Gott v Toogood
[2021] FedCFamC2G 149
•22 October 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)Gott v Toogood [2021] FedCFamC2G 149
File number(s): BRG337 of 2019 Judgment of: JUDGE JARRETT Date of judgment: 22 October 2021 Catchwords: BANKRUPTCY – creditors petition– whether that still due and owing Legislation: Uniform Civil Procedure Rules 1989 (Qld)
Bankruptcy Act 1966 (Cth)
Cases cited: Gott & Ors v Toogood & Anor [2020] FCCA 3454
Toogood v Gott [2019] FCA 1792
Deputy Commissioner of Taxation v Clyne (1984) 4 FCR 157
Menzies v Paccar Financial Pty Ltd [2011] FCA 460
Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495; [1920] All ER 340
Lowbeer v De Varda [2018] FCAFC 115; (2018) 264 FCR 228
Noye v Robbins [2010] WASCA 83
Division: Division 2 General Federal Law Number of paragraphs: 41 Date of last submission/s: 24 March 2021 Date of hearing: 23 and 24 March 2021 Place: Townsville Counsel for the Applicants: Mr McQuade of Queens Counsel Solicitor for the Applicants: Connolly Suthers Solicitor for the First Respondent: The First Respondent appearing on their own behalf Solicitor for the Second Respondent: The Second Respondent appearing on their own behalf
Table of Corrections 25 October 2021 The name of the Second Respondent has been corrected to “ CASSOWARY COAST REGIONAL COUNCIL” ORDERS
BRG337 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF STEVEN PAUL TOOGOOD AND JULIANNE TOGOOD
BETWEEN: JAMES PATRICK CECIL GOTT
First Applicant
CASSOWARY COAST REGIONAL COUNCIL (ABN 20 889 787 211)
Second Applicant
TRACEY TAYLOR (and others named in the Schedule)
Third Applicant
AND: STEVEN PAUL TOOGOOD
First Respondent
JULIANNE TOOGOOD
Second Respondent
ORDER MADE BY:
JUDGE JARRETT
DATE OF ORDER:
22 OCTOBER 2021
THE COURT ORDERS THAT:
1. A sequestration order be made against the estates of Steven Paul Toogood and Julianne Toogood
2. The applicant creditors’ costs of and incidental to the petition, including reserved costs, if any, be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
THE COURT NOTES that the date of the act of bankruptcy is 26 March, 2019.
These orders and reasons were prepared by Judge Jarrett but were published by Judge Vasta pursuant to s 210(1) of the Federal Circuit and Family Court of Australia Act 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE JARRETT:
In 2017 the petitioning creditor, James Gott commenced proceedings for damages for defamation against the respondents to the creditor’s petition. On 7 September, 2017 the respondents (who were the defendants in the defamation proceedings) filed a defence and counterclaim against Mr Gott and the other petitioning creditors, joining those others to the proceedings for that purpose.
The petitioning creditors brought two applications for certain interlocutory relief against the respondents (the plaintiffs by counterclaim). One application was brought by Mr Gott in the defamation proceedings. He sought the striking out of the respondents’ defence to his claim. The defendants by counterclaim brought an application to have the counterclaim struck out. The respondents brought their own interlocutory application for certain relief against the petitioning creditors. The precise particulars of the competing applications before the District Court are not relevant.
On 26 April, 2018 a judge of the District Court of Queensland ordered that most of the respondents’ defence to Mr Gott’s defamation proceeding be struck out. His Honour also ordered that the counterclaim be struck out in its entirety and the respondents’ applications were dismissed or stood over to a later date. I have set out the details of these proceedings in my reasons for judgment in Gott & Ors v Toogood & Anor [2020] FCCA 3454. I will not repeat them here.
The respondents were ordered to pay the petitioning creditors’ costs of those interlocutory applications. There were three separate costs orders in respect of the three interlocutory applications. The costs so ordered were assessed according to the provisions of the Uniform Civil Procedure Rules 1989 (Qld). The assessed costs were $74,157.96.
The costs went unpaid by the respondents. On 5 March, 2019 the petitioning creditors caused the issue of a bankruptcy notice against the respondents. The bankruptcy notice relied upon the costs orders. The bankruptcy notice attached an amended costs assessor’s certificate dated 16 January, 2019 assessing the costs due under each of the orders. Also attached to the bankruptcy notice was an order made by a registrar of the District Court at Townsville on 24 January, 2019 whereby the respondents were ordered to pay the petitioning creditors costs under the order of 26 April, 2018 in the sum of $74,157.96.
The bankruptcy notice was served upon the respondents in a way permitted by the Bankruptcy Act 1966 (Cth). That is not in dispute. Nor is it in dispute that the respondents did not comply with the bankruptcy notice. By not complying with the bankruptcy notice the respondents committed an act of bankruptcy.
On 25 March, 2019 the respondents applied to the Federal Court of Australia to set aside the bankruptcy notice. The application to set aside the bankruptcy notice was dismissed on 3 April, 2019 by a registrar. The respondents sought review of that decision by a judge of the Federal Court of Australia.
Before the review application was filed, the petitioning creditors filed the creditors’ petition now before me.
The application to set aside the bankruptcy notice was heard on 31 July, 2019 and judgment was delivered on 31 October, 2019: Toogood v Gott [2019] FCA 1792. The application was dismissed and the bankruptcy notice remained intact.
The creditor’s petition was heard by me initially on 21 November, 2019. On that day I made a sequestration order against the estate of each of the respondents. On 24 December, 2020 I made an order setting the sequestration orders aside in the circumstances I describe in Gott & Ors v Toogood & Anor [2020] FCCA 3454. I set the creditor’s petition down for hearing and invited the parties to agree on directions to ready the petition for hearing. These reasons explain why I have determined to make sequestration orders against the estates of the respondents.
A PRELIMINARY MATTER
The respondents say that I should dismiss the petition without further consideration because it is stale and a sequestration order may not now be made on it. Subsection 52(4) of the Act provides:
(4) A creditor’s petition lapses at the expiration of:
(a) subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or
(b) if the Court makes an order under subsection (5) in relation to the petition—the period fixed by the order;
unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn.
The petitioning creditors point me to two cases that suggest that I should not accept the respondents’ argument. The first is Deputy Commissioner of Taxation v Clyne (1984) 4 FCR 157 at 157 – 158. In that case a sequestration order was made the estate of the debtor. It was subsequently set aside on appeal by the High Court. The creditor’s petition was remitted for rehearing. On the rehearing the debtor submitted that the petition had lapsed because more than twelve months had passed since its presentation. The trial judge stated three questions for consideration by the Full Court:
(a) Whether within the meaning of Section 52(4) of the Bankruptcy Act 1966 a sequestration order was made on the petition of the petitioning creditor on 7th October, 1983.
(b) If the answer to question 1 is no, whether I have power to extend the period at the expiration of which the petition would lapse to 3rd January, 1985.
(c) Whether the creditor's petition has now lapsed within the meaning of Section 52(4).
The Full Court determined that the sequestration order, subsequently set aside, was a sequestration order for the purposes of s 52(4) which prevented the petitioning from lapsing, notwithstanding that it was set aside. That approach was applied in Menzies v Paccar Financial Pty Ltd [2011] FCA 460 at [57].
There is no substance to the respondents’ contention that the petition has lapsed as a consequence of the sequestration order made on 21 November, 2019 being set aside by order of this Court made on 24 December, 2020. The sequestration order was made within 12 months of the presentation of the petition. That the sequestration order was subsequently set aside is of no consequence.
THE DEBTORS’ ARGUMENTS
In these proceedings, the debtor was have raised many arguments in opposition to the making of a sequestration order. Their approach to the case has been to raise innumerable issues which are relevant to the proper determination of these proceedings. They continue to argue that the bankruptcy notice was is invalid notwithstanding that that issue has been decided and determined against them.
At the kernel of their arguments, however, is the contention that because the petitioning creditors have had their costs paid for them by Cassowary Coast Regional Council (of which they were members or employees) and because the Council has received a payment in respect of those costs from a mutual fund, there is no debt due and owing by them to the petitioning creditors. The reasons that follow, there is no substance to debtor was contention that there is no debt due and owing by them to the petitioning creditors.
The debtors contend that I should go behind the judgment debt upon which the creditor’s petition is based.
The costs order founding the creditors’ petition was made in contested proceedings between the petitioning creditors and the debtors. The debtor was were present. There is nothing in the material to suggest that the process adopted by the petitioning creditors for the assessment of those costs and the subsequent issue of the costs order consequent upon that assessment was irregular.
The debtors claim that the amount of the costs orders is no longer owing to the petitioning creditors because a payment made on about 18 March, 2020 to the local Council of which the petitioning creditors or some of their were members received a payment from the Queensland Local Government Mutual, which the debtors contend extinguished the debt. The payment by LGM to the Council was made nearly 2 years after the order of Judge Lynham and just over a year after the petition was presented. The determination by LGM to make the payment was not made until 22 January, 2020. More about LGM.
The evidence demonstrates that LGM was established by the Local Government Association of Queensland and provides a pooled fund and a scheme to manage liability and professional risks of members which arise in connection with the members’ exercise of powers, duties, or functions. Admission and membership of LGM is governed by the Scheme Rules and Scheme Rules regulate the administrative process of a member applying for indemnity for claims which are met by the pool that is established for the purposes of the scheme.
As a consequence of a claim made by the Council in 2019 for legal fees in proceedings that it and staff had been involved in, including the counterclaim in the defamation proceedings, on 22 January, 2020 LGM determined to exercise its discretion to offer to make a payment to Council only for legal costs for the defence of the counterclaim (with respect to some of the defendants to the counterclaim being Council, Mr Gott, Mayor Kremastos and Cr Taylor) in the sum of $92,500 after a deductible of $7,500.68. The evidence shows and I find that Mr Gott’s costs in the defamation proceedings was not covered by the offer.
The Council accepted the offer by LGM and I find that the amount of $92,500 was paid to Council on or about 18 March, 2020. By clause 29 of the Scheme Rules, LGM has a contractual right of subrogation in the event of a payment pursuant to the scheme to the extent of such payment. The right of subrogation extends to all rights of the Member against any person or other entity legally responsible for the claim.
The evidence of the petitioning creditors demonstrates that there were two costs agreements entered into with the solicitors who acted for the plaintiff in the defamation proceedings. The first is a costs agreement bearing a date of 26 September, 2017 between Connolly Suthers and Mr Gott covering his defamation claim against the respondents in the defamation proceedings. As the petitioning creditors submit, the terms of that costs agreement make it clear that the client of Connolly Suthers was Mr Gott. Mr Gott gave instructions to Connolly Suthers in relation to the commencement and prosecution of the defamation proceedings.
The solicitor handling the defamation proceedings was Mr Greg Humphries. His evidence was that he was told that the local Council of which Mr Gott was a member would pay the legal costs of Mr Gott with respect to the defamation proceedings. That occurred but that does not detract from the express terms of the costs agreement to the effect that Mr Gott was personally liable for the legal costs of is solicitors.
The evidence shows that subsequently, on 7 December, 2017 the Council also resolved to indemnify Mr Gott in the defamation proceedings and that the Council paid Mr Gott’s legal costs of prosecuting his claim in the defamation proceedings.
There was a second costs agreement between Connolly Suthers and the defendants to the counterclaim that was initiated by the debt because of the defamation proceedings. Each of petitioning creditors were clients of Connolly Suthers pursuant to that costs agreement and they each provided instructions to the firm with respect to the counterclaim. Each of the petitioning creditors was liable for the legal costs of Connolly Suthers under the costs agreement. Whilst the Council agreed to guarantee due and punctual performance by the client (as defined in the terms of the costs agreement) and indemnify Connolly Suthers for any loss or damage suffered by that firm, the petitioning creditors remained liable for the legal costs of the firm. I accept the submission by reference to the terms of the costs agreement, or otherwise, there was no agreement that the individual applicants would not be liable in any circumstances to that firm for legal costs incurred with respect to the counterclaim. The Council paid the legal costs of the petitioning creditors with respect to counterclaim due to Connolly Suthers.
The evidence demonstrates that each of the individual applicants has provided an undertaking to the Council to the effect that any monies recovered from the respondents with respect to the costs order will be remitted to the Council.
The determination by LGM to make the payment to the Council was not made until 22 January, 2020 and the payment by LGM to the Council occurred nearly 2 years after the costs order was made and just over a year after the petition was presented.
As the petitioning creditors submit, the fact that a party’s legal costs are to be paid or alternatively, have been paid by a third party or if one of several persons who are liable for the costs has paid those costs does not preclude that party or those parties obtaining an order for costs. A party to litigation is entitled to a costs order notwithstanding that they are indemnified for the costs. However, a party who is not liable to their solicitors for costs cannot recover costs against an unsuccessful party.
But that a third party has or has undertaken to pay a client’s legal costs or merely because the party may be relieved from the obligation to pay does not mean that a costs order, if made in those circumstances, is improperly made. As the applicant submits, a successful party can recover costs if he has an obligation to pay his solicitors, notwithstanding that a third party may or will relieve him of that obligation. It is trite, that a party that is indemnified, whether by insurance or otherwise, against his liability to pay costs is still entitled to a costs order, even if the costs have been paid prior to the date of the costs order.
The operation of these principles is demonstrated in what senior counsel for the petitioning creditors describes as the leading authority, Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495; [1920] All ER 340. On the facts, the successful plaintiff’s claim had been brought with legal aid provided by the plaintiff’s union, which had instructed its usual solicitors to act for the plaintiff. There was no agreement between the plaintiff and the solicitors that the plaintiff would not be liable for costs. In those circumstances, the Court held that the plaintiff was entitled to costs.
The debtor’s rely heavily upon the decision of Lowbeer v De Varda [2018] FCAFC 115; (2018) 264 FCR 228. In that case the creditor petitioned in reliance on an unpaid costs order. On the hearing of the creditor’s petition, the judge made a factual finding that the solicitor and a third party had agreed that the solicitor would only look to the third party for costs and that there had been no agreement between the petitioning creditor and the solicitor to pay the solicitor’s costs. An appeal was unsuccessful. The Full Court held that the Court was right to dismiss the creditor’s petition in circumstances where the petitioning creditor had no liability to pay costs and, therefore, no entitlement to a costs order. The position in the present case is entirely different to that which existed in Lowbeer v De Varda (Supra).
Senior Counsel for the petitioning creditors referred me to Noye v Robbins [2010] WASCA 83 in that case, a police officer’s legal costs were paid by the police service and had already been paid prior to the date of the relevant costs order. The Western Australian Court of Appeal dismissed an appeal against the costs order. Owen JA (with whom the other members of the Court agreed) held that a successful party can still recover costs even if its liability to pay them has been discharged prior to the order. As Senior Counsel for the petitioning creditors submits, three reasons were given for that conclusion:
(a)first, the authorities, do not as a matter of principle, differentiate between situations in which the liability exists and has not been discharged and those in which the liability existed, but has been charged;
(b)secondly, in several cases a successful party has been permitted to recover costs under the Adams (Supra) principle even though their liability has been discharged by a third party; and
(c)thirdly, “it would be unfair and unjust to prevent [the police officer] from recovering costs for the State’s benefit.”
The application of these principles means that the fact that the local Council would pay, or had paid, Mr Gott’s costs or had resolved to indemnify Mr Gott, or that the local Council would pay, or had paid, the costs of defending the counterclaim, does not mean that the applicants were not entitled to a costs order, provided they remained liable to pay Connolly Suthers’ legal costs.
On the evidence, the only conclusion open is that Mr Gott and the other defendants to the counterclaim were liable to pay Connolly Suthers legal costs notwithstanding that the local Council might make those payments on their behalf.
To the extent that the Council has indemnified the other petitioning creditors for the solicitors’ costs, it is entitled to require the petitioning creditors to exercise their rights of recovery against the debtors. The local Council stands in the shoes of the petitioning creditors and is entitled to pursue proceedings in their names.
The evidence demonstrates and I am satisfied that LGM claims that it is subrogated to Council’s rights against the respondents with respect to the payment of $92,500 and that if the Council recovers any costs, those costs will be recoverable by LGM from the Council.
The indemnity provided by LGM to the Council and the payment by LGM on 18 March, 2020 does not displace the entitlement of the petitioning creditors to the benefit of the costs orders, to present the petition relying on a debt based on the costs order or to obtain a sequestration order relying on that debt.
To the extent of the debtors suggest that the amount of costs reflected in the costs order is somehow inappropriate or overstated, the evidence shows that the costs were assessed by a costs assessor in accordance with the usual practice established by the Uniform Civil Procedure Rules 1989 (Qld). The fee of $74,157.96 set out in the amended costs certificate includes professional fees and disbursements and incorporates the cost assessor’s fee of $7,563 plus GST. Without the fee the assessed costs are $66,594.96, which is GST free. No reason is demonstrated to suggest that the assessment of costs made by the cost assessor is unreliable and ought not be accepted. I accept the submissions for the petitioning creditors that the assessment was made after each party had the opportunity of making submissions in relation to the costs during the assessment process.
CONCLUSION
I am satisfied of the matters stated in the petition. I am satisfied that the debtor was committed an act of bankruptcy on 26 March, 2019 and they fail to comply with terms of a bankruptcy notice properly served upon them. I am satisfied that the debt claimed in the petition is still owing by the debtor to the petitioning creditors. There is no dispute about service of the petition which in any event I find proved.
In my view, the petitioning creditors are entitled to the making of a sequestration order against the estate of the debtors and I so order.
I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Jarrett. Dated: 22 October 2021
SCHEDULE OF PARTIES
BRG337 of 2019 Applicants
Fourth Applicant:
RICK KENNETH TAYLOR
Fifth Applicant:
JOHN KREMASTOS
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