Kent and Orlizki v Rahman (No.2)
[2019] FCCA 1357
•24 May 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| KENT AND ORLIZKI v RAHMAN (No.2) | [2019] FCCA 1357 |
| Catchwords: BANKRUPTCY – COSTS – Application for review of order for costs made by Registrar after creditors’ petition dismissed – creditors’ petition dismissed after debtor paid judgment debt in circumstances where the debtor was seeking to set aside judgment debt in another court – whether given the debtor’s seeking to set aside the judgment debt in the other court the creditors acted unreasonably by initiating and continuing to proceed with creditors’ petition – whether debtor acted unreasonably such as to have induced the creditors to seek to enforce judgment debt by initiating and maintaining creditors’ petition – application for review dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), s.41(1) Federal Circuit Court of Australia Act 1999 (Cth), s.104(2) |
| Cases cited: Conlan v Mladenis [2007] FCA 1129 Katter v Melhem (No 2) [2014] FCA 1176 |
| Applicant: | RODNEY KENT AND TIM ORLIZKI (TRADING AS "KENT ATTORNEYS") |
| Respondent: | FAHMID RAHMAN |
| File Number: | SYG 3379 of 2018 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 29 April 2019 |
| Date of Last Submission: | 29 April 2019 |
| Delivered at: | Sydney |
| Delivered on: | 24 May 2019 |
REPRESENTATION
| Solicitors for the Applicant: | Mr T Orlizki of Kent Attorneys |
| Respondent in person, by telephone |
ORDERS
The application for review filed on 8 March 2019 by the respondent, Mr Fahmid Rahman, is dismissed.
Subject to order 3, the respondent, Mr Fahmid Rahman, pay the costs of the application of review of the applicants, Mr Rodney Kent and Mr Tim Orlizki.
Should any party wish to apply to discharge or vary order 2, he or they must do so by filing by no later than 7 June 2019 an application in a case supported by an affidavit.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3379 of 2018
| KENT AND ORLIZKI (TRADING AS "KENT ATTORNEYS") |
Applicant
And
| FAHMID RAHMAN |
Respondent
REASONS FOR JUDGMENT
Introduction
Before me is an application for review of an order for costs for $10,630.11 made by a Registrar of this Court against the respondent, Mr Rahman, on 12 February 2019. Mr Rahman was the respondent to a creditors’ petition Mr Kent and Mr Orlizki (creditors) filed in this Court. The order for costs was made when the Registrar dismissed the creditors’ petition after Mr Rahman paid the debt on which the petition was based.
Question to be determined
Mr Rahman brings this application for review under s.104(2) of the Federal Circuit Court of Australia Act 1999 (Cth) (FCCA), which provides:
A party to proceedings in which a Registrar has exercised any of the powers of the Federal Circuit Court of Australia under subsection 102(2) or under a delegation under subsection 103(1) may:
(a)within the time prescribed by the Rules of Court; or
(b) within any further time allowed in accordance with the Rules of Court;
apply to the Federal Circuit Court of Australia for review of that exercise of power.
A review under s.104(2) of the FCCA is a hearing de novo. That means that an “applicant for review under s.104(2) is under no obligation to demonstrate error on the part of the Registrar, and does not need to establish that the Registrar’s exercise of discretion miscarried in the sense described in House v The King (1936) 55 CLR 499 at 505”.[1]
[1] Conlan v Mladenis [2007] FCA 1129 at [5] (Sunberg J)
Mr Rahman, who is not legally represented, does not submit the creditors’ petition should not have been dismissed. He submits that no order for costs should have been made against him, and no order for costs should be made against him on review because, in a proceeding he commenced in the District Court of New South Wales, Mr Rahman is challenging the liability that resulted in the judgment debt on the basis of which the creditors’ petition was filed. The creditors, on the other hand, submit an order for costs should be made in their favour because Mr Rahman’s payment of the debt constituted a “success” in the proceeding they brought by filing the creditors’ petition.
The question that arises on this application for review, therefore, is whether, given the dismissal of the creditors’ petition after Mr Rahman paid the debt claimed to be owing to the creditors, I should make an order for costs against Mr Rahman.
Facts
The creditors are lawyers who carry on a legal practice under the name of “Kent Attorneys”. In 2015 they provided, or claim to have provided, legal services to Mr Rahman for which they charged amounts specified in four invoices they issued to him. The invoices are in evidence, and are as follows:[2]
a)Invoice no.2550 dated 18 May 2015 for $6,167.70 in relation to “Defence of Local Court Notice of Motion”. It describes work carried out from 27 November 2014 to 14 May 2015. It appears to relate to work performed to set aside a costs judgment that had been entered against Mr Rahman in favour of Gajic Lawyers. The invoice shows that on 11 May 2015 there was a court attendance to have a judgment set aside and to argue costs.
b)Invoice no.2548 dated 18 May 2015 for $2,913.90 in relation to “Review of Costs Assessment Decision”. It describes work carried out from 13 August 2014 to 28 April 2015, and it appears to relate to applying to have the assessment of costs of Gajic Lawyers set aside.
c)Invoice no.2563 dated 5 June 2015 for $794.20 in relation to “Defence of Local Court Notice of Motion”. The invoice contains two entries, one made on 18 May 2015 and another on 29 May 2015.
d)Invoice no.2545 dated 18 May 2015 for $2,937 in relation to “Rahman -v- Commonwealth of Australia as represented by The Australian Taxation Office”. It covers work from 17 July 2014 to 1 August 2014.
[2] Affidavit of F Rahman, 24.01.2019, annexure “A”
Mr Kent described the legal services the creditors provided as falling into two categories – a dispute between Mr Rahman and his previous solicitor, and an appeal from proceedings commenced by Mr Rahman against his employer, the Australian Taxation Office.[3]
[3] Affidavit of R J Kent 20.01.2019, [3]
There is in evidence a set of emails between Mr Rahman and Mr Kent in early June 2015 in relation to the invoices the creditors had issued to Mr Rahman.[4] The first is from Mr Kent to Mr Rahman sent on 4 June 2015 in response to an email Mr Rahman sent to Mr Kent on 2 June 2015. Mr Kent noted that on 18 May 2015 three invoices were issued to Mr Rahman that had not been paid, and Mr Kent sent an email to Mr Rahman requesting an update. Mr Kent then referred to Mr Rahman’s response on 2 June 2015 which was “I have to get fund [sic], hence send our costs to Gajic” (Mr Rahman’s previous lawyer with whom he appears to have been in dispute). Mr Rahman, however, stated other matters in his email of 2 June 2015. Mr Kent said the creditors had obtained a costs order on behalf of the applicant in the Local Court, and he was at a loss to understand the balance of Mr Rahman’s email. Mr Kent said that in a conference on 28 April 2015 Mr Kent discussed with Mr Rahman the costs orders that had been made against him. Mr Kent further noted that the creditors obtained costs orders in favour of Mr Rahman.
[4] Exhibit A (affidavit of F Rahman 16.11.2018), annexure “F”
Mr Rahman responded by email on 4 June 2015. He said “I agree to pay you what jobs you have done after we received review assessment outcome”, and that “[l]ast payment was made UpToDate [sic] until last payment date”. Mr Rahman further said (errors in original):
ATO’s invoice was misconceived. I told you symptom of my problem and the outcome I want. Your answer was negative. Hence matter was not proceed and no agreement was made as per our initial discussion.
Still, I have not received any satisfactory response re costs order against me on both dates. . . .
Mr Kent responded to Mr Rahman’s email on 5 June 2015 in which he set out his understanding of the grounds on which Mr Rahman was disputing the payment of the invoices:[5]
It appears from the balance of your email that you are disputing the balance of our invoices on the basis that the previous payments made by you covered all work up to the date of the payment. . . .
[T]his issue of what work was covered by your previous payments (at least in relation to the costs assessment file) was discussed with you at some length when we last met in conference. You are well aware that the costs incurred in relation to further appearances at the Local Court and work done in relation to the costs assessment leave application are in addition to payments made by you previously.
[5] Exhibit A (affidavit of F Rahman 16.11.2018), annexure “F”
Mr Kent concluded his email by stating the creditors will issue their final invoices and take steps to recover payment of all amounts remaining outstanding. The creditors did not take steps to recover the amounts claimed in the invoices until 2017 when they applied for an assessment of their costs under the Legal Profession Act 2004 (NSW) (LP Act).
On 18 August 2017 a costs assessor issued a certificate of costs in which she assessed the creditors’ costs at $12,215.50. The costs certificate was based on the costs assessor’s reasons dated 18 August 2017.[6] The costs assessor noted that it appeared Mr Rahman gave instructions to the creditors on or about 7 July 2014. The costs assessor further recorded as follows:
11.2The cost applicant has provided a copy of costs disclosure documents dated 8 July 2014 in this client file along with a copy of the covering letter of the same date which related to the defence of a Local Court notice of motion.
11.3I have reviewed that cost disclosure and the cost agreement and note they are compliant with the requirements of the LPA.
[6] Exhibit A (affidavit of F Rahman 16.11.2018), annexure “G”
The costs assessor also identified Mr Rahman’s objections. Mr Rahman claimed: he paid or partly paid the costs under assessment; the creditors did not attend court on a particular day as a result of which an order for costs was made against Mr Rahman; he claimed there was an agreement between the parties for some discounted fixed rate; the costs of the creditors should be paid out of the costs order Mr Rahman recovered against his former solicitors; and the creditors acted negligently. Mr Rahman supported his claim that he paid some of the amounts claimed in the invoices with a statement by Mr Rahman’s wife in which she said she went to McDonalds at Auburn after 7:00 pm in around August 2014, her husband met with Mr Kent, and to the best her recollection “money paid to Mr Kent was over $2000”.[7] Mr Rahman did not claim the creditors did not provide him with the costs disclosure documents to which the costs assessor referred. Nor did Mr Rahman claim the creditors failed to comply with the requirements of the LP Act.
[7] Exhibit A (affidavit of F Rahman 16.11.2018), annexure “H”
A matter on which Mr Rahman has attached great significance is paragraph 12.2 of the costs assessor’s reasons. It sets out the creditors’ response to the claim Mr Rahman made that he paid or partly paid the invoices issued by the creditors. The costs assessor there said as follows:
The cost respondent agrees that a meeting took place at the McDonald’s [sic] in July 2014 on Mr Kent’s way home from work as the cost applicant was unable to attend in the city. He asserted that the meeting lasted no more than 5 to 10 minutes and the only purpose was to collect documents which were relevant to the work to be done. The cost applicant denies any payments were made and asserts that after that meeting two retainer agreements of 8 July 2014 [were] prepared and sent to the cost respondent. Further the costs applicant stated in their letter of 16 August 2017 that $4000.00 initially paid by the cost respondent did not relate to the invoices the subject of this assessment and that the cost respondent is aware of same.
The costs assessor responded to Mr Rahman’s objections as follows:
a)As to the claim Mr Rahman had paid part of the amounts claimed in the invoices, the costs assessor said: “Where there is a dispute as to what payments have been made and the liability for the costs, this is a matter for a different forum such as the Local Court and does not restrain my duty to assess the reasonable costs in this matter”.
b)As to the claim that costs orders had been made against Mr Rahman in the Local Court proceeding because the creditors did not attend, the costs assessor noted that the creditors denied not attending court on the day the costs orders were made.
c)As to the claim that the creditors agreed to perform work for some agreed fixed rate, the costs assessor noted the creditors denied any such agreement, and claimed that they undertook work pursuant to the costs agreement according to hourly rates.
d)As to the claim that the creditors should be paid out of the costs order Mr Rahman recovered against his former solicitor, the costs assessor referred to the creditors’ response that because they were not being paid they declined to continue to act for the costs applicant, and that it is Mr Rahman’s obligation to seek payment for any party/party costs directly.
e)As to the claim that the creditors undertook their work negligently, the costs assessor said that “the forum of cost assessment is not the appropriate place for claims of negligence unless that negligence cause costs to increase or to be incurred unnecessarily”, and that in relation to the proceeding in the Local Court against Gajic Lawyers, “there is no evidence that there was any negligence in relation to that matter that caused the costs to increase or to be incurred unnecessarily”.
It appears that the costs agreement to which the costs assessor referred only related to the work covered by three invoices. The work covered by invoice no.2545 dated 18 May 2015 for $2,937 in relation to “Federal Court Proceeding against the Commonwealth of Australia” was not covered by any agreement. That is apparent from the following passage from the costs assessor’s reasons:
12.8The cost respondent asserted that tax invoice number 2545 dated 18 May 2015 in relation to Federal Court proceedings was misconceived. He asserts that he advised the applicant his problems in that matter and the outcome he wanted. The cost respondent could not provide the outcome he wanted and the matter was not proceeded with and no agreement was made.
12.9From the invoice and the letter enclosing the cost agreement it would appear that the cost respondent sought the assistance of the solicitors on around 17 July 2014. The solicitors have then undertaken preliminary work in relation [to] the matter pursuant to instructions by the costs respondent. By 29 July 2014 the costs applicant provided a detailed cost disclosure and it would appear by 31 July 2014 the cost respondent has not accepted that cost disclosure and instructed the costs applicant not to undertake any further work.
12.10It is reasonable for the costs applicant to claim costs for work done pursuant to instructions from the costs respondent even where the costs respondent later withdraws its instructions and I have allowed those costs except where reduced below at paragraph 14.
On 18 June 2018 Mr Rahman sent an email to Mr Kent asking how “you provided information to [the costs assessor] that she mentioned in paragraph 12.2 on [sic] her determination that I was unaware until I read her determination”. Mr Rahman also stated as follows:[8]
Mr Kent, you denied receiving any money in full or part on several occasions. Your statements only changed after I provided some email communication that indicates that I paid your discounted fees as agreed. Remarkably, you assert initially receiving $4000 and said this amount did not related [sic] to the invoices the subject of this assessment.
Mr Kent, I did not have any other matters of work with you and no other costs agreement, tax invoices in relation to the $4000 paid as claimed.
As above I now request your information and documents, not limited to support your claim and all communications from me ([email protected] and [email protected]) by no later than Friday the 22 June 2018. Failure to do so, I will lodge a formal compliant [sic] to NSW Law Society in relation to your professional misconduct.
[8] Exhibit A (affidavit of F Rahman 16.11.2018), annexure “J”
On 4 September 2017 Mr Rahman sent to the costs assessor an email stating he did not accept the costs assessor’s determination and that he would lodge a review application. Mr Rahman asserted he did not receive any written submission from Mr Kent that contained information to which the costs assessor referred in paragraph 12.2 of her reasons.[9]
[9] Exhibit A (affidavit of F Rahman 16.11.2018), annexure “K”
The creditors registered the costs certificate with the Local Court of New South Wales on 8 September 2017 and, on that day, judgment for $12,215.50 was entered in favour of the creditors against Mr Rahman.
On 6 October 2017 Mr Rahman lodged an application for review of the costs determination with the Supreme Court Costs Assessment Section. There is in evidence submissions Mr Rahman made to the Review Panel.[10] Mr Rahman acknowledged he received “a bundle of documents (223 [p]ages) [a] few days ago after return from overseas”, but “[a]lmost half of the documents are faded, difficult and unreadable”. Mr Rahman claimed the creditors “failed to provide all email communications”, and he requested that the Review Panel ask the creditors “to include all emails, not limited to that sequence will give proper picture [sic]”. Mr Rahman also submitted as follows (errors in original):
The respondent believe that he already paid all 3 tax invoice with discount/agreed fees (invoice #2548, 2550, 2563) in cash except equivalent money of costs order against the respondent dated 17 July and 17 September 2014 by the local court. The first payment was made at McDonald Restaurant Auburn . . . as per Applicant request when we first met together. The rest of the payments was made at the Applicant’s office . . . I sent emails the Applicant confirming payments and requesting receipts. To date I have not received any payments of receipts.
[10] Exhibit B (affidavit of F Rahman 25.03.2019), annexure “E”, [2]
On 22 May 2018 the Review Panel upheld the decision of the costs assessor and determined Mr Rahman should pay the Review Panel’s costs of $1,925.
After Mr Rahman failed to pay the costs of the Review Panel, the creditors paid those costs and, on 11 July 2018, they registered a certificate in relation to the $1,925 the creditors paid. On the same day judgment for $1,925 was entered in the Local Court in favour of the creditors against Mr Rahman for that amount.
On 25 July 2018 Mr Rahman filed with the District Court a summons seeking leave to appeal from the decision of the Review Panel. The summons, which is not in evidence, appears not to have been accompanied by an affidavit, as required by r.50.14(1) of the Uniform Civil Procedure Rules 2005 (NSW). By letter dated 17 September 2018 the creditors requested Mr Rahman’s solicitor to confirm that no affidavit in support had been filed, and stated the creditors intended to take no further steps in the proceeding “until we are served with your client’s evidence”.[11] The creditors also asked for particulars of one of the grounds stated in the summons, that ground being the applicant was denied “natural justice”.[12] Finally, the creditors referred to ground 1 which was said to state that the Review Panel failed to give any reasons. The creditors said that was incorrect, and asked whether Mr Rahman’s lawyer had a copy of the Review Panel’s reasons for decision.
[11] Affidavit of R J Kent 29.01.2019, annexure “O”
[12] The summons as originally filed is not in evidence.
The creditors sent Mr Rahman’s solicitor a letter dated 3 October 2018 requesting a response to the creditors’ letter of 17 September 2018.[13] On the same day the creditors sent another letter to Mr Rahman’s lawyer stating they intended to “proceed with enforcement steps”.[14] It appears these letters were passed on to Mr Rahman.[15] On 8 October 2018 Mr Rahman sent the following email to Mr Kent (errors in original):[16]
We have considered all your recent communications are inappropriate/irrelevant. We choose not to response your emails individually. The assessor or review panel appealed from can also suspend the operation of the decision (LPA04 s 386(1), LPULAA s 90(1)).
On such a application, the relevant considerations are analogous to those on an application for a stay of a judgment pending appeal, and include that the appellant is prima facie entitled to the fruits of the determination, whether the appeal has reasonable prospects of success, whether refusing a stay would render the right of appeal nugatory, and the balance of justice and convenience.
[13] Affidavit of R J Kent 29.01.2019, annexure “P”
[14] Affidavit of R J Kent 29.01.2019, annexure “P”
[15] Affidavit of R J Kent 29.01.2019, annexure “Q”
[16] Affidavit of R J Kent 29.01.2019, annexure “Q”
On 17 September 2018 the creditors served on Mr Rahman by email an examination notice. Mr Rahman did not respond to that notice.[17] By 7 November 2018 the creditors had arranged for the issue of an examination order that was served on Mr Rahman requiring him to attend before the Local Court on 20 December 2018 to provide documents relating to his financial affairs. Mr Rahman appeared before the Local Court on that day but he refused to produce any documents.[18]
[17] Affidavit of R J Kent 29.01.2019, [20]; annexure “L”
[18] Affidavit of R J Kent 29.01.2019, [19]-[28]; annexure “M”
On 6 November 2018 a bankruptcy notice was issued against Mr Rahman demanding payment of $15,251.14. That is the sum of the two judgments to which I have already referred together with interest; and it demanded that Mr Rahman pay to the creditors $15,251.14 within 21 days after service. The bankruptcy notice was served on Mr Rahman on or about 7 November 2018 but Mr Rahman failed to comply with its requirements.
On 28 November 2018 Mr Rahman sent an email to a Ms Katharine Read, who I infer was then an employee of Kent Attorneys, stating:[19]
Please find attached affidavit as my response and use it while you pursue the matter at the Federal Court of the Federal Circuit Court.
[19] Exhibit C
There is no dispute that Mr Rahman attached to the email an affidavit made on 16 November 2018 that was filed in the District Court proceedings.[20] The affidavit is stated to have been made in response to orders made by the District Court on 31 October 2018. The contents of the affidavit may be summarised as follows:
a)The Review Panel did not request the applicant to provide further submissions, and it did not make a decision until 22 May 2018.
b)The Review Panel failed to give reasons why it rejected the applicant’s grounds of review.
c)The creditors deceived the costs assessor by stating Mr Rahman had paid no amount to them in relation to the invoices in circumstances where, in the email Mr Kent sent to Mr Rahman on 5 June 2015 (to which I have referred above), Mr Kent referred to “the previous payments made by you covered all work up to the date of the payment”. The costs assessor “failed to investigate the defendant’s chronic denial of receiving any money in full or [in] part”.[21]
d)The creditors made a “personal contact or secret response of 16th of August 2017 and the plaintiff was unaware until he read paragraph 12.2 of the cost assessor [sic] determination”.[22]
e)The creditors were not entitled to “sit on [their] hands” for two years before they took action.[23]
f)The creditors “sent a bundle of documents (223 pages) for costs assessment but the defendant failed to provide all email communications between the plaintiff and the defendant, in support of their arrangement and payments made”. Mr Rahman then stated he required “all his email communications to the [creditors] from his work email address . . . to substantiate his legal costs were paid to the [creditors] as per the agreed arrangement with discounted rate, but [the creditors] . . . declined to produce. Currently [Mr Rahman] does not have access to his work mail box”.[24]
g)Mr Rahman arranged for the issue of a subpoena against the creditors calling for the production of documents with which the creditors have not complied.
[20] I admitted the affidavit as exhibit A
[21] Exhibit A (affidavit of F Rahman 16.11.2018), [15]
[22] Exhibit A (affidavit of F Rahman 16.11.2018), [14]; annexure “E”
[23] Exhibit A (affidavit of F Rahman 16.11.2018), [16]
[24] Exhibit A (affidavit of F Rahman 16.11.2018), [17]
On 4 December 2018 Mr Kent and Mr Orlizki filed a creditors’ petition with this Court seeking a sequestration order against the estate of Mr Rahman. The act of bankruptcy on which the creditors’ petition relied was Mr Rahman’s failure to comply with the requirements of the bankruptcy notice. The creditors’ petition was returnable before the Registrar at 2:00 pm on 22 January 2019. On that day, on the application of Mr Rahman, the petition was adjourned to 29 January 2019. The Registrar ordered Mr Rahman file a notice of appearance and, by 25 January 2019, Mr Rahman file and serve notice of grounds of opposition together with any affidavit evidence on which he intended to rely.
Mr Rahman retained solicitors and, on 22 January 2019, filed a notice of grounds of opposition. On 24 January 2019 Mr Rahman filed a further notice of grounds of opposition raising the following grounds:
a)the costs assessor did not take into account a payment of $4,000;
b)Mr Kent refused to provide tax invoices;
c)Mr Kent and the costs assessor did not comply with subpoenas;
d)there was an agreement with Mr Kent “involving a discounted fixed fee amount”;
e)Mr Kent did not appear at a hearing resulting in a costs order being made against Mr Rahman; and
f)negligence or misconduct by Mr Kent.
Mr Rahman also filed an affidavit made on 24 January 2019 which may be summarised follows:
a)Mr Rahman does not owe the creditors any money.
b)The creditors were not entitled to sit on their hands by waiting for two years before they took action to try to recover the amounts they claimed Mr Rahman owed them.
c)The creditors’ whole argument for their entitlement to be paid was that “we won the case and/or the respondent do not need to pay big amount to Gajic lawyers, reducing from $33,554.58 to $3,639.90”, but the creditors have not provided “any receipt/tax invoice”, despite Mr Rahman’s requests.
d)The creditors misrepresented to the costs assessors that Mr Rahman had paid no amount to the creditors.
e)The creditors had private communications with the costs assessor.
f)The creditors failed to comply with subpoenas Mr Rahman had issued in the District Court.
g)Mr Kent did not appear at Local Court hearings, contrary to instructions received, as a result of which orders for costs were made against Mr Rahman. The orders are annexed to Mr Rahman’s affidavit,[25] and these record an order made in the proceeding brought by R Gajic in the Local Court on 17 September 2014 that Mr Rahman pay the costs of 17 July 2014 and 17 September 2014.
h)No costs were payable in relation to the Federal Court matter.
[25] Affidavit of F Rahman 29.01.2019, annexure “H”
On 25 January 2019 Mr Rahman applied to the District Court for a stay of the judgments that the creditors entered in the Local Court.[26] The hearing of that application came before Dicker DCJ on 29 January 2018. On the morning of the hearing of the stay application on 29 January 2019, Mr Rahman filed an affidavit with this Court in which:
a)Mr Rahman deposed he “presently [has] proceedings in the District Court of NSW seeking to set aside the Certificate of Determination giving rise to the judgment upon which the Bankruptcy Notice is founded”,[27] and that the “basis of my application to set aside the Certificate of Determination is a failure in the exercise of its jurisdiction by the Review Panel which reviewed the initial determination of the costs claimed to be owed by myself to the Petitioning Creditor”.[28]
b)Mr Rahman asserted he has moved “with due expedition to have the proceedings in the District Court determined as quickly as possible”.[29] He referred to directions made by Dicker DCJ on 15 October 2018 that within 14 days (that is, by 29 October 2018) Mr Rahman provide to the creditors an answer to the creditors’ letter dated 17 September 2018. Mr Rahman said that neither he nor Mr Chaudhry could locate the creditors’ letter dated 17 September 2018, but it was subsequently received on 9 November 2018. Mr Rahman says that the affidavit he swore on 16 November 2018 had “the effect of answering the request for particulars”.
c)Mr Rahman annexed a subpoena for production that had been issued against the creditors, noting that the documents called for by the subpoena had not been produced.
d)Mr Rahman asserted he is solvent. Mr Rahman relied on the assertions that he is the “half owner of my home at . . . Roselands which has a value of about $1.5 million”; that the property has a mortgage “in the sum of $600,000”, and that Mr Rahman’s “only significant current indebtedness, apart from the mortgage [is] the amount claimed by the Petitioning Creditor”.
[26] Affidavit of R J Kent 16.04.2019, annexure “D”, page 15
[27] Affidavit of F Rahman 29.01.2019, [8]
[28] Affidavit of F Rahman 29.01.2019, [9]
[29] Affidavit of F Rahman 29.01.2019, [10]
At the hearing before Dicker DCJ on 29 January 2019 Mr Kent appeared for the creditors, and Mr Rahman appeared by counsel, Mr Rogers. During the luncheon adjournment Mr Kent had a conversation with Mr Rogers about the creditors’ petition that had been listed for hearing before the Registrar at 2:00 pm on 29 January 2019. Mr Rogers and Mr Kent agreed to ask the Registrar to stand the creditors’ petition over for two weeks. According to Mr Kent, Mr Rogers said that Mr Rahman would need a week or so to pay the debt. On 29 January 2019 the Registrar, by consent, adjourned the creditors’ petition to 2:00 pm on 12 February 2019.[30]
[30] Affidavit of R J Kent 16.04.2019, [3]-[10]
After the creditors’ petition was adjourned, Dicker DCJ ordered a stay on terms that Mr Rahman pay the judgment debt to Mr Kent and to Mr Orlizki. His Honour also ordered that Mr Rahman pay certain other costs orders in the Local Court, and otherwise reserved costs. His Honour said the following about the merits of the ground stated in the summons:
I have carefully considered the grounds in the summons and the submissions which were made by Mr Kent including those revealed in the affidavits he relies upon. In my view, there is some force in the submission that the grounds of application are weak, but there is an issue in relation to a failure to give reasons in relation to the payment of $4,000 allegedly made by the plaintiff. While I cannot determine that matter on the documents, I could not on the face of it say that the matter is not at least arguable.
On 4 February 2019 the Local Court made two orders for costs against Mr Rahman in favour of the creditors, one for $1,820.20 and one for $1,876.60.[31] On 5 February 2019 Mr Rahman paid to the creditors the sum of $15,701.55.
[31] Affidavit of R J Kent 16.04.2019, [23]
On 11 February 2019 Mr Kent served on Mr Rahman’s solicitor an affidavit Mr Kent made on 8 February 2019.[32] In that affidavit Mr Kent deposed to Mr Rahman having paid the judgment debt by depositing $15,701.55 in the creditors’ firm’s bank account, stating that, in those circumstances, it is appropriate that the petition be dismissed. Mr Kent also annexed what he described as a bill of costs for work performed after 22 January 2019.
[32] Affidavit of R J Kent 16.04.2019, [13]
The creditors’ petition came before the Registrar at 2.00 pm on 12 February 2019. According to Mr Kent, whose evidence I accept, he had received no notice from either Mr Rahman’s solicitor, Mr Chaudry, or Mr Rahman’s barrister, Mr Rogers, or from Mr Rahman himself, whether Mr Rahman would be appearing before the Registrar.[33] When the matter was called the Registrar informed Mr Kent that Mr Rahman “had made some request to appear by phone but the telephone number he has provided isn’t answering”.[34] Mr Kent informed the Registrar that when the matter was last before the Court it had been stood over because the applicant intended to pay the debt. That occurred, and Mr Kent said that “[w]e just simply seek that the petition be dismissed” and that there be an order for costs. Mr Kent informed the Registrar that he had received a medical certificate, but he submitted that Mr Rahman had a solicitor on the record. The matter was adjourned for a short time to permit Mr Kent an opportunity to contact Mr Chaudhry. Mr Kent attempted to call Mr Chaudhry but the person who took his call told Mr Kent that Mr Chaudhry could not be contacted because he was in court.[35] When the Registrar called the matter again Mr Kent informed the Registrar of his unsuccessful attempts to contact Mr Chaudhry. The Registrar then ordered that the petition be dismissed, and that Mr Rahman pay the creditors’ costs fixed in the sum of $10,630.11.
[33] Affidavit of R J Kent 16.04.2019, [16]
[34] The transcript of the hearing before the Registrar is in evidence - Affidavit of R J Kent 16.04.2019, annexure “G”
[35] Affidavit of R J Kent 16.04.2019, [18]
After the petition was dismissed, further events have occurred in the District Court proceeding. On 1 March 2019 Mr Rahman filed a notice of motion seeking leave to file an amended summons.[36] On 8 March 2019 the creditors themselves filed a notice of motion seeking an order that the stay ordered by Dicker DCJ on 29 January 2019 be dissolved or discharged, together with an order for costs.[37] Mr Rahman filed an affidavit of 25 March 2019 in the District Court.[38]
[36] Affidavit of R J Kent 16.04.2019, annexure “H”
[37] Affidavit of R J Kent 16.04.2019, annexure “K”
[38] Exhibit B
Parties’ contentions
The creditors submit I should order Mr Rahman to pay the creditors’ costs because they were the successful party; and they were successful because Mr Rahman paid the debt owed to the creditors. In the alternative, the creditors submit that it is almost inevitable that on the material that was before the Registrar, a sequestration order would have been made and that, in any event, Mr Rahman acted unreasonably. The creditors rely on Mr Rahman’s failure to provide financial information in response to the examination notice the creditors served on Mr Rahman, Mr Rahman paid the judgment debt shortly before the hearing of the creditors’ petition, and the merits of the matters Mr Rahman raised in opposition to the creditors’ petition are tied to the proceeding Mr Rahman has brought in the District Court, but he has not prosecuted that proceeding “with anything approaching due diligence”.
Mr Rahman submits I should make no order for costs until such time as the District Court proceeding is determined. He submits that the creditors’ attempt to recover their debt by bankruptcy proceedings was an abuse of process, given that Mr Rahman had commenced an application in the District Court. Mr Rahman also relies on the creditors’ delay in seeking to recover their costs, and what Mr Rahman claims has been the creditors’ unreasonable failure to comply with a subpoena and a notice to produce he has issued in the District Court proceeding.
Principles
The Registrar made an order for costs without deciding the merits of the creditors’ application and Mr Rahman’s grounds of opposition, and I am required to consider the question for costs where I am not required to decide the merits of the application for a sequestration order, or the merits of Mr Rahman’s grounds of opposition. As submitted by the creditors, the relevant principles I should apply are those stated by McHugh J in Re Minister for Immigration & Ethnic Affairs; Ex Parte Lai Qin.[39] In that case the applicant applied to set aside a decision of the Refugee Review Tribunal that affirmed a decision not to grant the applicant a protection visa; but she withdrew her application after the Minister for Immigration and Ethnic Affairs decided to grant the applicant a protection visa. The applicant applied for her costs. McHugh J said:
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action...
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried... But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
[39] [1997] HCA 6 (1997) 186 CLR 622
From this passage, the following principles apply when determining an application for costs where the court has not determined the merits:
a)The court should not try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action that by settlement or “extra-curial action” they have avoided.
b)In some cases, however, the court may be able to conclude that one of the parties had acted so unreasonably that the other party should obtain the costs of the action.
c)In some cases, the court may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.
Approach
Although I accept that the question of costs should be determined by the application of the principles stated by McHugh J in Lai Qin, I do not consider it to be useful to apply those principles on the basis that the creditors were the “successful party” because Mr Rahman paid the judgment debt. First, Mr Rahman paid the judgment debt in circumstances where he was maintaining his challenge to that debt in the District Court; and Mr Rahman continues to maintain that challenge. Second, Mr Rahman paid the judgment debt to satisfy one of the conditions Dicker DCJ imposed for granting a stay of the judgment. In that sense it could be considered Mr Rahman paid the judgment debt under protest. Third, Mr Rahman’s payment is in substance a conditional payment because Dicker DCJ’s orders contemplate that if Mr Rahman succeeds in his challenge to the judgment the creditors would be required to return the money Mr Rahman paid. Fourth, “success” in the context of a proceeding based on the presentation of a creditors’ petition is not payment of the debt on the basis of which the creditors’ petition is based. The “success” of such proceeding is the making of a sequestration order.
In my opinion, the question of who should pay the costs of the creditors’ petition is to be determined by assessing the reasonableness of the parties’ conduct. Did the creditors act reasonably in applying to recover the judgment debt by applying for the issue of a bankruptcy notice and filing the creditors’ petition? Did Mr Rahman engage in any unreasonable conduct? And to the extent that he did, could his conduct reasonably be considered as having materially induced the creditors to file a creditors’ petition rather than to seek to enforce the judgment debt by other means? It should be apparent that, in so framing the questions, whether Mr Rahman succeeds in his application in the District Court is not relevant to determining the question of costs I am required to decide.
Conduct of parties
There are a number of matters that are relevant to assessing the reasonableness of the parties’ conduct. The first is that Mr Rahman did not apply for a stay of the judgment until around 25 January 2019. That is some six months after he commenced the proceeding in the District Court on 25 July 2018, two and a half months after he was served with the bankruptcy notice, and some seven weeks after the creditors filed the petition. Mr Rahman, therefore, had more than a sufficient opportunity to apply for the stay and secure the result he secured on 29 January 2018 well before the creditors filed the creditors’ petition. This is a factor that weighs heavily in favour of a finding that Mr Rahman acted unreasonably.
Second, the creditors took steps to enforce the judgment debt by serving an examination notice on Mr Rahman calling on him to produce documents relevant to his financial circumstances. Mr Rahman, however, did not provide any of the information required by the notice. That is a matter that weighs in favour of a finding that the creditors acted reasonably in not seeking to enforce the judgment debt by a means other than by applying for the issue of a bankruptcy notice and, when Mr Rahman failed to comply with the bankruptcy notice, filing the creditors’ petition.
Third, Mr Rahman failed to prosecute his application in the District Court with reasonable speed. Mr Rahman did not file any affidavit with his summons; and on 15 October 2018 Mr Rahman was required to respond by 29 October 2018 to the creditors’ letter dated 17 September 2018 but Mr Rahman did not purport to do so until 28 November 2018, when he sent to the creditors an email attaching an affidavit.
Fourth, the grounds on which Mr Rahman sought to set aside the Review Panel’s orders and to claim he was not liable to pay the judgment debt, at least as articulated up to 12 February 2019 when the creditors’ petition was dismissed, could not reasonably have been considered as giving rise to a serious question that he was liable to pay the judgment debt, or any part the judgment debt in excess of $5,000, being the threshold provided for by s.41(1) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act).
a)One ground on which Mr Rahman relied, being the only ground Dicker DCJ considered to be sufficiently arguable to justify the making of an order staying the judgment, was the claim that Mr Rahman had paid $4,000 of the amount of the invoices. There are a number of difficulties with that assertion. Even if correct, the judgment debt would have been reduced by only $4,000, leaving a debt of $11,251.14. That would have been of no use to Mr Rahman because a bankruptcy court does “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”.[40] In any event, there are substantial reasons for doubting Mr Rahman did pay $4,000 to the creditors, at least on account of any of the invoices: Mr Rahman’s wife recalls that “money paid to Mr Kent was over $2000”, and this occurred in August 2014;[41] in the emails that were exchanged in June 2015 (to which I have already referred) Mr Rahman did not assert he paid the invoices or that he had paid any amount on account of those invoices; and Mr Rahman has given no evidence about when he paid the $4,000, or how he paid that amount, or the circumstances in which he paid the amount.
b)A second ground on which Mr Rahman relied is that the creditors agreed to receive payment of “discount/agreed fees”. Mr Rahman, however, has not particularised that agreement or provided any evidence of it. When was the agreement made? What was the work covered by the agreement? What was the amount agreed? Answers to these questions are not apparent in any of the affidavits or submissions Mr Rahman filed or made.
c)A third ground on which Mr Rahman relied is that he did not agree to the creditors carrying out the work that is the subject of the tax invoice issued in relation to the proceeding against the Australian Taxation Office. Mr Rahman, however, had given no evidence of the dealings he had with the creditors about that matter. He only relied on an assertion. Even if he were to have succeeded in establishing he had no liability to pay that invoice (which claimed $2,937), and even if it were to be assumed that Mr Rahman had paid $4,000 towards the invoices, the amount of the judgment debt would have been reduced to $8,314.14, which is above the $5,000 threshold provided for by s.41(1) of the Bankruptcy Act.
d)A fourth ground on which Mr Rahman relied is the asserted failure by the creditors to comply with a subpoena and a notice to produce. There is evidence, which I accept, that on 15 October 2018, when the subpoena was returnable before a Registrar of the District Court, the creditors objected to producing documents, and the Registrar made no order in relation to the subpoena.[42] Even if the creditors had failed to comply with the subpoena or notice to produce, that says nothing about whether there is any serious reason to question Mr Rahman’s liability to pay the judgment debt.
e)A fifth ground on which Mr Rahman relied is asserted secret communications between the creditors and the costs assessor. Whether or not that assertion is made out, Mr Rahman has not submitted that such communication had any effect on the amount for which the costs assessor assed the creditors’ costs. Thus this says nothing about whether there is any serious reason to question Mr Rahman’s liability to pay the judgment debt.
f)A sixth ground on which Mr Rahman relied is the Review Panel failing to provide reasons for its decision. Even if correct, that by itself discloses no arguable claim that would result in the reduction or elimination of the judgment debt.
g)A seventh ground on which Mr Rahman relied is the asserted failure by the creditors to attend two hearings that resulted in an adverse costs order being made against Mr Rahman. This claim goes no further than assertion. Even if arguable, however, Mr Rahman has provided no evidence about the extent of his liability under the costs orders. It cannot therefore, be said the liability Mr Rahman may have under those costs order is greater Mr Rahman’s liability to pay the judgment debt.
h)An eighth ground on which Mr Rahman relied is that the creditors acted negligently. That is an unparticularised assertion and, for that reason, is unarguable.
i)A ninth ground on which Mr Rahman relied was the creditors’ delay in seeking to recover their costs. That by itself, however, is incapable of raising an arguable case the creditors were barred from seeking to recover their costs in the manner they did.
[40] Katter v Melhem (No 2) [2014] FCA 1176 at [77] (Wigney J)
[41] Exhibit A (affidavit of F Rahman 16.11.2018), annexure “H”
[42] Affidavit of R J Kent 29.01.2019, [44]-[47]
Given the grounds on which Mr Rahman relied could not reasonably have been considered as giving rise to a serious question that he was liable to pay the judgment debt, or any part of the judgment debt in excess of $5,000, the creditors did not act unreasonably by applying for the issue of a bankruptcy notice, or, after Mr Rahman failed to comply with the requirements of the bankruptcy notice, by filing the creditors’ petition, or, after Mr Rahman filed notices of grounds of opposition and his affidavits, by continuing to proceed with the creditors’ petition up to when they applied for an order for costs on 12 February 2019.
I have so far considered the grounds on which Mr Rahman relied up to 12 February 2019. Mr Rahman, however, filed in the District Court an amended summons and an affidavit made on 25 March 2019 in which he sets out the grounds on which he claims he does not owe the judgment debt.[43] Mr Rahman there deposes as follows:
[43] Exhibit B
11.In broad terms my complaint about both the primary costs assessor and about the Review Panel are that I verbally agreed with the Defendant Mr Kent that I would pay him a negotiated fixed sum in respect of:
(i)his undertaking the legal work in respect of a review of the decision of a costs assessor in relation to proceedings that I had had in respect of a motor vehicle accident;
(ii)Local Court work in attempting to stay or set aside enforcement of the decision of the costs assessor referred to in (i) above.
12.In respect of each of the matters referred to in paragraph 11(i) and (ii) above I negotiated a fixed fee with the Kent and then paid, in advance of him doing the work, the agreed payment.
13.Mr Kent did not give me a receipt for either of the payments but on each occasion after I had made the payments, I forwarded to Mr Kent an email confirming that I had made the payments.
A ground to this precise effect had not, on the evidence before me, been communicated to the creditors before 12 February 2019. For that reason, it is not relevant to determining the reasonableness of the creditors deciding to institute bankruptcy proceedings against Mr Rahman. Even if Mr Rahman had, or is to be taken to have, communicated to the creditors a ground to this precise effect before the creditors commenced bankruptcy proceedings against Mr Rahman, the ground ought not to have caused them to consider as giving rise to a serious question whether Mr Rahman was liable to pay the judgment debt, or any part of the judgment debt in excess of $5,000. Although the ground is asserted in an affidavit, it remains an assertion. It does not identify when the agreement was made; it does not specify the fixed amount for which Mr Rahman asserts the creditors agreed to do the work; it does not identify the work covered by the agreement; and it does not specify when Mr Rahman paid the agreed amount or amounts. Further, the ground appears to be inconsistent with Mr Rahman’s submission I reproduced in paragraph 20 of these reasons, where Mr Rahman asserted he believes he paid the invoices in cash except to the extent of his liability to pay the costs orders that had been made against him.
Although not stated in either of Mr Rahman’s notices stating grounds of opposition, in his affidavit made on 29 January 2019 Mr Rahman asserted he was solvent. There are two matters to note about this part of Mr Rahman’s affidavit. First, it is not in a form that is reasonably capable of proving solvency. Secondly, at the hearing before me Mr Rahman said, as I understood him, that although his name was on the title to his home together with his wife, he is not in fact the owner of any part of the home. For these reasons Mr Rahman’s having asserted solvency in the manner that he did was not a manner that ought reasonably to have led the creditors not to press on with the hearing of the creditors’ petition.
Conclusion
The creditors did not act unreasonably by deciding to seek to recover the judgment debt by commencing bankruptcy proceedings, and by maintaining that proceeding up to 12 February 2019; their decision to do so was induced by the unreasonable conduct of Mr Rahman, namely, his delay in seeking to obtain a stay of the judgment, his refusal to comply with the examination notice, and his failure to raise any ground that was reasonably capable of raising any serious question whether he is liable to pay the judgment debt, or any part of the judgment debt in excess of $5,000. For these reasons Mr Rahman should pay the creditors’ costs of the proceeding based on the creditors’ petition.
That leaves the question of the amount for which those costs should be assessed. Mr Kent, in his affidavit of 8 February 2019, assessed the creditors’ costs to be $10,050.11. At the hearing before the Registrar on 12 February 2019, however, Mr Kent submitted that there should be allowed an additional amount of $580 because in his affidavit he only allowed for one hour attendance at the hearing but it ended up being two hours. On the basis of Mr Kent’s affidavit made on 8 February 2019, and his submissions to the Registrar, I am satisfied it is reasonable to assess the creditors’ costs in the amount of $10,630.11, being the amount for which the Registrar assessed those costs.
Disposition
I propose to order that the application for review be dismissed. There is no apparent reason why the usual order as to costs should not be made. I propose, therefore, to order that Mr Rahman pay the creditors’ costs of the application for review. I will, however, reserve to the parties liberty to apply within fourteen days should any one of them wish to apply to discharge or vary the order for costs I propose to make.
I certify that the preceding fifty-five (55) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Date: 24 May 2019
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