Grass v Bradley Allen Love Lawyers
[2015] FCCA 2422
•4 September 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| GRASS v BRADLEY ALLEN LOVE LAWYERS | [2015] FCCA 2422 |
| Catchwords: BANKRUPTCY – Application to set aside bankruptcy notice – default judgment on the basis of which bankruptcy notice is issued based on a claim for the payment of legal fees – whether disclosure obligations under the Legal Profession Act 2006 (ACT) (LP Act) were complied with in relation to the legal fees in relation to which default judgment was recovered – whether such non-compliance relates to the entire amount of the legal fees on the basis of which default judgment was recovered – whether non-compliance with the LP Act in relation to only part of the legal fees gives rise to substantial reasons for questioning whether default judgment is based on a true debt – whether if substantial reasons are given for questioning only part of the default judgment is sufficient grounds for setting aside the default judgment – bankruptcy notice not set aside. |
| Legislation: Bankruptcy Act 1966, s.41 Legal Profession Act 2006 (ACT), ss.263, 266, 269, 269(1), 269(1)(d), 271(1), 276, 276(1), 277, 277(1), 277(2) |
| Grass v Minister for Immigration and Border Protection [2015] FCAFC 44 Grass v Minister for Immigration [2013] FMCA 74 |
| Applicant: | JOHN GRASS |
| Respondent: | BRADLEY ALLEN LOVE LAWYERS |
| File Number: | SYG 1167 of 2015 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 3 August 2015 |
| Date of Last Submission: | 31 July 2015 |
| Delivered at: | Sydney |
| Delivered on: | 4 September 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Simpkins |
| Solicitors for the Applicant: | Sweeney Tiggemann Solicitors |
| Counsel for the Respondent: | Mr J Mack |
| Solicitors for the Respondent: | Bradley Allen Love Lawyers |
ORDERS
The application filed on 28 April 2015 is dismissed.
The applicant pay the respondent’s costs.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1167 of 2015
| JOHN GRASS |
Applicant
And
| BRADLEY ALLEN LOVE LAWYERS |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant, Mr Grass, applies to set aside a bankruptcy notice that has been served on him.
The bankruptcy notice demands payment of $17,629.27. That represents a default judgment for $17,486.74 (Judgment) the respondent, Williams Love & Nicol Lawyers Pty Limited (WLN), recovered against Mr Grass in the Magistrates Court of the Australian Capital Territory (Magistrates Court) on 18 February 2015, together with interest that has accrued on the Judgment. WLN recovered the Judgment on a claim for fees for legal services WLN provided to Mr Grass.
Mr Grass claims the bankruptcy notice should be set aside because the Judgment on which it is based is a nullity and in any event does not represent a “real and true debt”. That is so because:
a)the proceeding in relation to which WLN recovered the Judgment was one for the recovery of legal costs;
b)under s.269 of the Legal Profession Act 2006 (ACT) (LP Act), WLN was required, but failed, to disclose to Mr Grass a number of matters in relation to those legal costs; and
c)having failed to comply with s.269 of the LP Act, s.277(2) of the LP Act prohibited WLN from commencing the proceeding in which WLN recovered the Judgment.
Issues
A judgment debt “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”.[1] A bankruptcy court, therefore, has power to inquire into whether a judgment on the basis of which a bankruptcy notice has been issued is itself based on a true debt; in other words, a bankruptcy court has the power to “go behind a judgment” on the basis of which a bankruptcy notice has been issued. If, as a result of such inquiry, the court concludes the judgment is not based on a true debt, the bankruptcy notice is liable to be set aside.
[1] Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 at page 224 (Barwick CJ)
A bankruptcy court, however, does not go behind a judgment as a matter of course. It will go behind a judgment only if “substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner”.[2] Two issues, therefore, arise on Mr Grass’s application. The first is whether there are substantial reasons for questioning whether, for the reasons given by Mr Grass, the Judgment is based on a true debt. The second is, if there are substantial reasons for questioning whether the Judgment is based on a true debt, should the bankruptcy notice be set aside?
[2] Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 at page 225 (Barwick CJ)
Before I address these issues, it will be necessary to set out the relevant facts, and to consider the construction and scope of the relevant provisions of the LP Act on which Mr Grass relies for submitting the Judgment is not based on a true debt.
Facts
On 21 May 2009 a delegate of the Minister for Immigration and Citizenship (Minister) approved an application for citizenship made by Mr Grass’s wife.[3] All Mrs Grass needed to do after that approval to become a citizen was to take the pledge of commitment before a person authorised to take that pledge. The Department of Immigration and Citizenship (Department), however, misled Mrs Grass into believing there was a waiting list for the relevant ceremony, and that the Department would inform her of the date of the ceremony. The Department did not inform Mrs Grass of any ceremony because the Department was investigating whether it should cancel the delegate’s approval of Mrs Grass’s application for citizenship. In the event, on 5 July 2010 a delegate of the Minister cancelled the decision approving Mrs Grass’s application for citizenship.
[3] I have taken the relevant background facts in relation to Mrs Grass’s attempts to obtain citizenship from the reasons for judgment of the Full Federal Court in Grass v Minister for Immigration and Border Protection [2015] FCAFC 44
On or about 6 December 2012 Mr Grass had a conversation with Mr Bradbury, a legal director of WLN, about Mr Bradbury’s reviewing documents Mr Grass had prepared to challenge the delegate’s decision of 5 July 2010 to cancel the approval of Mr Grass’s wife’s application for citizenship. Mr Grass said that he could only afford to pay legal costs of $2,500. Mr Bradbury said he could “probably do it for $3,000”.[4]
[4] Grass affidavit, 25.05.15, Annexure “A”, [2], [3]
Shortly after that conversation, Mr Grass received a letter dated 6 December 2012 addressed to Mrs Grass.[5] The letter noted that Mrs Grass had instructed WLN to “provide advice about ADJR proceedings challenging the Minister’s decision to cancel approval of your citizenship and to settle an amended Originating Application”. The letter stated “we estimate the range of our fees for the work to be $3,000.00 plus GST and disbursements as specified in the enclosed Schedule to the Costs Agreement and Retainer and Costs Disclosure Statement”. The letter further stated that the estimate given in the letter “may provide [sic] unreliable for many reasons” and the estimate, therefore “is just that; an estimate”. It “is not a quotation and is subject to change”. By email sent on 6 December 2012 Mr and Mrs Grass accepted the terms on which WLN agreed to carry out the work it identified in its letter dated 6 December 2012, and deposited $3,300 into WLN’s trust account.[6]
[5] Grass affidavit, 25.05.15, Annexure “A”, [4]
[6] Grass affidavit, 25.05.15, Annexure “A”, [6]; Annexure “B”
According to a letter dated 17 July 2014 from WLN to the ACT law Society,[7] on 13 December 2012 Mr Bradbury “provided detailed advice to Mr Grass”.[8] After receiving that advice, Mr Grass called Mr Bradbury and instructed Mr Bradbury to prepare an amended originating application. Mr Bradbury then sent Mr Grass an email on 13 December 2012.[9]
[7] Wilson affidavit, 11.05.15; Annexure “JSW13”, page 74
[8] That advice is not in evidence.
[9] Grass affidavit, 25.05.15, Annexure “A”, [7]; Annexure “C”
In that email, Mr Bradbury informed Mr Grass that the costs exceeded the previous estimate he had given because “[t]here was a substantial amount of additional material (including the Department’s file relating to the 2010 cancellation decision) and I had also not factored in the lengthy telephone call we had this afternoon to discuss the advice”. Mr Bradbury said that the “costs to this point in time come to approx. $5,500 (excl of GST) and there will be another couple of hours work to prepare the amended originating application”. Mr Bradbury requested that Mr Grass pay another $3,000 into WLN’s trust account if Mr Grass was happy for WLN to continue acting in the matter.[10]
[10] Grass affidavit, 25.05.15, Annexure “A”, [7]; Annexure “C”
According to the letter dated 17 July 2014 from WLN to the ACT law Society,[11] although Mr Bradbury had requested Mr Grass pay an additional $3,000 into trust, “Mr Grass negotiated what was, in effect, a fixed price of $5,500 for the preparation of both the letter of advice and the amended originating application and paid an additional $2,200 into our trust account”, and that an “invoice for the agreed fixed price of $5,500 was not rendered until 17 December 2012”.
[11] Wilson affidavit, 11.05.14; Annexure “JSW13”, page 74
On or about 15 January 2013 Mr Grass requested Mr Bradbury provide him a costs estimate for the hearing.[12] Mr Grass said he could only afford to pay $2,500. On 23 January 2013 Mr Grass received an email from Mr Bradbury setting out an estimate of costs.[13] Mr Bradbury estimated that the costs would range between $8,830 and $10,415. Mr Bradbury stated in his email that if Mr Grass would be unable to recover any party/party costs from the Minister, WLN would reduce its fees by 20%, and counsel would reduce her daily fee to $1,100.
[12] Grass affidavit, 25.05.15, Annexure “A”, [8]
[13] Grass affidavit, 25.05.15, Annexure “A”, [9], Annexure “D”
On 29 January 2013 Mr Bradbury sent to Mr Grass a further estimate of the costs of the hearing.[14] The estimate was $8,888 inclusive of GST. From 23 January 2013 to 22 March 2013 Mr Grass made three payments into WLN’s trust account totalling $8,000.[15] Mr Grass says that, on the basis of the emails he received from Mr Bradbury, he anticipated receiving a discounted invoice from WLN in the amount of $6,534 if Mrs Grass would be unable to recover any party/party costs from the Minister.[16]
[14] Grass affidavit, 25.05.15, Annexure “A”, [12], Annexure “H”
[15] Grass affidavit, 25.05.15, Annexure “A”, [11]; Annexures “E”, “F”, and “G”.
[16] Grass affidavit, 25.05.15, Annexure “A”, [13]
On 13 February 2013 Cameron FM (as his Honour then was) handed down his decision. His Honour set aside the Minister’s cancellation of approval of Mr Grass’s wife’s application for citizenship but also ordered that the decision setting aside the cancellation take effect from 8 April 2013.[17] Cameron FM (as his Honour then was) ordered that the Minister pay Mrs Grass’s costs up to 25 January 2013, and that Mrs Grass pay the Minister’s costs after that date.[18] Mr Grass says that at that point he expected WLN would provide him with an invoice in the amount of $6,534.[19]
[17] Grass v Minister for Immigration [2013] FMCA 74
[18] Wilson affidavit, 11.05.15, annexure “JSW11”, page 64
[19] Grass affidavit, 25.05.15, Annexure “A”, [14]
On 14 February 2013 Mr Grass sent an email to Mr Bradbury requesting an urgent conference with counsel (Ms Ramsay) to discuss the making of a new application to this Court in relation to the Minister’s decision to delay the citizenship ceremony for Mrs Grass.[20] A conference was held on 18 February 2013 during which Ms Ramsay said that while it may be possible to appeal the decision of Cameron FM (as his Honour then was), she could see no utility in challenging the Minister’s decision to delay the citizenship ceremony, given that the decision to cancel the approval of citizenship had been set aside.[21]
[20] Wilson affidavit, 11.05.15, annexure “JSW11”, page 64. The relevant background to the delay in the citizenship ceremony for Mrs Grass is set out in the reasons for judgment of the Full Federal Court in Grass v Minister for Immigration and Border Protection [2015] FCAFC 44
[21] Wilson affidavit, 11.05.15, annexure “JSW11”, page 64
On 19 February 2013 Mr Grass received an email from Mr Bradbury.[22] Mr Bradbury confirmed Mr Grass instructed Mr Bradbury to brief counsel, and that he estimated counsel’s fees would be between $550 and $1,100 plus GST. Mr Bradbury also said he “will continue to charge for the time I spend on the matter on the basis previously agreed”. Mr Grass says he believed the costs of briefing counsel would be minimal, and would be included in the costs estimate Mr Bradbury provided in his email of 29 January 2013.[23]
[22] Grass affidavit, 25.05.15, Annexure “A”, [16]; Annexure “I”
[23] Grass affidavit, 25.05.15, Annexure “A”, [15]
On 27 February 2013 a teleconference took place between Mr Grass, Mr Bradbury, Ms Ramsay, and Professor Kim Rubenstein. Ms Ramsay expressed the view that an appeal would be futile, but said she would consider it further. She provided a formal advice on 2 March 2013 confirming her opinion there was no utility in appealing against the orders of Cameron FM (as his Honour then was). [24]
[24] Wilson affidavit, 11.05.15, annexure “JSW11”, pages 64-65
According to Mr Bradbury, he spoke with Mr Grass on 4 March 2013. Mr Grass said he had read and agreed with Ms Ramsay’s advice. Mr Grass said, however, that he still wished to pursue ADJR proceedings in relation to the Minister’s decision to delay the citizenship ceremony.[25] According to Mr Bradbury, in the period leading up to 15 March 2013 he corresponded with Mr Grass about the assessment of party/party costs. Mr Bradbury says that Mr Grass included in the party/party costs expenses Mr Grass had incurred in seeking advice from other lawyers as well as personal expenses Mr and Mrs Grass incurred. That resulted in Mr Bradbury submitting to the Minister’s lawyers a claim for party/party costs in the sum of $27,221.92. The Minister’s solicitor invited Mr Bradbury to make a revised offer because the solicitor was of the view that the claimed party/party costs of $27,221.92 included payments to lawyers not on the record, and which appeared to relate to costs Mrs Grass had incurred in proceedings before the Administrative Appeals Tribunal (AAT).[26]
[25] Wilson affidavit, 11.05.15, annexure “JSW11”, page 65
[26] Wilson affidavit, 11.05.15, annexure “JSW11”, page 65
On or about 15 March 2013 Mr Grass received an invoice from WLN for work performed between 15 January 2013 and 25 January 2013.[27] The invoice claimed $5,076.72.
[27] Grass affidavit, 25.05.15, Annexure “A”, [17]; Annexure “J”
On 18 March 2013 Mr Grass sent an email to Mr Bradbury in which he requested that “we lodge an immediate application to” this Court “under subsections 161c,1d) [sic]” of what appear to be the Administrative Decisions (Judicial review) Act 1977 (Cth) (ADJR Act).[28] The proposed application was stated to relate to a decision made on 29 May 2009 to delay Mrs Grass’s citizenship ceremony, and also to a notice issued by the Department to Mrs Grass of its intention to cancel the approval of her citizenship. Mr Grass also requested that there be a review of the conduct of certain officers of the Department.[29] Mr Grass’s email concludes:
Could you advise me on the process for sub-poenaing [sic] these people if necessary. Could you prepare a brief to barrister Nick Poynder re second opinion based on your brief to Fleur re prospects of success, tactical advice.
Please refer to attached Citizenship instructions and draft letter (for your comments) to . . . citizenship officer who issued the NOICC of citizenship approval. . . .
[28] H A Chong affidavit, 02.06.15, [5]; Annexure “AHC-2”
[29] The relevant background to these matters may be found in the decision of the Full Federal Court in Grass v Minister for Immigration and Border Protection [2015] FCAFC 44
On 21 March 2013 Mr Grass received another email from Mr Bradbury.[30] That email deals with a number of matters. First, it attaches a letter Mr Bradbury received from the Department in response to a letter Mr Bradbury sent on 7 March 2013. Second, the email refers to the feasibility of separating costs Mr Grass incurred in relation to the AAT proceedings from the costs he incurred in relation to taking possible ADJR proceedings. The third matter Mr Bradbury discussed was the need for Mr Grass to make arrangements to be able to pay for the work Mr Bradbury was doing. Mr Bradbury said:
I will also need you to propose some means of paying the costs that we have already incurred on your behalf, as I simply can’t keep doing more work if you are not in a position to even pay for work that I have already done. I haven’t yet sent a tax invoice for the work done since 25 January but will do so at the end of this month.
[30] Grass affidavit, 25.05.15, Annexure “A”, [20]; Annexure “K”
The fourth matter Mr Bradbury discussed concerns the question of commencing fresh proceedings under the ADJR Act. Mr Bradbury said that neither he nor counsel believed there was any realistic possibility of “proceedings seeking to challenge the “delay” decision being successful”. Mr Bradbury said, however, that he would be happy to seek a second opinion from Mr Poynder. Mr Bradbury said that it would cost approximately $1,000 to put a brief together.
Mr Grass says that he “did not accept Mr Bradbury’s offer”, nor “did I instruct him to prepare a brief for Mr Poynder”.[31] That appears to be contradicted by an exchange of emails on 22 March 2013.[32] At 3:47 pm on 22 March 2013 Mr Bradbury received an email from Mr Poynder, barrister, who estimated that it would cost $3,500 to review the matter and provide advice. At 4:05 pm Mr Bradbury forwarded to Mr Grass Mr Poynder’s email and asked for Mr Grass’s instructions “as to whether to proceed given the timeframe and estimated costs”. At 5:13 pm, Mr Grass sent an email to Mr Bradbury asking Mr Bradbury to “commence preparing an application and I will attempt to have a consultation with nick poynder [sic] next week”.
[31] Grass affidavit, 25.05.15, Annexure “A”, [20]
[32] H A Chong affidavit, 02.06.15 [4]; Annexure “AHC-1”
On or about 27 March 2013 Mr Grass received another invoice from WLN, this time for work done between 29 January 2013 and 26 March 2013.[33] The invoice claimed $13,641.06, including GST and disbursements.
[33] Grass affidavit, 25.05.15, Annexure “A”, [21]; Annexure “L”
On 10 November 2014 WLN commenced proceedings against Mr Grass in the Magistrates Court claiming $13,469.72 together with interest and costs.[34] The statement of claim by which WLN commenced these proceedings is not in evidence. It appears, however, that the $13,469.72 WLN claimed in the Magistrates Court is the amount claimed in WLN’s invoice of 27 March 2013 less $171.34 Mr Grass paid to WLN.[35]
[34] Wilson affidavit, 11.05.15, [15]
[35] Wilson affidavit, 11.05.15, annexure “JSW15”, page 85
According to Mr Grass, on 10 December 2014 he posted to the Magistrates Court by ordinary mail a defence and counterclaim.[36] The Magistrate’s Court rejected the defence and counterclaim because it did not specify an address for service in the Australian Capital Territory.[37] On 22 December 2014 Mr Grass posted another form of defence and counterclaim, but he was subsequently advised that the address for service he had provided in that document was unacceptable.[38]
[36] Grass affidavit, 25.05.15, Annexure “A”, [26]
[37] Grass affidavit, 25.05.15, Annexure “A”, [26]
[38] Grass affidavit, 25.05.15, Annexure “A”, [27]-[28]
On 29 January 2015 WLN received an application Mr Grass filed in the Magistrates Court seeking a stay of the proceedings and a transfer of those proceedings to a court in New South Wales.[39] The Honourable Magistrate Cook heard and dismissed that application on 3 February 2015.[40]
[39] Wilson affidavit, 11.05.15, [16]
[40] H A Chong affidavit, 06.07.15, [3(a)], Annexure “AHC3”, page 18
By letter dated 16 January 2015,[41] WLN informed Mr and Mrs Grass that unless they file a proper defence within fourteen days of the date of the letter, WLN would file for default judgment. Mr Grass says that on or around 28 January 2015 he posted to the Magistrates Court by ordinary mail a further draft of the defence which provided what Mr Grass believed was an acceptable address for service.[42] There is some evidence that Australia Post delivered to the Magistrates Court the document Mr Grass said he posted on 28 January 2015.[43]
[41] Wilson affidavit, 11.05.15, Annexure “JSW16”, page 91
[42] Grass affidavit 25.05.15, Annexure “A”, [29]
[43] Grass affidavit 25.05.15, Annexure “B”
On 18 February 2015 WLN obtained default judgment against Mr Grass. On 3 March 2015 Mr Grass filed an application with the Magistrates Court to set aside the default judgment. Deputy Registrar Edwards heard that application on 24 March 2015. Mr Grass appeared by telephone. At the hearing, Mr Grass submitted that although part of his defence to WLN’s was overcharging, “the complaint is that I have never received any proper estimate or cost disclosure for the work that’s being claimed”.[44] Mr Grass said he “outlined that pretty precisely, especially in the second affidavit annexure of 16 March”.[45] The Deputy Registrar dismissed Mr Grass’s application because the Deputy Registrar was not satisfied with the reasons Mr Grass gave for not having filed a proper defence with a proper address for service, or that there were sufficient grounds for defending the claims. The Deputy Registrar said that “The Law Society went through this properly and there is no grounds for this defence”.[46]
[44] H A Chong affidavit, 06.07.15, [3(b)], Annexure “AHC4”, page 24
[45] H A Chong affidavit, 06.07.15, [3(b)], Annexure “AHC4”, page 24
[46] H A Chong affidavit, 06.07.15, [3(b)], Annexure “AHC4”, page 31
Mr Grass did not appeal the Deputy Registrar’s decision within time. Accordingly, Mr Grass applied for an order extending the time to appeal. His Honour Magistrate Morrison heard that application on 19 May 2015.[47] Mr Grass was legally represented. His Honour Magistrate Morrison refused the application for an extension of time because his Honour was not satisfied Mr Grass demonstrated a reasonable excuse for not having filed his appeal within the prescribed time.[48]
[47] H A Chong affidavit, 06.07.15, [3(c)], Annexure “AHC5”, page 32
[48] H A Chong affidavit, 06.07.15, [3(c)], Annexure “AHC5”, page 57
The LP Act
The first provision of the LP Act to consider is s.269(1), which provides that a “law practice must disclose to a client” the matters specified in that subsection. This includes the information referred to in s.269(1)(d) of the LP Act, namely, “an estimate of the total legal costs, if reasonably practicable or, if it is not reasonably practicable to estimate the total legal costs, a range of estimates of the total legal costs and an explanation of the major variables that will affect the working out of the costs”. The expression “law practice” is defined in the Dictionary to mean, among other things, an “incorporated legal practice”; and “client” is defined for the purposes of the LP Act generally to include a person to whom or for whom legal services are provided.[49]
[49] LP Act, Dictionary
Subsection 269(1) of the LP Act does not identify the circumstances in which a law practice must make the disclosures required by that subsection, or by when the disclosures must be made. That must be determined from other provisions of the LP Act. Relevant is s.263 of the LP Act which provides that “[t]his part applies to a matter if the client first instructs the law practice in relation to the matter in the ACT” (emphasis added). Section 266 of the LP Act provides that a “client first instructs a law practice in relation to a matter in a particular jurisdiction if the law practice first receives instructions from or on behalf of the client in relation to the matter in that jurisdiction, whether in person or by post, telephone, fax, email or other form of communication” (emphasis added). Subsection 271(1) of the LP Act provides that disclosure under s.269 “must be made in writing before, or as soon as practicable after, the law practice is retained in the matter” (emphasis added).
Thus, a law practice’s obligation to make the disclosures required by s.269 of the LP Act arises when a client instructs the law practice in relation to “a matter”; and the disclosures must be made in writing as soon as practicable after the law practice is retained “in the matter”. Further, although s.269(1)(d) of the LP Act only refers to a law practice providing an estimate of the “total legal costs”, given that the LP Act imposes on a law practice the obligation to disclose when a client first instructs the law practice on a matter, and the disclosure must be made as soon as practicable after the law practice is retained in the matter, the “total legal costs” that s.269(1)(d) requires the law practice to estimate are the legal costs of “the matter” for which the law practice is retained.
The LP Act does not define the word “matter”. One dictionary meaning of “matter” is an “event, circumstance, fact, question, state or course of things, etc., which is or may be an object of consideration or practical concern; a subject, an affair, a business”.[50] In the context of the LP Act a “matter” may be taken to refer to the work that the law practice is retained to undertake. The LP Act contemplates that such work is capable of being described in some meaningful way. Once a matter is described – that is, once the work the law practice is or is to be retained to do is described - the law practice is obliged to estimate the total legal costs of undertaking that work or, where that is not reasonably practicable, to provide a range of estimates of the total legal costs and an explanation of the major variables that will affect the working out of the costs.
[50] Oxford English Dictionary, online edition, accessed on 31.08.15
Given that the obligation imposed on a law practice to disclose the information referred to in s.269 of the LP Act arises when a client instructs a law practice in relation to “a matter”, it follows that the law practice must disclose that information every time the same client instructs the law practice on a different matter. That is to be contrasted with the circumstances to which s.276(1) of the LP Act is directed. That subsection provides that a law practice “must tell the client in writing of any substantial change to anything included in a disclosure under this division as soon as is reasonably practicable after the practice becomes aware of the change”.
Section 277 of the LP Act provides for consequences of a law practice not disclosing matters required by Division 3.2.3 of Part 3.2 of the LP Act to be disclosed. Two are relevant. The first is s.277(1) which provides:
If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed, the client or associated third party payer (as the case may be) need not pay the legal costs unless they have been assessed under division 3.2.7.
The second relevant consequence of a law practice not complying with the disclosure requirements of Division 3.2.3 of Part 3.2 of the LP Act is that provided for by s.277(2) of the LP Act:
A law practice that does not disclose to a client or an associated third party payer anything required by this division to be disclosed may not bring a proceeding against the client or associated third party payer (as the case may be) for the recovery of legal costs unless the costs have been assessed under division 3.2.7.
These subsections do not identify “the legal costs” which the client is not obliged to pay unless they are assessed; or the “legal costs” for the recovery of which the law practice may not bring a proceeding. In my opinion, “the legal costs” referred to in s.277(1) of the LP Act and the “legal costs” referred to in s.277(2) of the LP Act are intended to mean all legal costs the law practice has incurred in connection with the matter for which the law practice has been retained. This construction is supported by two considerations. The first is that the disclosure obligations relate to the matter for which the law practice has been retained. Second, s.277(1) and s.277(2) of the LP Act are engaged when a law practice does not disclose “anything” that is required to be disclosed. That includes matters that do not relate to the estimation of legal costs. That indicates that the purpose of s.277(1) and s.277(2) of the LP Act is to protect a client becoming liable to pay to a law practice legal costs without such costs being assessed unless the law practice has complied with all its disclosure obligations under Division 3.2.3 of Part 3.2 of the LP Act.
Substantial grounds for questioning Judgment?
In my opinion, there are substantial grounds for questioning that at least part of the Judgment is not based on a true debt. Those grounds arise out of Mr Grass having retained WLN in more than one matter. Those matters are:
a)WLN commencing and prosecuting proceedings on behalf of Mrs Grass in relation to the delegate’s decision of 5 July 2010 to cancel Mrs Grass’s application for citizenship (Citizenship Approval Matter). That matter was completed by 13 February 2013 when Cameron FM (as his Honour then was) handed down his decision.
b)WLN advising Mr and Mrs Grass about the options available to Mrs Green, given the orders Cameron FM (as his Honour then was) made on 13 February 2013, and given that the Department had issued a fresh notice of intention to cancel the delegate’s approval of Mrs Grass’s application for citizenship (Options Matter).
c)WLN assessing and seeking to recover the costs Cameron FM (as his Honour then was) ordered the Minister pay Mrs Grass.
d)WLN advising Mr Grass in relation to correspondence to and from the Department.
There is no question that WLN provided estimates of the legal costs in relation to the Citizenship Approval Matter as required by s.269(1)(d) of the LP Act. That occurred on 6 December 2012 ($3,000 exclusive of GST), 13 December 2012 ($5,500), 23 January 2013 (between $8,830 and $10,415 excluding GST), and 29 January 2013 ($8,888, including GST). With one exception, however, WLN did not provide an estimate of costs in relation to the other three matters as required by s.269(1)(d) of the LP Act. The exception relates to part of the work in relation to the Options Matter, that work being Mr Bradbury preparing a brief for Mr Poynder. As I noted earlier, in an email he sent to Mr Grass on 21 March 2013 Mr Bradbury estimated it would cost around $1,000 to put a brief together. In my opinion, that Mr Bradbury gave an estimate of costs for undertaking work that constituted part of the Options Matter did not relieve WLN from giving an estimate of the legal costs for the matter as a whole.
It follows from what I have found that the only costs WLN was entitled to recover from Mr Grass without any assessment are the costs that were incurred in relation to the Citizenship Approval Matter. Some of those costs – being the costs and disbursements incurred up to 13 February 2013 - are claimed in WLN’s 27 March 2013 invoice. WLN’s costs claimed in the 27 March 2013 invoice up to and including 13 February 2013 are $7,184.65. After allowing for the 20% discount Mr Bradbury agreed to give to Mr Grass in their telephone conversation of 23 January 2013, WLN’s costs relating to work up to 13 February 2013 are $5,747.72. With disbursements incurred before 13 February 2013 - $340.09 - the costs claimed by WLN’s 27 March 2013 invoice that relate to the Citizenship Approval Matter total $6,087.81.
Thus, the only costs claimed in WLN’s 27 March 2013 invoice that WLN was entitled to recover without assessment was $6,087.81, assuming s.276 of the LP Act was not engaged in relation to the estimates of costs WLN had given for the Citizenship Approval Matter. It is true that when added to the $5,076.72 claimed in WLN’s 15 March 2013 invoice, the total costs incurred by WLN in relation to the Citizenship Approval Matter exceed the estimates WLN had previously given. I am not satisfied, however, that any substantial change occurred to the matters on the basis of which WLN made its previous estimates that had to be disclosed under s.276 of the LP Act. Accordingly, WLN was entitled to recover $6,087.81 of the amount it claimed in its 27 March 2013 invoice without an assessment, but it was not entitled to recover the balance of its costs referred to in that invoice without an assessment.
Should the bankruptcy notice be set aside?
Does my conclusion that WLN was entitled to recover by proceeding only $6,087.81 of the $13,469.72 without assessment mean that the bankruptcy notice should be set aside? There are at least two potential reasons why that question might be answered in the negative. The first is the observation of Gummow J in the following passage from his Honour’s reasons for judgment in Olivieri v Stafford:[51]
[I]t must be a rare case that this Court, upon an application to set aside a bankruptcy notice, will further extend time for compliance with a bankruptcy notice, so that this Court may embark upon an inquiry as to what lies behind the judgment debt, where an extension of time for compliance with the bankruptcy notice initially was granted to enable the matter to be raised in the court in question and that court has dismissed the application made to it by the judgment debtor.
[51] (1989) 24 FCR 413 at page 429
Mr Grass made two unsuccessful applications to the Magistrates Court in relation to the Judgment. In neither of those applications, however, did the Magistrate’s Court address the merits of the grounds on which Mr Grass claimed he did not owe WLN the amounts it claimed was owed to it. The Deputy Registrar was of the opinion that Mr Grass’s grounds had no merit because the Law Society “went through this properly”; and his Honour Magistrate Morrison refused Mr Grass’s application for an extension of time to appeal without finding it necessary to consider the grounds on which Mr Grass intended to defend WLN’s claims for costs. In those circumstances, this is one of those rare cases where it is appropriate that the Court go behind a judgment.
The second potential reason why the bankruptcy notice should not be set aside, even though, on my findings, the Judgment in part is not based on a true debt is the principle stated by Owen AJ in Re Riviere; Ex parte Original Mont de Piete Ltd:[52]
At the same time, I think it is equally clear that the Court will only reconsider the judgment in order to ascertain whether the petitioning creditor’s debt, on which the bankruptcy proceedings have been founded, should be struck out altogether. . . . The Court does not reconsider the judgment merely with a view to seeing whether the judgment debt should be reduced, but in order to ascertain whether the creditor has a debt upon which bankruptcy proceedings can be founded.
[52] [1919] NSWStRp 56; (1919) 20 SR (NSW) 77 at page 84
The principle has been followed in a number of cases. Recently Wigney J said that “the Court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced and would not support a finding that there was, in truth, no debt at all”.[53]
[53] Katter v Melhem(No 2) [2014] FCA 1176 at [77]
In my opinion, this principle applies to prevent me from setting aside the bankruptcy notice that was served on Mr Grass. I have concluded that only $6,087.81 of the Judgment is based on a true debt. That amount, however, is greater than $5,000, being the minimum amount of a judgment for which a bankruptcy notice can be issued under s.41 of the Bankruptcy Act 1966 (Cth). That means that WLN has a true debt on the basis of which the bankruptcy notice it served on Mr Grass can be founded, and on the basis of which any bankruptcy proceeding based on Mr Grass’s non-compliance with that bankruptcy notice can be founded.
Conclusion and disposition
It follows that Mr Grass’s application to set aside the bankruptcy notice that was served on him must be dismissed. I propose, therefore, to dismiss Mr Grass’s application, and order that he pay the costs of WLN.
I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 4 September 2015
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