KHOTSIMEUANG v WorkCover Corp of SA
[2006] FMCA 204
•7 February 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KHOTSIMEUANG v WORKCOVER CORP OF SA | [2006] FMCA 204 |
| BANKRUPTCY – Costs – annulment application dismissed – order for costs sought against solicitor for applicant – circumstances in which such an order will be made. |
| Bankruptcy Act 1966 (Cth), ss.153B, 153(B)(2) Trade Practices Act 1974 Federal Magistrates Court Rules 2001 (Cth), Pt 21, r 21.07(1), o 62 |
| White Industries (Qld) Pty Ltd v Flower and Hart (1998) 156 ALR 169 Ridehalgh v Rosefield [1994] Ch 205, 206 Da Sousa & Anor v Minister of State for Immigration, Local Government and Ethnic Afffairs (1993) 114 ALR 708 Edwards v Edwards Orchard v South-Eastern Electricity Board (1987) QB 565 |
| Applicant: | KEO KHOTSIMEUANG |
| Respondent: | WORKCOVER CORPORATION OF SOUTH AUSTRALIA |
| File Number: | ADG 254 of 2005 |
| Judgment of: | Lindsay FM |
| Hearing date: | 6 February 2006 |
| Date of Last Submission: | 6 February 2006 |
| Delivered at: | Adelaide |
| Delivered on: | 7 February 2006 |
REPRESENTATION
| Solicitor for the Applicant: | Mr J Vigar |
| Counsel for the Respondent: | Ms A Nolan |
| Solicitors for the Respondent: | Kelly & Co |
ORDERS
The applicant's solicitor do pay the respondent's costs of and incidental to these proceedings. Such costs to be calculated in accordance with Order 62 of the Federal Court Rules.
The application is otherwise dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
ADG 254 of 2005
| KEO KHOTSIMEUANG |
Applicant
And
| WORKCOVER CORPORATION OF SOUTH AUSTRALIA |
Respondent
REASONS FOR JUDGMENT
Ex-Tempore
This is an application by the respondent in these proceedings for an order for costs.
Two orders are sought. The second of them, an order that the applicant himself pay the costs, is the subject of a consent order, or at least the order is not opposed by Mr Vigar.
The matter that was disputed is the application that Mr Vigar, as the applicant's solicitor, pay the respondent's costs of the proceedings.
Yesterday, 6 February 2006, new provisions came into operation relating to the conduct of bankruptcy proceedings in the Federal Magistrates Court. Of particular relevance are the Rules relating to costs, and that will have something to do with the form of the order if
I were to be persuaded it was appropriate to make an order for costs.
Those new Rules leave in operation, however, the provisions of Pt 21 of the existing Rules of this Court. Rule 21.07 makes provision for orders for costs to be made against lawyers. Order 21.07 provides, in sub-placitum (1):
The court or a registrar may make an order for costs against a lawyer if the lawyer, or employee or agent of the lawyer has caused costs:
(a) to be incurred by a party or another person or;
(b) to be thrown away;
because of undue delay, negligence, improper conduct or other misconduct or default.
Then there are certain other provisions relating to such applications. So that is what our Rules have to say in relation to the application that is made. I take the view though that the Rules so framed did not intend to depart from those principles which emerge from authorities on the topic, both in this court and in other courts, as to the circumstances, or describing the circumstances in which such an order can be made.
I will come to those authorities in a moment.
The substantive application in these proceedings was filed on 10 October 2005. It was an application that the sequestration order in relation to the applicant's estate, made on 18 July 2005, be set aside. That was order number 2.
Order number 1 was an order that the bankruptcy of the applicant be annulled, pursuant to the provisions of s.153B of the Bankruptcy Act 1966 (Cth).
I did not take and I do not take the order sought in relation to the setting aside of the order to be seeking any order that is different in substance from the s.153B order.
Section 153B of the Bankruptcy Act provides that:
If the court is satisfied that a sequestration order ought not to have been made, or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the official receiver, the court may make an order annulling the bankruptcy.
Subparagraph (2) provides that:
In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.
The application, when it was made, was not supported by an affidavit of the applicant. It was supported by an affidavit of the applicant's solicitor and the affidavit purported to adumbrate the nature of the orders sought by the applicant.
The fact that an affidavit of the applicant was not filed constituted a breach of the rules of this court relating to institution of proceedings, and Mr Vigar does not dispute that.
It also had some other consequences, though, in that right from the outset of the proceedings we were deprived of any opportunity of knowing what the applicant had to say as to the sorts of matters which grounded his entitlement to relief under s.153B.
The debt, it appears - the judgment creditor's debt; the respondent's debt - was a debt that arises in respect of the imposition of WorkCover levies. In Mr Vigar's affidavit the claim was made, presumably on instructions from the applicant, that the debt was not owing by the applicant but by a company, which he carried on business with in partnership.
As to how it was that he came to be charged with the levies and as to the circumstances in which his membership of the partnership did not give rise to the obligation to pay the levies - none of that was explored in the affidavit.
Also not explored in the affidavit that was filed on instructions was the issue of the applicant's solvency. The insolvency of the applicant, as the s.153B(2) specifically provides, is not a bar to the making of an order, but the authorities are clear and it is plain that the question of the solvency of an applicant, both at the time the sequestration order is made and at the time of the application for annulment being considered, is a matter that is highly relevant to the exercise of the discretion of the Court, pursuant to s.153B.
That was not a matter that was addressed in the affidavit of Mr Vigar, so we have the circumstance that the proceedings were instituted:
a)not in compliance with the Rules of Court;
b)with no meaningful information being provided as to the circumstances in which it said the judgment debt arose, being circumstances that would have to warrant the setting aside of the sequestration order;
c)we had no information in relation to the solvency of the applicant.
What then happened is not really the subject of dispute. The matter was adjourned from time to time. Mr Vigar had difficulty getting instructions. His affidavit sets that out and I accept, of course, what he has to say in that affidavit about his difficulties, presented by both the failure of the applicant to give him instructions, the lack of cooperation of the applicant's daughter who acted as translator or interpreter and the language problem itself.
Ultimately, on 9 December 2005, Mr Vigar, being in a position of not having the instructions required for him to deal with the three issues I have mentioned that were missing from the affidavit, the application was dismissed.
The applicant, of course, is bankrupt and I am told that there is little prospect of recovery from the bankrupt's estate of the costs that are the subject of the order which there is no opposition to me making in relation to his paying costs. I do not think that in itself is a matter that I can take into account in deciding whether or not it is appropriate that the applicant's solicitor pay the costs.
The circumstances in which such orders will be made have been the subject, as I have indicated, of a number of authorities, particularly Federal Court authorities. My attention was directed to the case of White Industries (Qld) Pty Ltd v Flower and Hart. That is a 1998 decision of Goldberg J in the Federal Court, following on the dismissal of proceedings under the Trade Practices Act 1974. That is reported in 156 ALR 169.
Before embarking upon a discussion of those authorities His Honour summarises the assistance to be gleaned from the authorities on the topic as follows, at page 231:
“There have been dicta in a number of cases which have suggested that commencing or maintaining proceedings with no or no substantial prospects of success enlivens the jurisdiction to order a solicitor to pay the costs of a party. However, a proposition expressed so broadly must be treated with considerable caution as it exposes a tension with the important right of a person to have a case conducted in the courts irrespective of the view which his or her legal adviser has formed about the case and its prospects of success.
The courts must be open to any party who claims that he or she has been wronged and seeks to vindicate a right or to compel the enforcement of an obligation. In such circumstances clients should be entitled to expect that the practitioners acting for them will conduct their litigation without any conflict of interest and with a view, consistently with their duty to the court, to putting the client's case as instructed.
A practitioner should not be looking over his or her shoulder wondering whether what the practitioner proposes to do as part of the strategy, tactics and conduct of the litigation may result in the practitioner being visited with a costs order.”
And reference is made to Ridehalgh v Rosefield [1994] Ch 205, 226:
“Ordinarily, such a situation would be quite oppressive and unacceptable in the court system as we presently know it. Nevertheless, practitioners have a duty to the court to ensure that the court's process is not abused and used for improper or ulterior purposes.
I consider there are limitations on the proposition that commencing or maintaining proceedings which have no or substantially no prospects of success may result in a costs order being made against a practitioner. Something more must be added to the equation such as, for example, an ulterior purpose, abuse of process or a serious dereliction of duty.”
Of course in the case with which he was dealing Goldberg J found that "something more" to exist in the way in which the practitioners in that case had conducted or promoted allegations of fraud, without there being any reasonable basis for the suggestion of fraud.
I think that passage is a useful reminder of the caution that should be exercised in the consideration of such applications. It can never be the case that the jurisdiction is enlivened simply because a matter has been unsuccessful, or a matter has been unsuccessful upon it being characterised as never having had any reasonable prospects of success.
That, as the passage indicates, would place too significant a stricture upon a legal practitioner's duty to conduct cases as they are instructed to do by their clients. There are circumstances which can be found – as his Honour indicated in ulterior purposes, abuses of process or serious derelictions of duty which, if added to those circumstances can enliven the jurisdiction.
To similar effect is a decision of French J in the Federal Court, in the matter of Da Sousa & Anor v Minister of State for Immigration, Local Government and Ethnic Affairs (1993) 114 ALR 708. That was a case involving the dismissal of an application for a judicial review relating to the applicant's application for a visa.
In the Court's view, both the application and the application for review were misconceived. There was an application for an order that the solicitor pay the costs relating to both sets of proceedings. His Honour had this to say, at page 713, in respect of the jurisdiction he was being asked to exercise:
“There is no doubt, in my opinion, that the Federal Court has the power to make an order of the kind sought in this case. I accept the proposition that the jurisdiction is to be exercised with care and discretion and only in clear cases. The mere fact that litigation fails is plainly no ground for its exercise. There has to be something which amounts to a serious dereliction of duty.”
Reference is made to the case of Edwards v Edwards:
It is not necessary to ground the power to order costs against a solicitor in the existence of any duty to the opposing party, and whether it can be so grounded is open to doubt.
Reference is then made to Orchard v South-Eastern Electricity Board (1987) QB 565:
“It is debatable whether the traditional immunity of counsel would extend to limit the statutory power of the court in this respect but it is not necessary to decide that question in this case.”
So again we are being reminded of the caution that must be exercised in considering the enlivening of the jurisdiction of the court in this regard and we are reminded again that the mere failure of the litigation, even failure that might be categorised as inevitable failure, is not enough.
It seems to me, listening to Ms Nolan who appeared yesterday on behalf of the applicant for the costs order, the respondent in the proceedings, that the application was not pitched upon that basis. That is, it was not pitched upon the basis of the inevitable outcome of the litigation. The application was made upon the basis that looked to and focused upon the circumstances in which the application was filed.
The circumstances of the applicant in the substantive proceedings were such that a sequestration order had been made. The Court's power to set aside or to annul a sequestration order is available in s.153B, but one would have thought that instructions as to the factual matters said to give rise to the entitlement to set aside the sequestration order - that is, to go behind the judgment debt - must have been obtained and must have been set out with some reasonable degree of clarity before the proceedings were instituted.
There may be circumstances in which that is not possible. There may be circumstances of urgency that arise, or some exigency which requires the institution of annulment proceedings without proper or clear instructions having been taken as to the circumstances in which the court is being asked to go behind the judgment debt.
If such circumstances existed in this case, they have not been disclosed.
The proceedings, as I have indicated, were filed. They proceeded through the court upon the basis that there was not, in the affidavit, anything beyond a bare claim that the WorkCover levies were not owing by the applicant but were owing by a company that he worked in partnership with. Beyond that bare claim there was no setting out of the instructions in relation to those fundamental matters which ground an application to annul a sequestration order.
That, it seems to me, is a significant matter. The litigation was embarked upon before those matters were clarified. It may be that the circumstances said to give rise to the ability of the court to go behind the order relating to the judgment debt have been disclosed subsequently by the applicant to his solicitor. Again, if that is the case they have not been shared with the court and no explanation has been given as to why they did not appear in the affidavit.
To that circumstance must be added the additional circumstance that the question of the applicant's solvency was not addressed in the affidavit. Again, there may be circumstances of urgency which warrant the litigation being embarked upon without that matter being the subject of clarification.
It is important to recognise that solvency can only be a matter that goes to the exercise of the discretion, not as to the entitlement to the order per se. Nevertheless, knowing what we do now – that is, that one of the debts proven in the administration of the applicant's estate is a debt to the Taxation Office in the sum of approximately $1.2 million - that is a matter that would have had to be, inevitably, a highly significant matter relating to the exercise of the discretion pursuant to s.153B.
There is nothing about that in the affidavit. It may be that the applicant did not give Mr Vigar instructions in relation to that matter. If that were the case, again, focusing upon the circumstances in which the litigation was embarked upon, it seems to me it ought to have been the subject of some inquiry.
The information was, after all, easily available. It was available simply by making an inquiry of the trustee of the bankrupt estate; that is, the source of the information that has been made available to the court in relation to the existence of this debt.
So we have the additional circumstance then of the litigation being embarked upon without there apparently having been made any proper inquiry as to the circumstances of the applicant's solvency and whether or not they were capable of impacting upon the exercise of the court's discretion.
It seems to me, when we add those two defaults together – that is, embarking upon the litigation without there having been any proper eliciting of the circumstances said to give rise to the entitlement to the annulment order, the embarking on the litigation without there having been made these fundamental inquiries as to the significant issue of solvency – when we look at those two defaults together, it seems to me, having given the matter my careful and anxious consideration, that we do have the sorts of circumstances, the additional factors – that is, factors additional to the failure of the application – which take the matter into the category of dereliction of duty, which the authorities indicate is the necessary prerequisite to the enlivening of the jurisdiction to make the order against the solicitor.
As I say, the new rules relating to the bankruptcy jurisdiction of the court came into operation only yesterday and they provide that:
Unless the court otherwise orders the entitlement to costs is an entitlement to costs in accordance with order 62 of the Federal Court Rules.
For the foregoing reasons, the order sought will be made.
I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of Lindsay FM
Associate: K. Clarke
Date:
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