Fitzgerald v Burnett
[2018] FCCA 2866
•5 October 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FITZGERALD & ANOR v BURNETT | [2018] FCCA 2866 |
| Catchwords: BANKRUPTCY – Application for review of sequestration order made by a Registrar – no matters of principle – application for review dismissed. |
| Legislation: Federal Circuit Court Rules 2001, r.15.31 Bankruptcy Act 1966 (Cth), ss.41, 306 |
| Cases cited: Fitzgerald and Browne v Burnett [2014] TASMC (20 November 2014) (unreported) |
| First Applicant: | ANTHONY FAIRLIE FITZGERALD |
| Second Applicant: | ROLAND ALEXANDER BROWNE |
| Respondent: | GAIL LOUISE BURNETT |
| File Number: | LNG 51 of 2017 |
| Judgment of: | Judge Riethmuller |
| Hearing dates: | 10 August 2018, 2 & 4 October 2018 |
| Date of Last Submission: | 4 October 2018 |
| Delivered at: | Melbourne |
| Delivered on: | 5 October 2018 |
REPRESENTATION
| Solicitors for the Applicants: | Fitzgerald & Browne Lawyers |
| The Respondent appeared In Person |
ORDERS
The application for review of the Registrar’s decision to make a sequestration order be dismissed.
The costs of the creditors be paid out of the estate of Gail Burnett and have the same priority as the costs of the petition.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT HOBART |
LNG 51 of 2017
| ANTHONY FAIRLIE FITZGERALD |
First Applicant
| ROLAND ALEXANDER BROWNE |
Second Applicant
And
| GAIL LOUISE BURNETT |
Respondent
REASONS FOR JUDGMENT
The debtor, Gail Burnett applies to review a decision of a Registrar of the Court who made a sequestration order on 1 December 2017, as a result of an act of bankruptcy (the debtor’s failure to comply with a Bankruptcy Notice) on 23 August 2017. These proceedings are a
de novo hearing to determine whether a sequestration order should be made.
Background
The matter has a lengthy history of litigation in the State courts of Tasmania. The catalyst to the proceedings was an action by the petitioning creditor for unpaid professional fees for work done as the debtor’s solicitor. After a four day hearing (although not four full days) Magistrate Mollard gave judgment for the creditors on 20 November 2014 for $4,559.42: see Fitzgerald and Browne v Burnett [2014] TASMC (20 November 2014) (unreported). The debtor’s counter claim was dismissed. Orders were later made that the applicant pay the debtors’ costs on a solicitor and client basis. The debtor has never accepted the outcome in the Magistrates Court proceedings, and continues to dispute the orders.
On 15 December 2014 the debtor filed an appeal in the Supreme Court of Tasmania against the orders of the Magistrate. The appeal was listed for hearing on 30 July 2015, however the day before the debtor (by her solicitors) filed a Notice of Discontinuance of the appeal (after being unable to negotiate to settle the appeal on the basis that each party bear their own costs).
The debtor later applied to set aside the Notice of Discontinuance filed by her solicitors with respect to the appeal. This application was heard by Justice Pearce of the Supreme Court of Tasmania on 30 October 2015: see Burnett v FitzGerald and Browne [2015] TASSC 51. In support of the application, the debtor alleged that her former solicitors were not instructed to lodge the Notice of Discontinuance. Pearce J considered the claims in detail, as set out in the written judgment, rejecting the debtor’s claim that the solicitors had acted without instructions. Although rejecting her claims that the Notice of Discontinuance was not lodged on her instructions, Pearce J also considered the merits of the debtor’s proposed appeal as part of the relevant considerations in determining whether to set aside the Notice of Discontinuance.
Pearce J concluded that the debtor’s appeal had little merit. The primary contention of the debtor was that the Magistrate had erred in finding that the retainer of the solicitor was not for a fixed fee (alleged by the debtor, in the Magistrate’s Court proceedings, to be $1,000). The debtor said that she had subsequently located a recording of a telephone call she had with the solicitor, and alleged that it demonstrated that the Magistrate’s determination was erroneous. Not surprisingly, Pearce J concluded that the recording was not fresh evidence as it was a recording made by the debtor prior to the Magistrate’s Court proceedings. Her claims that she simply ‘forgot’ about the existence of the recording provided no basis for considering the evidence to ‘fresh evidence’ for the purpose of an appeal. With respect to the costs order Pearce J concluded:
55. The merit of the appeal ground concerning the magistrate's costs order has caused me greater hesitation. The Magistrates Court (Civil Division) Act provides, by s 31AF(1), that in a minor civil claim, costs for getting the action up to trial, or by way of counsel fees, are not to be awarded unless:
“(a) all parties to the action were represented by counsel; or
(b) the Court is of the opinion that there are special circumstances justifying the award of costs.”
56. In that jurisdiction the learned magistrate's order was an unusual one. He must have been satisfied that there were special circumstances to justify the special costs order he made. Appeal from that determination faces significant hurdles. First, it requires the grant of leave to which I have already referred. Secondly, it faces all of the usual difficulties faced by parties to litigation who challenge discretionary costs orders. I detect no obvious error of principle in the learned magistrate's determination.
Pearce J dismissed the application and made costs orders against the debtor on 4 December 2015. On 24 August 2016 a Certificate of Taxation was issued by the taxing officer allowing the costs in the sum of $87,080.21.
On 7 June 2016, the debtor applied to the Supreme Court of Tasmania for an extension of the time limited for appealing from the decision of Pearce J to the Full Court, and with a stay on the enforcement of the costs orders. This application was heard by Brett J: see Burnett v FitzGerald and Browne [2017] TASSC 31. Brett J dismissed the application with costs.
The decision of Brett J was then appealed by the debtor to the Full Court of the Supreme Court of Tasmania. On 6 July 2017 Estcourt J stayed the appeal pending the debtor providing security for costs of $15,000. Estcourt J noted that ordinarily security for costs is not ordered against a natural person as such an order may frustrate a person attaining justice; however, in this case Estcourt J concluded:
9. The lack of any reasonable prospect of success on the appellant's appeal against the decision of Brett J (and thus, rationally, of any ultimate reasonable prospect of success in her hoped for appeal against the decision of Pearce J and in turn in her abandoned appeal against the original decision of Magistrate Mollard were it reinstated), is to my mind dispositive of the respondent's application against the appellant. The competing principles to which I have referred are designed only to avoid the possible frustration of an apparently genuine appeal, and have no real application in a case where the proceedings from which the appeal has been brought were misconceived and the appeal itself hopeless.
No security for costs has been provided by the debtor, and the appeal remains stayed.
The original judgment sum and costs as ordered by Magistrate Mollard were eventually paid by the debtor. However part of the costs orders for the further proceedings in the Supreme Court of Tasmania remain outstanding, as set out in the Bankruptcy Notice.
The debtor represented herself. Her material is voluminous and not well organised. I have identified the issues that she raised as best I am able from her material and oral submissions.
The Notice to Admit
The debtor annexed a Notice to Admit Facts dated 5 April 2018 (purportedly pursuant to r.15.31 of the Federal Circuit Court Rules 2001) as Annexure ‘E’ to her affidavit filed on 6 April 2018. The affidavit and annexures is approximately 40 pages long. The debtor again annexed the Notice as Annexure ‘J’ to her affidavit of 7 August 2018, which affidavit is largely repetitive and runs to around 80 pages. The creditors did not serve a notice disputing the matters set out in the Notice to Admit.
Rule 15.31(2) requires the creditors to serve a Notice disputing the matters, if they did not wish to be taken to have admitted the facts or authenticity of the documents identified in a Notice to Admit given under r.15.31(1).
A Notice to Admit is a significant document and must be given in a form that ensures it is not overlooked and that its potentially serious consequences are clear. It does not appear that the debtor ever served or delivered the notice as a separate document. I am not persuaded that annexing a Notice to Admit to a large affidavit is sufficient to satisfy r.15.31(1). For this reason I am of the view that no admissions arise as a result of the Notice to Admit.
If I am wrong in my findings with respect to the operation of r.15.31(1), I turn to two further issues: firstly, whether the form of the Notice complies with the rules and if so, whether I should grant the creditors leave to withdraw any deemed admissions under r.15.31(3). The Notice sets out:
You are required to admit for the purpose of these proceedings only the authenticity of the following documents
After this introductory sentence the Notice lists 17 items, many of which appear to seek admissions of facts rather than the authenticity of documents. A number of the matters are not contentious in the proceedings (such as the service of the Bankruptcy Notice) and others are simply argumentative. None of the documents referred to in the notice appear to have been disputed in the proceedings before me in any event (even the accuracy of the debtor’s transcription of her telephone call in relation to her instruction to the solicitor that was the subject of the Magistrates judgment was not disputed by the creditors, although the debtor insisted that I listen to the recording rather than relying upon her own transcription).
Having regard to the form of the Notice, I am not satisfied that it is drawn with sufficient clarity to result in admission; nor to be taken to have been made pursuant to the rules.
Finally, even if the Notice were taken to be sufficient to result in admissions of some facts that are in contention as a result of the operation of the Rules, I would grant the creditor’s leave to withdraw those admissions in the circumstances of this case as:
a)The Notice to Admit was never separately delivered;
b)The introductory wording of the Notice only appears to require admissions as to the authenticity of documents which were not in dispute in the proceedings;
c)The balance of the Notice is drawn in a way that makes it difficult to determine precisely what facts are alleged for the purpose of the operation of the rule; and
d)It does not appear that the debtor would suffer any prejudice in the sense of attending at trial without evidence she would otherwise have brought but for reliance upon the alleged deemed admissions.
As a result I do not find that there are any deemed admissions pursuant to r.15.31 that operate in these proceedings.
The Bankruptcy Notice
The debtor challenges the Bankruptcy Notice on three bases:
a)That the costs orders are not final orders as there is a review pending.
b)That the creditors are not correctly named in the Bankruptcy Notice; and
c)That the interest calculations overstate the amount of interest owing.
The Bankruptcy Notice was served on the debtor on 2 August 2017. The amount claimed on the face of the Bankruptcy Notice, is as follows:
1. Amount as per the attached final judgment/s or final order/s (note A)
$99,264.73
2. Add legal costs (note B)
$0.00
3. Add interest accrued since date of judgment/s or order/s (note C)
$9,931.03
4. Sub total (1 + 2 + 3)
$109,195.76
5. Less payments made and/or credit allowed since judgment/s or order/s
$80,842.38
6. TOTAL DEBT AMOUNT (4-5)
$28,353.38
The primary debt is the total of two amounts:
a)
the taxed costs pursuant to the Order of Pearce J made on
4 December 2015 in proceedings 1066/2014 (the taxed amount being $87,080.21 as set out in the Certificate of Taxation issued on 24 August 2016); and
b)the taxed costs pursuant to the Order of Brett J made on 30 May 2016 in proceedings 1574/2016 (the taxed amount being $12,084.52, plus a taxing fee of $100, as set out in the Certificate of Taxation issued on 31 July 2017).
The proceedings in the Supreme Court of Tasmania currently pending are stayed until such time as the debtor provides $15,000 by way of security for costs. The costs orders (together with the Certificates of Taxation are sufficient for the purposes of the Bankruptcy Notice). The Certificates of Taxation quantify the amounts of the orders
The creditors are named in the first of the Supreme Court proceedings as ‘ANTHONY FITZGERALD and ROLAND BROWNE’. In the second Supreme Court proceedings they are named as ‘FitzGerald and Browne’. In the Creditor’s Petition the creditors are described as ‘Anthony Fairlie FitzGerald and Roland Alexander Browne trading as FitzGerald and Browne Lawyers’. In the Bankruptcy Notice the creditors are named as ‘Roland Alexander Browne’ and ‘Anthony Fairlie FITZGERALD’.
The debtor argues that as the names are not in precisely the same form (and sometimes in a different order) this makes the Bankruptcy Notice invalid. There is no dispute that the same two men are referred to in each proceedings. There is no merit in such an argument in circumstances where there is no doubt that the same men are referred to in each document.
It transpired at the hearing that the creditors had miscalculated the period for which interest was payable by including 1 day after they received a payment of monies held in court. The amount of the over-statement of interest is $17.89.
Section 41 of the Bankruptcy Act 1996 (‘the Act’) provides for situations where the amount of interest is over-stated, saying:
(5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.
(6) Where the amount specified in a bankruptcy notice exceeds the amount in fact due and the debtor does not give notice to the creditor in accordance with subsection (5), he or she shall be deemed to have complied with the notice if, within the time allowed for payment, he or she takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it.
As a result of s.41(5) the Bankruptcy Notice is not invalid as a result of the overstatement of the interest amount. There is no suggestion that the debtor paid the amount actually due as contemplated by s.41(6).
The amount of the overstatement in this case is very small. It resulted from a miscalculation, and therefore other minor defects appear on the face of the Notice (the date and the calculated interest amount). Section 306 of the Act provides that a formal defect or irregularity does not invalidate a notice. I am not persuaded that in this case ‘the error could not have misled the respondent as to what it was necessary to do in order to comply with the requirements of the notice’: see generally Adams v Lambert [2006] HCA 10 at [32]. As a result I find that the minor errors on the face of the Bankruptcy Notice are merely ‘formal defects’ or ‘irregularities’ within the meaning of s.306.
Challenge to the underlying debt
The most significant issue, from the debtor’s perspective, is her claim that the underlying debt created by the orders of Magistrate Mollard is not just and truly owing.
The first difficulty with this argument is that the debts upon which the Bankruptcy Notice is founded are costs orders made by the Supreme Court in applications with respect to appeals.
The evidence that the debtor seeks to place before the Court is said to show that the debt ordered by the Magistrate was not truly owing. The evidence is a telephone recording that she made of a conversation with her solicitor (the claimant in those proceedings).
In determining whether the debtor has shown a basis for looking behind the Supreme Court costs orders, I have considered whether the decision of the Supreme Court shows an arguable basis for error. The test for admitting fresh evidence on an appeal requires that ‘reasonable diligence must have been exercised to procure the evidence which the defeated party failed to adduce at the first trial’: see Wollongong Corporation v Cowan [1955] HCA 16; (1955) 93 CLR 435 at [12]. The evidence that the debtor relies upon was not led by her in the original proceedings, yet it is obvious that it existed at the time, and was in her possession. The fact that she may have forgotten that she had that recording is insufficient to satisfy the test. For this reason, the decisions of the Supreme Court appear to be without any error.
The second part of the test for admitting ‘fresh evidence’ is that it is evidence of such significance that, ‘an opposite result would have been produced or ... it must have been so highly likely as to make it unreasonable to suppose the contrary’: see Wollongong Corporation.
As will be seen below I am of the view that the recorded conversation would not be likely to result in a contrary result if the recording were admitted into evidence. The debtor’s dispute with her solicitors who withdrew the appeal appears to have distracted the Supreme Court from dealing squarely with this second issue in detail.
Whether or not the debtor can demonstrate that the underlying debt owing on the Magistrate’s order (which she has since paid) was just and truly owing does not affect the validity of the costs orders in the Supreme Court with respect to the appeals. For this reason, it may not be appropriate to look behind the judgment given by Magistrate Mollard. However, given that the Magistrate’s judgment is the catalyst for the entire unfortunate litigation in this case I turn to consider the debtor’s claims with respect to the underlying debt in any event.
The claim by the creditors against the debtor in the Magistrates’ Court was for legal fees incurred when she instructed them to investigate the viability of a personal injuries claim. It was hoped that if the claim were found viable, the solicitors would act on a speculative basis from that point forward and that legal aid may provide some funding. The dispute centred upon whether a fixed fee had been quoted of $1,000 as alleged by the debtor, or whether a general retainer had been given.
SM Mollard noted a letter written by the solicitors on 19 July 2012 where the solicitor’s hourly rates are set out and an informally worded estimate of the costs was given as ‘I guess you are looking at $1,500, plus the costs of medical and other experts’: see Fitzgerald and Browne v Burnett [2014] TASMC 34 (unreported) at [9]. Mollard SM found that ‘there was never a quote’ (at [33]) and after reviewing the evidence Mollard SM said that:
28. The excess in professional charges over and above the “guess” was brought about by the defendant continuing to consult and instruct, the work extending beyond the initial legal research and opinion, the adverse medical reports and the rapidly approaching time limitation issue.
In cross-examination in the Magistrates’ Court, the debtor’s evidence on the fee agreement was (at p.162.36):
I rang you [the creditor] up and told you I did not have that – the $1500. I would – Could you do it for$1000? You said-No. I will do if for $15000 plus you pay the reports-medical reports.
The debtor argues that the contents of the audio recording of her telephone call to the solicitor demonstrate that there was an agreement for a fixed fee. The transcript of the telephone call runs for eight pages, however there appears to be two particularly relevant passages. The first passage is where the debtor seeks to engage the solicitor for a fixed fee of $1,000, which he appears prepared to do, subject to the qualification about how much work would be done for that amount. In this exchange the following is said:
[Debtor] GB: … So If I give you 1,000.00 cash… can you find out whether there is a case?
[Solicitor] RB; Um, yea, yes with one qualification when I'm talking about this initial issue
GB; yep
RB; what I'm talking about is looking at whether um.. It's like the reverse; I'm looking at whether K&D can wriggle out of liability because of the EPN and the deeds and, all of the other documents [Lines 188-193]
Later the conversation returns to the terms of the retainer, and the obvious difficulty of capping the amount to be spent if it is insufficient to enable the solicitor to make an assessment of the viability of the claim. At this point the debtor clearly rejects the suggestion that the solicitor limit his enquiries to 3 to 4 hours work:
GB; So look I don't mind if you set, I would rather it was set as a lump sum for you to do investigations etc. so I know where I'm going with it
RB; Yea
[GB:] Rather than just an endless whatever it is, 300.oo and something dollars
RB; per hour.
GB; Yea
RB; Yep well set a figure, but you know I recon 3-4 hours will cover it. I'm mean I'm happy to say I won't go beyond that if you want
GB; well there's no point doing it if it's not enough then.
RB; [um] ... [um]...
GB; You know what I mean ...
RB; [Um]... Well look the way it works is like this if I start looking into it, if I start to conclude early on that it's not going anywhere I’ll just tell you.
GB; Right
RB; you know after an hour but on the other hand if I'm still working on it it's because I'm trying to make sure I've covered off every base and. [Lines 316-331] (emphasis added)
The transcript appears to confirm the findings of Magistrate Mollard, rather than undermine those findings. There is nothing about this evidence that would lead me to conclude that the debtor has cast sufficient doubt over the magistrate’s judgment to exercise the discretion to go behind that judgment to investigate whether the debt is or was ‘in truth and reality’ owing: see Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 and Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28.
Settlement negotiations
The debtor complains that the creditors would not agree to settle the matters in issue between them, on the basis of a payment from monies she received from a personal injuries settlement. The essence of her complaint is that the creditors were unreasonable in placing a condition upon any settlement; that it would be an entire settlement of all issues between the parties. It is not put that the debtor tendered the full amount owing.
The settlement negotiations do not appear to be admissible in these proceedings as they were negotiations to attempt to settle that matter. In any event, I am not persuaded that creditors placing a condition upon settlement in the terms alleged is unreasonable or improper. I have no doubt that any creditor dealing with the debtor would seek to make any settlement an overall settlement to attempt to ensure that all of the proceedings came to an end.
Solvency
The final mater raised by the debtor is a claim that she is solvent, but simply refusing to pay the creditor’s debts. This requires consideration of her financial position in comparison to the amount of the debt. Unfortunately the debtor did not set out a clear balance sheet of her assets and liabilities. The debtor says she has no shares, nor any significant sum of money in a bank (although I assume she must have small sums from time to time by way of social security payments). She has a car that she estimates is worth around $6,900. Her income appears to be from social security payments of around $888.30 per fortnight. On this evidence she would be insolvent as the debts exceed her assets.
However, the debtor alleges that she has two further sums of money that exceed the amount of the debt. She gave evidence that this money is hidden in two locations. She declined to say where the money was hidden, other than to state that it was buried in a friend’s grave site. The debtor says that this money came from a personal injuries settlement some time ago, and therefore would be ‘exempt’ assets that do not vest in the trustee. The basic claim that she has buried money in her friend’s grave is quite incredible.
The debtor also produced documents to attempt to establish that she had taken a sum of cash to an accountant that would have been sufficient to meet the debt. The evidence is not in an admissible form as the accountant was not on affidavit as a witness. More importantly, even if the debtor had produced a sum of money to an accountant that was sufficient to pay the debt, this does not, of itself, prove solvency unless I accept that the monies are owned by and available to the debtor. The same logic applies to a bank statement showing a sum of money in the bank for a short period of time. However, in the circumstances of this case I proceed on the assumption that the accountant’s statement is correct. As with the bank statement, it is evidence that I consider along with the debtor’s claim that she has money that is buried.
I have had the opportunity to observe the debtor’s demeanour in the witness box when giving this evidence and found her quite unconvincing. I do not accept that the debtor has hidden cash in any significant sum. She is not in a position to pay her debts as they fall due as she has no capacity to pay the debts the subject of the bankruptcy notice.
As a result I find that the debtor is insolvent.
Conclusion
The formal matters were the subject of affidavit evidence. I have addressed the substantive arguments raised by the debtor, as best they could be identified, and found against her on each. I therefore dismiss the application to review the Registrar’s decision to make a sequestration order.
I certify that the preceding fifty (50) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller
Associate:
Date: 5 October 2018
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