Devon v Madgwicks

[2015] FCCA 3460

FEDERAL CIRCUIT COURT OF AUSTRALIA

DEVON v MADGWICKS [2015] FCCA 3460

Catchwords:
BANKRUPTCY – Application for review of a Registrar’s decision – no appearance by applicant at the hearing – substantive claim dealt with in the applicant’s absence – applicant seeks orders setting aside bankruptcy notice until Federal Court of Australia proceeding is determined – application dismissed.

Legislation:

Bankruptcy Act 1966 (Cth): ss.41(g), 47
Federal Circuit Court Rules 2001 (Cth), r.20.03

Applicant: HUGH DEVON

Respondent: MADGWICKS

File Number: MLG 1924 of 2015

Judgment of: Judge Wilson

Hearing date: 10 December 2015

Date of Last Submission: 10 December 2015

Delivered at: Melbourne

Delivered on: 10 December 2015

REPRESENTATION

No appearance by the Applicant

Counsel for the Respondent: Mr M Wilson

Solicitors for the Respondent: Madgwicks

ORDERS

1. The Application for Review filed 8 October 2015 is dismissed.

2. The Applicant pay the costs of the Respondent fixed in the sum of $1,836.00.

THE COURT NOTES THAT:

A.The Applicant was called outside of Court at 10.32 a.m. today and there was no response to the call by the Applicant.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 1924 of 2015

HUGH DEVON

Applicant

And

MADGWICKS

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

Introduction

1. By application filed on 8 October 2015, the applicant HUGH DEVON (“the applicant”) applied for the review of orders made by

   
   

   Registrar Allaway on 8 October 2015. On that day, Registrar Allaway dismissed the applicant’s application to set aside a bankruptcy notice issued by the respondent MADGWICKS (“the respondent”). Pursuant to r.20.03 of the Federal Circuit Court Rules 2001 (“the Rules”), the review of the Registrar’s decision is in the nature of a hearing de novo in which a judge of this Court considers the evidence before the Registrar, as well as any further evidence, if such further evidence is adduced with leave. 

Synopsis

1. For the reasons that follow, I dismiss the applicant’s application to review Registrar Allaway’s decision made on 8 October 2015. He did not appear at the hearing today and therefore did not prosecute the hearing of his application. Aside from the applicant’s failure to appear I propose to dispose of the substance of his claim. 

Factual setting

1. On 19 March 2015, the Magistrates Court of Victoria

   
   

   (“the Magistrates Court”) ordered the applicant to pay the respondent the sum of $11,230.95. That order was made following a contested hearing. The Magistrates Court granted a stay of 30 days. The applicant did not appeal against the orders of the Magistrate. The

   
   

   Magistrates Court judgment arose out of a claim for unpaid fees then due to the respondent. The applicant retained the respondent some time earlier in connection with the preparation of documents for the sale of a franchise business by a company called Trade Pty Ltd (“TPL”) of which the applicant was the sole director and his wife the sole shareholder.

2. The purchaser of the franchise paid a broker the sum of $20,000.00 after executing heads of agreement. The respondent prepared a contract of sale to more exhaustively reflect the basis of the sale from TPL. However, the purchase did not proceed. The broker refunded the deposit. The respondent sued the applicant for unpaid fees associated with the preparation of documentation. The applicant challenged the suit, arguing that TPL was the respondent’s client and therefore liable for the fees. The applicant alleged that the respondent was negligent for failing to collect and retain the $20,000.00 deposit paid by the

   
   

   would-be purchaser. 

3. The applicant alleged that the respondent had caused TPL to suffer the loss of $600,000.00 on the sale of the franchise. Curiously, the applicant did not file a counterclaim in the Magistrates Court, nor did TPL bring a proceeding against the respondent. 

4. A transcript of the proceeding before the Magistrates Court was adduced in evidence before me, which I carefully read. During the hearing before him on 19 March 2015, Magistrate Braun asked the applicant for clarification of various issues, as a result of which the applicant informed that Court that he did not wish to litigate any issues in or concerning negligence, and that instead, he chose to advance his defence to the proceeding solely on the ground of the identity of the party properly liable for the fees due to the respondent.

5. After a full hearing, the Magistrate found against the applicant, holding that the applicant was personally liable for the fees due to the respondent. Based on the judgment debt, at the respondent’s request, the official receiver issued a bankruptcy notice on

   
   

   26 June 2015, in which the sum stipulated was $11,230.95, made up of the fees claimed by the respondent, together with interests and costs. 

6. The applicant challenged the bankruptcy notice. The hearing of that challenge came before Registrar Allaway. The applicant relied on four affidavits being his affidavits sworn on -

   ·19 August 2015;

   ·24 September 2015;

   ·25 September 2015; and

   ·6 October 2015.

7. The respondent rested its resistance to the applicant’s challenge on one ground. It contended that the applicant could have, but failed to, set up in the Magistrates Court proceeding a claim in the nature of a

   
   

   counter-claim, set off or cross-demand. 

8. The respondent argued that the applicant’s failure to do so was directly and critically relevant to his challenge to the bankruptcy notice. A little earlier than the date on which Registrar Allaway heard argument in relation to bankruptcy notice, on 20 August 2015, the applicant filed a proceedings in the Federal Court of Australia (“the Federal Court”) in which he (not TPL) sought damages from -

   ·the respondent;

   ·a business broker to whom the deposit of $20,000.00 was paid; and

   ·Peter Kennedy, a partner of the respondent, alleging breach of contract, negligence, misleading and deceptive conduct, and unconscionable conduct in relation to the sale of the business.[1]

   [1] (P)VID436/2015, Hugh Devon v Madgwicks (A Firm) and Ors filed 20 August 2015.

9. The applicant contended before the Registrar, and elsewhere, that his proceedings in the Federal Court should be heard and determined before the respondent is permitted to proceed on the bankruptcy notice. The applicant has sought orders setting aside the bankruptcy notice, or extending time to comply with it, until the hearing and determination of the Federal Court proceeding.

10. Registrar Allaway, in effect, accepted the submission by the respondent as he dismissed the applicant’s challenge to the bankruptcy notice. The review of the Registrar’s orders came before her

    
    

    Honour Judge Hartnett, who, on 4 November 2015, ordered the applicant’s application to be heard by me. 

This application

1. As a hearing de novo, I am entitled to consider the evidence afresh, which I have done. The combined effect of ss.41(g) and 47 of the Bankruptcy Act 1966 (Cth) (“the Act”) is to cast the onus on the applicant to satisfy the Court that he could not have set up his claim, now brought in the Federal Court, in the action or proceeding in which the judgment underlying the bankruptcy notice was obtained. The respondent submits that the applicant has not discharged that onus. I agree.

2. Rather, the respondent contends that the applicant could have, but chose not to, set up his claim based on issues, such as alleged negligence and a loss of the $600,000.00 sale in the proceeding, which gave rise to the judgment underlying the bankruptcy notice. 

3. As the Registrar correctly concluded, the applicant specifically raised such issues in his notice of defence filed in the Magistrates Court, but then abandoned reliance on them after discussing the matter with the Magistrate at the commencement of the hearing. The applicant chose to confine his case in such a way and was not forced to do so. To the contrary, he did so voluntarily.

4. True it is that, if he had wished to raise a case as expansive as his notice of defence suggests, the Magistrate may not have accepted the parties’ time estimate, with the likely result that the case would have been adjourned to another day and, given the magnitude of the claim, it would have been advanced in another Court. It could only have been argued in the Magistrates Court if all parties agreed to the

   
   

   Magistrates Court hearing a cross-claim in the sum of $600,000.00.

5. However, that does not alter the fact that the applicant could have raised the very issues which he abandoned. He now seeks to resurrect them in the Federal Court. As I have said, if the applicant had sought to raise a counterclaim in excess of the Magistrates Court’s jurisdictional limit of $100,000.00, he would have needed to apply to transfer the proceeding to an appropriate court. 

6. But the question to be determined is whether the applicant could have adopted that course as a matter of law, rather than whether it was convenient for him to do. In this proceeding, the respondent contends that as a matter of law there was nothing to prevent the applicant from raising in the Magistrates Court proceeding issues of the type he now wishes to litigate in the Federal Court proceeding. 

7. Counsel for the respondent before me very helpfully condensed the submissions that the applicant might have advanced before me had he appeared. It is unnecessary to address them in depth in view of the fact that the applicant himself did not appear before me to prosecute the hearing of the review of the Registrar’s order. The statement of claim in the Federal Court proceeding was not exhibited to any material sworn by the applicant. 

8. The applicant swore in his affidavit of 25 September 2015, that the Federal Court proceeding provided, “a strong and sufficient prospects [sic] of success”. [2]

   [2] Affidavit of Hugh Devon filed 25 September 2015 at para.3.

9. I disagree. The applicant synthesised the gravamen of his allegations. He did not identify how the figure of $600,000.00 was said to be the quantum of his alleged loss. He asserted that the respondent substantially failed in their professional duties to get the contract of sale of the franchise signed by the buyer. Nowhere in the evidence is the fact or factual sub-stratum put forward, so it is impossible for me to make an assessment of the likelihood of that claim succeeding. Let me observe that rarely is it a solicitor’s duty (let alone, as the applicant says, “a fundamental key duty”),[3] to procure execution of an agreement from a party who is unwilling to enter into that agreement. This allegation has the hallmarks of a person blaming his solicitor for the commercial aspect of a transaction not proceeding.

   [3] Affidavit of Hugh Devon filed 25 September 2015 at para.3(a).

10. Next, the applicant asserted that the respondent were negligent. He specifically abandoned that claim in the Magistrates Court. Precisely how he will overcome the abandonment of that allegation in the Federal Court proceeding is not said. 

11. Next, the applicant asserted that the respondent advised and allowed “their associated sales agent to allow the deposit in the agents trust account trust to be released”.[4]

    [4] Affidavit of Hugh Devon filed 25 September 2015 at para.3(c).

12. The applicant did not develop that allegation in his affidavits.

13. Next, the applicant alleged misleading and deceptive conduct. He did not descend into the detail of that allegation.

14. Next, the applicant asserted that the respondent failed in its duty of care in failing to correctly communicate instructions to third parties. This allegation overlapped with the negligence allegations asserted that the applicant specifically abandoned. Next, the applicant asserted that the respondent’s failure to work to a deadline caused the loss of a right to sell the franchise. The applicant did not develop the argument and I confess to having difficulty understanding it in view of the unparticularised nature of the allegation. 

15. Next, the applicant referred to what he called, “the managing partner [sic] deceptive conduct and unlawful taxation administration breaches”.[5] An allegation of unlawfulness in the context of tax administration is a very serious allegation to make. It calls for very careful particularisation. I saw none. Whatever may be said of the likelihood of success of the proceeding in the Federal Court, it does not overcome the fact that the applicant failed to raise those matters above. It is now too late for him to do so. Even if the applicant had the courtesy to appear before me to make out his claim, he failed to do so.

    [5] Affidavit of Hugh Devon filed 25 September 2015 at para.3(g).

16. I dismiss the applicant’s application and I order costs against him. 

I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of Judge Wilson

Associate: 

Date: 22 December 2015