CHADWICK Lawyers v MCMULLEN
[2009] FMCA 992
•5 October 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CHADWICK LAWYERS v MCMULLEN | [2009] FMCA 992 |
| BANKRUPTCY – Creditor’s petition – application for adjournment – application to set aside default judgment upon which bankruptcy notice based – factors considered. |
| Bankruptcy Act 1966, ss.30, 41, 52 Legal Profession Act 2007 (Qld), ss.319, 329, 331 |
| Ahern v Federal Commission of Taxation (1987) 76 ALR 137 |
| Applicant: | CHADWICK LAWYERS & ASSOCIATES |
| Respondent: | WAYNE MCMULLEN |
| File Number: | BRG 586 of 2009 |
| Judgment of: | Wilson FM |
| Hearing date: | 5 October 2009 |
| Date of Last Submission: | 5 October 2009 |
| Delivered at: | Brisbane |
| Delivered on: | 5 October 2009 |
REPRESENTATION
| Counsel for the Applicant: | N/A |
| Solicitors for the Applicant: | Winchester Young & Maddern |
| Counsel for the Respondent: | N/A |
| Solicitors for the Respondent: | Lillas & Loel Lawyers |
ORDERS
That the creditor’s petition be adjourned to not before 10.00am 23 October 2009 in the Federal Magistrates Court of Australia at Brisbane.
That both party’s costs of and incidental to today, are reserved.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 586 of 2009
| CHADWICK LAWYERS & ASSOCIATES |
Applicant
And
| WAYNE MCMULLEN |
Respondent
REASONS FOR JUDGMENT
This is an application by the respondent debtor for an adjournment of a creditor’s petition that was served on the respondent debtor on 24 September 2009. The application for an adjournment is opposed and the creditor seeks an order that the estate of the respondent debtor be sequestrated forthwith.
On 14 May 2009, the applicant creditor recovered a default judgment in the Queensland Magistrates Court against the respondent in the sum of $33,969.17 apparently for unpaid legal fees. In reliance on that judgment a bankruptcy notice was served on 30 July 2009.
The respondent debtor did not satisfy the debt or bring any application to set aside the bankruptcy notice, nor to extend time for compliance with it. He therefore committed an act of bankruptcy on 20 August 2009. Consequent upon the commission of that act of bankruptcy, a creditor’s petition was filed and served, as I have said, on 24 September 2009. The matter came before me on 1 October 2009, the first return date of the petition. The solicitor for the debtor then sought a short adjournment to put before the court further evidence on behalf of the respondent, which I granted.
Today, a further affidavit of the respondent debtor was received into evidence over the objection of the petitioning creditor. Notwithstanding the fact that the affidavit was not served on the solicitors for the petitioning creditor in compliance with the order made on 1 October 2009, I received the evidence because it largely consists of either public documents or documents passing between the applicant and the respondent and could not be said to take the applicant by surprise.
The respondent says that he filed an application on 1 October 2009 to set aside the judgment given against him by default. There is a dispute between the parties as to whether that application has yet been properly served. I am told by the solicitor who appears for the respondent that the application is returnable on 23 October 2009 in the Queensland Magistrates Court.
The solicitor for the applicant creditor submitted that the respondent’s application, which, as I have said, is simply for an adjournment of the petition at this stage, constitutes an impermissible attempt by the respondent to extend the time for compliance with the bankruptcy notice and is not in conformity with s.41(6)A Bankruptcy Act 1966 (“the Act”). There is no such application before this court.
The respondent debtor accepts two things. First, that a bankruptcy notice was served upon him, and, secondly, that he has committed an act of bankruptcy. In practical terms what the respondent debtor seeks to do is to have this court adjourn the petition to enable him to bring an application to set aside the default judgment, relying on either s.52(1)(c) of the Act in demonstrating that there is doubt as to whether the debt or debts upon which the petitioning creditor relies is or are still owing, or under s.52(2)(b) of the Act, that there is other sufficient cause not to make a sequestration order.
The power to grant an adjournment generally is conferred by s.30 of the Act. In deciding whether or not to grant an adjournment of the creditor’s petition the principles are well settled. It is sufficient to refer to the decision of Ahern v Federal Commission of Taxation (1987) 76 ALR 137 in which the Full Court recognised that this court retains a discretion to adjourn the hearing of a petition in certain circumstances. Here, an adjournment is sought to enable the debtor to bring an application to set aside the judgment upon which the bankruptcy notice and, in turn, the creditor’s petition is founded.
There is a long line of authorities to the effect that a court in bankruptcy will go behind a judgment, particularly a default judgment, if it is satisfied that there is a real and genuine issue to be investigated. That line of authority relies in part on the fact that bankruptcy proceedings are not litigation inter partes, but serve a wider public purpose.
On an application to set aside the default judgment in the State court, ordinarily two matters will have to be considered by the magistrate who hears the application. They are whether there is an explanation for the delay in applying to set aside the judgment and an explanation for failing to file a defence in the proceedings, and, secondly, whether or not there is, in fact, an arguable defence available to the defendant.
In this matter there has been delay on the part of the respondent. It is not possible for me to resolve, on this application, the cause of the delay leading up to the making of the judgment. The respondent has put in affidavit material which asserts that the petitioning creditor, or its representative, represented to him that proceedings would not be taken against him. That is a matter that is best tested in the State court.
There has been, however, delay between the entry of the judgment or, more particularly, when it came to the notice of the respondent, and the application to set it aside. The affidavit of Ms Keir, filed 3 September 2009, which deals with service of the bankruptcy notice swears to the fact that when served the bankruptcy notice had attached to it a copy of the default judgment. It is plain that when the bankruptcy notice was served on 29 July 2009 the entry of judgment would have been brought to the respondent’s attention.
There is no sworn evidence before me putting in issue the contents of Ms Keir’s affidavit. The question, then, is whether a delay from 29 July until 1 October is sufficient to defeat what might otherwise be a meritorious defence to the proceedings. In my view, that delay, whilst largely unexplained, is not such as to of itself lead me to conclude that the application to set aside the default judgment has no prospects of success. As in most cases, unless the delay is egregious or contumelious, the court deciding whether to set aside a default judgment, where there is no prejudice to the judgment creditor that cannot be remedied by an appropriate order for costs will look primarily to the merits of a defence to see whether or not the judgment should be set aside, whether on terms or ex debito justitiae.
In this case the respondent relies primarily on two matters to challenge the default judgment. The first is an issue of service. The respondent contends that he was never properly served with the Claim and Statement of Claim in the Queensland Magistrates Court proceedings. He deposes to this in his first affidavit filed by leave on 1 October. Mr Smith who allegedly served the documents upon him has not had the opportunity to put on evidence either in this court or in the State court in answer to the respondent’s contentions and it is sufficient for me to observe today that it cannot be said that the respondent’s argument regarding service is either frivolous or spurious.
The second basis of asserted defence is more substantive. It is that the respondent was never the client of the applicant and therefore is not susceptible to being sued for unpaid fees. The applicant is a firm of solicitors which allegedly provided services to the respondent. The claimant’s Statement of Claim filed in the State court is admirably brief. It alleges at paragraph 2 that on 16 January 2009, the plaintiff engaged the defendant to provide legal services to him at his request. Assuming that the pleading means that the defendant engaged the plaintiff to provide legal services, no further detail is provided of the alleged retainer.
There is no particularity as to whether it was pursuant to a costs agreement or whether it was simply an agreement to pay the applicant creditor’s costs to a fair and reasonable value.
Secondly, it is alleged at paragraph 3 of the Statement of Claim that between 16 January and 9 March 2009, the defendant provided legal services to the plaintiff on an urgent basis at its usual fees and charges. In paragraph 4 it is alleged that a tax invoice was issued dated 20 February 2009. It is alleged that the tax invoice was forwarded to the defendant on that date under cover of a letter.
The respondent before me swears to the fact that he did not receive the applicant creditor’s account until 30 March 2009: see paragraph 11 of his second affidavit. It is not possible for me to resolve today that dispute as to service although it may have important consequences under the Legal Profession Act2007 (Qld) to which I will return shortly. Further the applicant creditor alleges at paragraph 5 of its Statement of Claim that the respondent acknowledged receipt of the tax invoice and his indebtedness to the plaintiff in a telephone conversation on 30 March 2009.
A number of points can be made as to the applicant creditor’s claim. First, as I have said, it is alleged that the retainer commenced on 16 January 2009 and that services were provided between 16 January and 9 March. It is difficult to see how, if the invoice was remitted on 20 February, services could have been provided up until and including 9 March. Further the face of the invoice presents further problems for the applicant creditor. Although it is addressed to the respondent debtor, it is headed “Re Advice 1 October 2008 - 6 February 2009”. On an ordinary reading that reflects the fact that the tax invoice referred to work provided during that period, which is inconsistent with the terms of the Statement of Claim to which I have referred.
Further, when the description of work is referred to, one can see that it includes legal fees for, inter alia, advice as to asset structure, and liaising with a shelf company agent and registering trusts and companies for tax file numbers and Australian business numbers. As the solicitor for the respondent pointed out, there were a number of accounts issues by the applicant creditor to corporate entities and to trusts on 20 January 2009.
It is not able to be determined at this stage whether there is any duplication in the subject matter of the invoices but having regard to the very general terms of the description of work done in the invoice dated 20 February 2009 one is entitled to be sceptical about that matter. Further, when one has regard to the letter which accompanied the copy of the account that is exhibited to the respondent’s second affidavit, the matter becomes more confused.
The representative of the applicant there stated that the account was rendered in the respondent’s name:
As instructions were received by you personally at all times and you misrepresented to this firm that you had instructions on behalf of Barter Property Group Pty Ltd -
I do not understand why there is any need to refer to a misrepresentation about instructions of Barter Property Group Pty Ltd if instructions were provided personally by the respondent. Rather that email reads as if instructions were initially provided on behalf of the corporate entity but that it was subsequently discovered that the respondent debtor did not have the authority to represent that company.
It is sufficient, I think, for me to observe that the matters to which I have referred cast a real doubt on the strength of the applicant creditor’s claim in the State court.
As well as those factual matters, s.319 Legal Profession Act as I have said only entitles a legal practitioner to recover costs in one of three ways. It is not pleaded in this case that there was any costs agreement and none has been produced.
It is not alleged that the costs were recoverable under an applicable scale of costs. Indeed the applicant creditor says that it sought to recover its “usual costs” or their costs at their usual rate. That seems to bring the matter at best for the applicant creditor under s.319(1)(c) of the Act which would require proof that the amount sued for was “fair and reasonable value of the legal services provided”. That fact is not pleaded in the Statement of Claim. If the costs are sought to be recovered and there is a legal bar to doing so unless a precondition is met, one would think that it ought to have been.
One must then have regard to s.329 of the Act which provides that legal costs cannot be recovered unless a bill has been served. That in turn requires resolution of the dispute as to whether the applicant creditor’s tax invoice was given to the respondent debtor on 20 February or 20 March. If it was the latter date, it seems to me that s.329(1) of the Act precluded the applicant creditor from commencing its proceedings. The other matter to which attention may be drawn is whether or not s.331 of the Act was complied with. The copy of the tax invoice that is exhibited to the respondent debtor’s second affidavit does not include the written statement that is required by that section nor is there any evidence that the respondent debtor was a “sophisticated client”.
It may be that if what is exhibited to the respondent debtor’s affidavit is in fact an account rendered rather than the original invoice, that the written statement formed part of the original invoice. However, it seems to me that there are a number of matters under the Legal Profession Act that also may be raised in the State proceedings.
In my view, reference to the matters which I have discussed leads me to conclude that there is a real issue or dispute about the genuineness of the default judgment that has been entered by the applicant creditor against the respondent which requires further investigation.
In those circumstances I consider that the respondent debtor who has applied for an adjournment is entitled to that adjournment at least until the determination of his application in the State court.
I should as a matter of completeness deal with one further matter. The solicitor for the applicant creditor submitted that this Court is not operating in accordance with the Bankruptcy Act but rather is exercising its inherent jurisdiction. Putting to one side the interesting question as to whether this Court as a statutory court has an inherent jurisdiction, in my view it is plain that this court is exercising jurisdiction under the Bankruptcy Act whether under s.30 or s.52 to which I have already referred.
Secondly, the solicitor for the applicant creditor submits that to adjourn the petition I must be satisfied of four matters which are set out in her written submissions. In my view that submission is misconceived. It is sufficient to adjourn a petition if one or more of the factors (amongst others) there referred to are made out. In this case, for example, if the respondent debtor has a clear entitlement to set aside the judgment upon which the bankruptcy notice and in turn the creditor’s petition is based, there is no need for the debtor to go into the issue of solvency.
In my view the adjournment should be allowed.
I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of Wilson FM
Associate: Lynnette Chin
Date: 8 October 2009
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