Gorczynski v Holden
[2009] FMCA 351
•28 April 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GORCZYNSKI v HOLDEN & ORS | [2009] FMCA 351 |
| BANKRUPTCY – PRACTICE & PROCEDURE – Costs – indemnity costs where Bankruptcy Notice issued whilst judgment not enforceable – where applicant was self represented for part of the time – where applicant’s solicitor should have been aware of problems and brought proceedings to a close. |
| Legal Profession Act 2004 Federal Magistrates Court (Bankruptcy) Rules 2006 Uniform Civil Procedure Rules 2005 |
| Wren v Mahony (1972) 126 CLR 212 Re: Benjamin John Hutchins; Ex Parte: David J. Wall& Anor [1998] FCA 581 Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Bourke v Beneficial Finance Corporation Limited [1993] FCA 594 His Eminence Metropolitan Petar v The Macedonian Orthodox Community Church St Petka Incorporated & Anor (No 2) [2007] NSWCA 142 Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited & Ors (1988) 81 ALR 397 of 401 Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [1991] FCA 187 Genovese v BGC Construction Pty Ltd(No 2) [2007] FMCA 601 |
| Applicant: | PETER FRANCIS GORCZYNSKI |
| Respondent: | MICHAEL GEOFFREY ANTHONY HOLDEN, STEPHEN EDWARD MARTIN, IAN JOHN BENECKE AND BRENDAN JOHN MILLER TRADING AS GARLAND HAWTHORN BRAHE SOLICITORS |
| File Number: | SYG 2622 of 2008 |
| Judgment of: | Raphael FM |
| Hearing date: | 22 April 2009 |
| Date of Last Submission: | 22 April 2009 |
| Delivered at: | Sydney |
| Delivered on: | 28 April 2009 |
REPRESENTATION
| Solicitors for the Applicant: | Niall Connolly Lawyers |
| Counsel for the Respondent: | Mr P Doyle Gray |
| Solicitors for the Respondent: | Garland Hawthorn Brahe |
ORDERS
Bankruptcy Notice NN1953/08 be set aside.
Respondents to pay the Applicant’s filing fees and any properly incurred out of pocket expenses in relation to the commencement of the application until the time he instructed Niall Connolly Lawyers.
Respondents to pay the Applicant’s costs on an indemnity basis from the time the Applicant instructed Niall Connolly Lawyers until 15 February 2009.
Respondents to pay the Applicant’s costs on a party and party basis from 15 February 2009 until 22 April 2009 together with the costs of the hearing to take judgment, such costs to be taxed, if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2622 of 2008
| PETER FRANCIS GORCZYNSKI |
Applicant
And
| MICHAEL GEOFFREY ANTHONY HOLDEN, STEPHEN EDWARD MARTIN, IAN JOHN BENECKE AND BRENDAN JOHN MILLER TRADING AS GARLAND HAWTHORN BRAHE SOLICITORS |
Respondent
REASONS FOR JUDGMENT
This proceeding was constituted on 10 October 2008 by the applicant in person seeking to set aside Bankruptcy Notice NN1953/08 issued by the Official Receiver at the request of the respondents, a firm of solicitors who had commenced acting for the applicant on 27 January 2003. The Judgment upon which the Bankruptcy Notice was based was one of Justice Hoeben in the Supreme Court of New South Wales made on 17 April 2008 and entered on 30 May 2008. In that Judgment his Honour dismissed a summons appealing against a decision of a Local Court Magistrate and assessed the costs of the appeal in the sum of $9,325.00. There is still a substantive dispute between the parties ongoing in the Local Court. The Judgment of Hoeben J was in respect of an interlocutory decision made in those proceedings.
The grounds upon which the applicant argued that the bankruptcy notice should be set aside are contained in his affidavit of 10 October 2008. It states that he has a counter claim, set off or cross demand equal to or exceeding the sum specified in the Bankruptcy Notice that he could not have set up in the Supreme Court appeal proceedings, which form the basis of the Judgment. He also says that the original dispute between the parties, which was over the respondents’ costs, represented proceedings which should not have been brought against him because of breaches of the Legal Profession Act 2004. He argues that if those proceedings had not been brought then there would have been no necessity to appeal the orders of the Local Court Magistrate which resulted in the assessment of costs against him by Hoeben J. As this dispute between the parties appears to be ongoing in the Local Court I would not propose to “go behind” it and make any determination about the matter.
The power to go behind a judgment was most authoratively articulated by Barwick CJ in Wren v Mahony (1972) 126 CLR 212 at [224]:
“The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor's debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration.”
Wren v Mahony was a case involving a bankruptcy petition. The considerations that a court should take into account before deciding whether or not to go behind a judgment for the purposes of setting aside a bankruptcy notice are similar Re: Benjamin John Hutchins; Ex Parte: David J. Wall& Anor [1998] FCA 581. But the court should bear in mind that the consequences of having committed an act of bankruptcy are not as severe as the making of a sequestration order; Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at [270]. “No consideration” for the judgment is a narrow term. It is usually the product of a judgment obtained by fraud or collusion or where there is no real debt or consideration. Fraud has not been alleged in this case and it should be recalled that the judgment the applicant wants the court to go behind is a judgment of the Local Court which has been set aside on terms and which continues to be in dispute. The judgment which founded the bankruptcy notice is for fixed costs assessed by the Judge on the failure of an appeal against the conditions upon which the applicant was permitted to go ahead with the Local Court litigation. If I was to make a finding that there was some reason why the claim, brought by the respondents in the Local Court, was unlikely to succeed, I would be pre-empting that court. It would be an act in breach of the ideals of comity that permit a smooth functioning legal system. Even though it is permissible to go behind a judgment that is not the judgment upon which the bankruptcy notice is based; Bourke v Beneficial Finance Corporation Limited [1993] FCA 594, here there is not even an outstanding earlier judgment.
The complaint about the Local Court proceedings remained the basis of the applicant’s grounds for setting aside the notice even after he obtained legal advice in approximately December 2008. At that time his current solicitors, Niall Connolly Lawyers, came into the picture. Thereafter, further affidavits were prepared and served upon the respondent. Mr Gorczynski had filed an affidavit before instructing those solicitors on 12 December 2008. An affidavit was filed by Mr Gorczynski through his lawyers on 17 April 2009 and one was filed by Mr Connolly on 21 April. The gravamen of the affidavits was that the respondents should not have brought the original claims in the Local Court which necessitated the appeal to Hoeben J. As Mr Gorczysnki says in his affidavit of 10 October 2008 at [13]:
“On 9 April 2008 the Supreme Court declined to make any findings on the underlying question of law regarding the commencement of the Local Court proceedings in breach of the Legal Profession Act. His Honour also found to the effect that the Magistrate when hearing my motions was not required to make any determination on that question. His Honour indicated during the hearing that I should go back to the Local Court for a determination of the underlying question of law. My appeal was dismissed and I was ordered to pay the respondent’s costs of the appeal.”
It was not until 17 April 2009 that the respondents were officially made aware for the first time that the applicant intended to request the setting aside of the bankruptcy notice on the grounds that there was no debt “payable either immediately or at a certain future time”. The debtor argued that the Judgment of Hoeben J on appeal from an interlocutory judgment of a Local Court Magistrate was itself an interlocutory judgment and as such not payable until the conclusion of the proceedings. The situation in the instant case appears to mirror that found in His Eminence Metropolitan Petar v The Macedonian Orthodox Community Church St Petka Incorporated & Anor (No 2) [2007] NSWCA 142 where the Court of Appeal held at [49]:
“Metropolitan Petar resist the making of such an order. They point out that in appeal proceedings between these parties the court made an unqualified order for costs, they payment of which was not postponed and for that reason, as a matter of fairness, the court should take the same approach here. The direct answer to that contention is that each matter has to be considered on its own merits. But in any event the provisions of R42.7 of the UCPR apply to the costs of an appeal. An order as sought by the association is not necessary. Contrary to Metropolitan Petar’s understanding an order for costs in respect of interlocutory proceedings is not immediately enforceable. The parties may of course take steps to quantify any such order but that is a different matter to the question of enforceability. A specific order that costs be immediately enforceable would need to be made to displace the operation of R42.7.”
I am not clear whether advice of this point was given to the respondents prior to 17 April but I do know that on 15 April the respondents commenced correspondence with the applicant to try and resolve the issue by way of consenting to an order that orders be made in accordance with paragraphs 1 or 2 of the application and that costs be paid by the respondents as agreed or taxed on a party and party basis. That offer was rejected by the applicants. Agreement was reached whereby I should make orders in accordance with paragraphs 1 or 2 of the application of 10 October 2008 and the question of costs was to be reserved for hearing before me.
The applicant seeks indemnity costs. He accepts that until such time as he was legally represented he would not be entitled to any costs other than reimbursement of his out of pocket expenses. He argues that he should be paid indemnity costs because the respondents should never have issued a bankruptcy notice based upon the Judgment of Hoeben J as this was an interlocutory judgment unenforceable until the conclusion of the substantive proceedings. The respondents are a firm of solicitors. Insofar as it is trite that all parties should know the law this is particularly apt in regard to a firm of solicitors. I must impute to them the knowledge of Regulation 42.7 of the Uniform Civil Procedure Rules 2005 (“UCPR”), a set of Rules that have been in operation for some years in the jurisdiction in which they practice. There is certainly authority that indemnity costs might be ordered where a party should have known there was no prospects of success in a case commenced; Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited & Ors (1988) 81 ALR 397 of 401 per Woodward J, Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [1991] FCA 187 per French J, the question is whether this is an appropriate order to make in the circumstances of this case. In Genovese v BGC Construction Pty Ltd(No 2) [2007] FMCA 601 Federal Magistrate Lucev said at [47]:
“In determining whether to award indemnity costs the Court has a very wide discretion, to be exercised judicially. What is an appropriate costs or indemnity costs order depends on the circumstances of the case. The normal practice, not to be lightly departed from, is to provide for costs to be on a party – party basis. Nevertheless, there are certain issues to which the Court will give consideration, and have to weigh, when determining whether to make, and the extent of, an indemnity costs order, which should only be made where the issues establish special or unusual circumstances warranting an indemnity costs order. Those issues include:
a) whether a party should have known that there was no prospect of success in the case…”
His Honour provided authority in his footnotes 36 – 39 for those principles which I am happy to follow.
It seems to me that if I am prepared to impute to the respondents knowledge of the Rule I must impute the same knowledge to the applicant once his solicitor had taken over the conduct of the case and had an opportunity to read the files and bring himself up to date. Mr Connolly, who appeared for the applicant, tells me that he took the case over in late December and was not able to get around to looking into the matter until the end of January. I think it would fair to impute to the solicitor and therefore to the applicant himself, a knowledge of the law that would indicate that the bankruptcy notice had been incorrectly brought by 15 February 2009. One might have expected that upon realising the weakness of the respondents’ case communication would be made and the matter resolved but this did not happen. It was not, I believe, for any deliberate motive but because in truth Rule 42.7 was not appreciated until very much later in the day. Once it was appreciated and communicated to the respondents it was agreed that the bankruptcy notice should be set aside. The respondents say that in the meantime they had to cope with a very large volume of documentation, none of which was really relevant to the point in issue and that it would be wrong for them to pay the costs of the preparation of such documentation on an indemnity basis. The applicant says that all the work done in prosecuting this application was effectively wasted because the bankruptcy notice should never have been issued and just because some of the points made were not required to be judicially considered as grounds for setting aside the bankruptcy notice does not mean the respondents should not bear the costs of preparing for them.
I am not inclined to make an order for indemnity costs in the applicant’s favour in toto. Whilst the respondents were clearly wrong to have issued the bankruptcy notice in the circumstances, they should not bear full responsibility for the lengthy continuation of the proceedings. I think that the applicant should be given his costs on an indemnity basis from the time he instructed Niall Connolly until 15 February 2009 by which time I believe his solicitors should have discovered the problem and notified the respondents bringing the proceeding to an end. The applicant is entitled to be indemnified for the costs of Mr Connolly perusing the files so that he could give his client advice in respect of what was clearly an unmeritorious “proceeding”. After this time the respondents should not be required to pay indemnity costs for the preparation of affidavits and research into law that was clearly not necessary. Once the true situation was understood the respondents moved quickly. But they were not successful, the notice was set aside and so they must bear the costs on a party and party basis for that period during which the applicant instructed his legal advisors not covered by the indemnity costs order. The applicant has only partially succeeded on this application but he has done better than any offer made in the offers of compromise. The respondents shall pay the applicant’s costs of today on a party and party basis.
The applicant also sought an order from the court that the order for costs made by another Federal Magistrate upon the dismissal of bankruptcy notice NN360/06 be vacated and replaced with an order for indemnity costs. The basis for that request was a similar argument about the invalidity of the judgment for legal costs upon which the notice had been based. It would be most unusual for one judicial officer to replace an order for costs in a matter heard by another. Fatal to the request was the fact that no application was filed and the Respondents had no notice of it. I would not consider the matter.
I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 28 April 2008
9
3