruptcy notice, but was in place by the time I heard the application to extend time and review the decision of the Registrar. The order suspending enforcement was an interim order. If such an order is still in place by the time of any final hearing of the creditor's petition then that may be a relevant matter at that time. Otherwise, the requirement is only that there be no stay at the time of the application to the Official Receiver for the issue of the bankruptcy notice, or at the latest the time of service: ReSchekeloff; Ex Parte Schekeloff v The Hopkins Group Pty Ltd (1989) 22 FCR 407.
In Murdaca v Accounts Control Management Services Pty Ltd [2007] FCA 964, there was no stay at the time of issue of the bankruptcy notice, but an ex parte stay was granted within the 21 day period for compliance. Branson J granted a stay in respect of proceedings under a sequestration order pending an application to the High Court for special leave to appeal on the basis that the correctness of the decision in Re Schekeloff is open to question. Her Honour found it to be at least arguable that a debtor does not commit an act of bankruptcy by not complying with a demand to pay a judgment debt which becomes unenforceable during the period allowed for compliance even though the debt had been due and payable at the dates of issue and service of the bankruptcy notice: at [15]. The matter does not appear to have proceeded to any further determination.
In my view, the reasoning and decision in Re Schekeloff is correct. It reflects the language in s 41(3)(b) which states the circumstances in which a bankruptcy notice may be issued. It is implicit in the terms of s 41 (particularly s 41(6A)) that the Court has a broad power to set aside a bankruptcy notice. The Bankruptcy Act does not circumscribe the extent of the circumstances in which that inherent power may be exercised. There may be instances where the fact that a stay has been granted after the issue of the notice but during the period for compliance forms part of the circumstances upon which the Court relies in setting aside a notice. For example, it may be part of the basis for a conclusion that the notice should be set aside as an abuse of process, particularly where the prospect of an application for a stay had been foreshadowed or otherwise was in view: see the circumstances in Lindholdt v Merritt Madden Printing Pty Ltd [2002] FCA 260. However, that is very different to concluding that the notice itself is invalid or there can be no act of bankruptcy in failing to comply with a notice where there has been a stay granted after the issue of the notice. There is no language to support those conclusions in the provision.
Further, if the contrary view were adopted then a person receiving a bankruptcy notice could immediately seek an interim stay on an ex parte basis and that would mean there could be no act of bankruptcy arising in respect of a failure to comply with the notice. The stay may then not be extended, but the creditor would have to issue a further notice.
Accordingly, in my view, the existence of the order suspending enforcement is not a basis to set aside the bankruptcy notice.
Finally, even if I am wrong in these views there is a further reason why the suspension order cannot be relied upon in this case. It is not a matter that arose in the initial 21 day period for compliance and was not referred to in the application in support of the original application. On an application to set aside a bankruptcy notice, the applicant is confined to claims disclosed by the affidavit filed with the original application: Coshott v Prentice (No 2) at [39]‑[40].
Extension of time sought by the respondent
There are two ways in which an extension of time to comply with a bankruptcy notice may arise. The first way is under s 41(6A) of the Bankruptcy Act which provides that where an application to set aside has been commenced before the time for compliance has expired then the Court may extend time. The Court has power under this provision to extend the time for compliance with a bankruptcy notice after expiry of the time specified in the notice (and any earlier extension): see Streimer v Tamas (1981) 54 FLR 253, approved in Guss v Johnstone at [58]. However, the application to set aside must have been brought within time: Re Shaddock; Ex parte Commonwealth Bank of Australia [1998] FCA 355 (Goldberg J).
The second way is by automatic extension under s 41(7). If an application to set aside is brought within time on the ground that the debtor has an offsetting claim and the Court has not yet determined that question then the time for compliance with the bankruptcy notice is extended by operation of s 41(7) until the day on which the Court determines the application.
As I have already noted, the offsetting claim must be 'effective' or 'real' before the automatic extension will arise: see the passage from Coshott v Prentice (No 2) quoted above. This was described by Bromwich J as a legal capacity test, rather than a sufficiency of evidence test. So, the claim described in the affidavit filed with the set aside application must describe a claim of a kind that could meet the statutory requirement of an offsetting claim: Webb v Hunter [1995] FCA 1443; (1995) 59 FCR 24. If so, then there is an automatic extension even though, when determining the set aside application, the Court ultimately holds that there is no offsetting claim (as I have done in this case).
However, in the absence of an effective or real offsetting claim that satisfies the legal capacity test then there is no extension by operation of s 41(7). There is an act of bankruptcy and the six month period for presenting a petition based upon the failure to comply with the bankruptcy notice commences to run.
Before the Registrar, the respondent argued that the offsetting claim was not effective or real. The Registrar did not consider whether that was the case. The Registrar simply dealt with the question whether there was an offsetting claim and found that there was not such a claim. The Registrar then concluded:
I note in passing that (assuming I am correct that the Application was filed within time) the benefit of the automatic extension of the time to comply in s 41(7) of Act accrues to the benefit of the debtor because no act of bankruptcy occurs whilst the Application is being considered and, for an unsuccessful application, the benefit of the automatic extension of time to comply mainly accrues to the benefit of the creditor because a full six months in which to present a creditor's petition is preserved: Coshott, at ([19]).
This passage indicates a view on the part of the Registrar, despite the submissions by the respondent, that the claim raised by the applicant met the requirement of being 'effective' or 'real' and therefore there was an automatic extension.
The order made by the Registrar did not include an order for an extension of time. As I have noted a creditor's petition has since been presented by the respondent. Where a creditor's petition relies upon a failure to comply with a bankruptcy notice as the act of bankruptcy then the failure to comply must have occurred in the six months before presentation of the petition. So, if there was no automatic extension in this case, the petition would be well out of time to the extent that it relies upon failure by the applicant to comply with the bankruptcy notice.
To the extent necessary, the respondent now seeks an order for an extension of time so that it can proceed with a creditor's petition in respect of the bankruptcy notice.
In my view, the claim raised in this case, being a claim that the respondent had acted in breach of contract or negligently in providing the services the subject of the demand, was legally capable of being an offsetting claim. The elements of such a claim were deposed to by the applicant in her supporting affidavit, albeit at a level of generality. Those elements meet the legal sufficiency requirement for an automatic extension under s 41(7). I reach that view despite the submissions to the Registrar by the respondent which were to the contrary. Therefore, there was an automatic extension of time that means that an extension under s 41(6A) is not necessary.
However, that is not the end of the matter. It is necessary to consider the period between the making of the Registrar's decision (23 October 2017) and the date of this decision. When the Registrar's decision was made the automatic extension under s 41(7) stopped running. As a result a creditor's petition relying upon the failure to comply with the bankruptcy notice had to be brought within six months of that date: s 44(1)(c).
The automatic extension under s 41(7) does not revive if the court was to find, on appeal, that the bankruptcy notice was invalid: Ebert v Union Trustee Company of Australia Ltd (1961) 105 CLR 327 at 332-333; Shephard v Chiquita Brands South Pacific Ltd [2004] FCAFC 76 at [55]-[65] and State Bank of New South Wales v Gomez [2002] FCA 1476 at [11]-[17]. Section 41(7) operates to extend the time for filing a petition until the original determination of the Court, not any appeal from that original determination: Elkateb v Lawindi [2000] FCA 1939. In my view, the same position applies where, as here, there is an application to a Judge of this Court to review a determination by a Registrar that he or she is not satisfied that there is an offsetting claim. Time for presentation of a petition begins to run unless there is an extension of time under s 41(6A).
Accordingly, the creditor's petition that has been presented by the respondent was within the six month period. Therefore, there is no need for an extension of time to protect the respondent.
Had I not reached that view then there would have been a real issue whether to grant an extension of time for the benefit of the respondent.
In Streimer v Tamas, Deane and Ellicott JJ recognised that a consequence of the Bankruptcy Act allowing an extension of time to be granted after a failure to comply with a bankruptcy notice would be to introduce uncertainty as to whether there had been an act of bankruptcy when the time expired. They found that this was a matter to be brought to account in deciding whether to grant an extension after the time for compliance had expired:
If proceedings to set aside the relevant judgment or order have been instituted or an application to set aside the bankruptcy notice has been filed within the time limited for compliance with the requirements of the bankruptcy notice, there may remain doubt as to whether a subsequently granted extension of time will preclude a previous period of non-compliance, which has expired without extension, from constituting an act of bankruptcy. The creditor would, however, ordinarily be aware that proceedings to set the judgment aside had been instituted or that an application to set aside the bankruptcy notice had been filed. He would therefore be on notice that the time for compliance might be extended. In any event, any detriment suffered as a result of such uncertainty or inconvenience would be relevant on an application to extend time for compliance and may be a factor militating against the making of an order extending time. Clearly, any prudent practitioner will continue to observe the present practice of endeavouring to ensure that the original or extended time for compliance is not allowed to expire without an extension or further extension being obtained. One would hope that the circumstances where time was allowed to expire before an application to extend, or further to extend, time was made or dealt with, would be restricted to cases resulting from ignorance on the part of a debtor acting in person, inadvertance on the part of a debtor's legal representative or, conceivably, temporary unavailability of a Judge or Registrar of a court entrusted with the exercise of bankruptcy jurisdiction. Be this as it may, we are unable to accept possible uncertainty or inconvenience as constituting any proper ground for cutting down the circumstances in which, under the plain words of the Statute, a person is entitled to seek from the Court an order extending the time for compliance with the requirement of a bankruptcy notice which has been served upon him.
In this case, the respondent maintained before the Registrar that there was no claim of a kind that would give rise to the automatic extension. It agitated that issue. The necessary consequence of that submission, if upheld, was that there would be no extension unless one was sought under s 41(6A). The respondent could have sought an extension of time for compliance for its benefit, but did not do so prior to or after the Registrar's decision. It then presented the creditor's petition without taking steps to extend time.
Therefore, the present case may be distinguished from Coshott v Prentice (No 2) where an extension was given as part of the orders made at the time of finding that there was an invalid application to set aside the bankruptcy notice because there was no offsetting claim of the kind required by s 41(7) of the Bankruptcy Act: at [167].
If the application for an extension under s 41(6A) was to be refused in circumstances where the time had passed for presenting a creditor's petition (because there had been no automatic extension under s 41(7)) then there would have been an issue whether to allow an extension of time in which to bring the present application to review the decision of the Registrar because it would have served no purpose.
However, for reasons I have given, I am satisfied that there was an automatic extension under s 41(7) in this case up until the Registrar's decision having regard to the nature of the offsetting claim relied by the applicant in her supporting affidavit.
Conclusion
I grant the extension of time sought by the applicant, but dismiss the application to review the decision of the Registrar with costs and make orders accordingly.
I certify that the preceding ninety-three (93) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin. Associate:
Dated: 7 May 2018
14
27
4