Lawrence v Nikolaidis
[2003] FMCA 555
•4 December 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
LAWRENCE v NIKOLAIDIS [2003] FMCA 555
BANKRUPTCY – Bankruptcy notice – application to set aside – validity – claim for interest – where debt arose out of an assessment of costs under Legal Profession Act 1987 – whether Court of Appeal judgment reviewing the cost assessment can found a bankruptcy notice – whether interest can be claimed under s.95 Supreme Court Act when the relevant order is an order of the Court of Appeal – where judgment was originally registered in Local Court – whether application under s.41(7) Bankruptcy Act which does not show counter-claim, set-off or cross-demand greater than the debt can be valid. Legal Profession Act 1987, ss.208J, 208L, 208M
Supreme Court Act1970, s.95
Bankruptcy Act 1966,ss.30, 40(1)(g), 41
Local Courts (Civil Claims) Act 1970, ss.34, 39
Local Court (Civil Claims) Rules 1988, Part 13Franks v Warringah Council [2003] FCA 1047
Re Gibbs; Ex parte Triscott (1995) 65 FCR 80
Australian Steel Company Pty Ltd v Lewis (2001) 109 FCR 33
Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135
Webb v Hunter (1995) 59 FCR 24
Ebert v Union Trustee Co. of Australia Ltd (1960) 104 CLR 346
Rixon v Bryett [2001] FCA 433
Re Lentini; Ex parte Lentini v CSR Ltd (1991) 29 FCR 363
Streimer v Tamas (1981) 54 FLR 253Thurgood v National Bank of Australasia Ltd (1981) 53 FLR 51
Re Francis; Ex parte Gartrell (1983) 77 FLR 80
Marshall v General Motors Acceptance Corporation Australia [2003] FCAFC 45
Lawrence v Nikolaidis [2003] NSWCA 129
Applicant: WAYNE LAWRENCE
Respondent: LEON NIKOLAIDIS and
MD NIKOLAIDIS & CO
File No: SZ 1967 of 2003
Delivered on: 4 December 2003
Delivered at: Sydney
Hearing date: 18 November 2003
Judgment of: Raphael FM REPRESENTATION
Counsel for the Applicant: Mr B Zipser
Counsel for the Respondent: Mr J Chippendall
Solicitors for the Respondent: M D Nikolaidis & Co ORDERS
(1)Application dismissed.
(2)Applicant to pay the Respondent’s costs to be taxed, if not agreed, under the Federal Court Act and Rules.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEYSZ 1967 of 2003
WAYNE LAWRENCE Applicant
And
LEON NIKOLAIDIS and MD NIKOLAIDIS & CO Respondent
REASONS FOR JUDGMENT
1.This matter concerns an application to set aside a bankruptcy notice which is resisted by the respondent. The bankruptcy notice in question NN 2203/03 was issued by the official receiver on 2 September 2003 and served on 10 September 2003. The claim was that the applicant debtor owed the respondent creditor $27,254.33. That debt came into being as a result of an assessment of costs undertaken pursuant to the Legal Profession Act 1987.
2.The bankruptcy notice is in the standard form which states in paragraph 2:
“The creditor claims that the debt is due and payable by you. A copy of the judgments or orders relied upon by the creditor is attached. At the time of applying for this notice, the execution of the judgements or orders had not been stayed.”
The document which is referred to in paragraph 2 is an order of the Court of Appeal of NSW which is in the following form:
“The Court orders that
1. The appeal be allowed.
2. The respondent to pay the appellant’s costs of the appeal and to have a Suitors’ Fund Certificate if otherwise entitled.
3. The amount of the assessment of costs be reduced by $5,000.00 to $22,409.56 as at 22 May 2001.
3.In the bankruptcy notice there is also a claim for interest. In the interest accrued schedule the amount of interest is stated to be $4,844.76 and is claimed in the following form:
“Interest on the judgement is claimed under and by virtue of s.95 of the Supreme Court Act”
4.The procedures outlined in the Legal Profession Act for the assessments of bills of costs between solicitor and client (s.208A to 208V) provide for an initial assessment, an appeal to a panel or an appeal to the Supreme Court. It is also provided that an assessment of costs can be enforced by the filing of a certificate of the determination in the registry of a court having jurisdiction to order the payment of that amount of money.
“and with no further action, taken to be a judgment of that court for the amount of unpaid costs, and the rate of any interest payable in respect of that amount of costs is the rate of interest in the court in which the certificate is filed (s. 208J(3)).”
5.In this particular case the original determination of the costs assessor was made on the 22 May 2001 in the sum of $27,409.56. That assessment was registered with the Local Court pursuant to s.208J(3) and became a judgment of that court. The applicant appealed the decision of the costs assessor first to the Master of the Supreme Court and then to the Court of Appeal where the matter was decided partially in his favour on 2 July 2003.
6.It is the applicant’s contention that the bankruptcy notice is defective in two ways. He firstly argues that the order of the Court of Appeal attached to the notice does not constitute a final judgment or final order for the purposes of s.40(1)(g) Bankruptcy Act 1966. He argues that it has been held in Franks v Warringah Council [2003] FCA 1047 that a certificate of a costs assessor under s.208J of the Legal Profession Act does not constitute a final judgment or a final order and therefore a decision of a Court of Appeal amending the figures in a certificate is also not such a judgment or order. The applicant also argues that the bankruptcy notice does not correctly identify the source of the applicant’s liability to make the payment demanded by the notice. (Re Gibbs; Ex parte Triscott (1995) 65 FCR 80 at [83]). He states that the only order attached to the bankruptcy notice in the present case was the order of the Court of Appeal and this is insufficient.
7.The applicant has a further complaint about the bankruptcy notice relating to the manner in which the interest is claimed. He states that claiming interest by virtue of s.95 Supreme Court Act 1970 is incorrect because the relevant judgment or order should be the order of the Local Court and interest should be claimed pursuant to ss.34 and 39 of the Local Courts (Civil Claims) Act 1970 and Part 13 of the Local Court (Civil Claims) Rules 1988. The applicant relies on the authority of Australian Steel Company Pty Ltd v Lewis (2001) 109 FCR 33 to submit that if he is correct that the wrong section of the wrong Act has been inserted in the notice then the whole notice is invalid.
8.The respondent takes issue with the applicant on all these points but in addition argues that the applicant’s application is invalid. In order to understand this argument it is necessary to look at the document which is in a standard form issued by the court. The form is reproduced below:
¨ Application under sections 30, 41 (6A) Bankruptcy Act
Application to set aside a Bankruptcy Notice on the basis of:
(i) Proceedings to set aside the original judgment have been instituted ; or
(ii) other grounds - except those in s41(7) as shown in next column]
¨ Application under section 41 (7) Bankruptcy Act
Application to set aside Bankruptcy Notice on the basis :
(i) of counter claim, set off or cross demand
(ii) that could not be set up in the original action and
(iii) is equal to or exceeding that amount claimed in the Bankruptcy Notice.
A. DETAILS OF CLAIM
A. DETAILS OF CLAIM
O On the grounds stated in the accompanying affidavit, the applicant claims:-
A An order that Bankruptcy Notice No NN………………..……….… of 200……...… which was served on me on ………………………..………………... 200 … be set aside. A copy of that Bankruptcy Notice accompanies this application. (O.77 r.13(2)).
2. 2. Costs
On On the grounds stated in the accompanying affidavit, the applicant claims:-
1. An order that Bankruptcy Notice No NN…2203………………. of 2003 which was served on me on …10 Sept 2003 be set aside. A copy of that Bankruptcy Notice accompanies this application. (O.77 r.13(2)).
2. Costs
2.
B. CLAIM FOR INTERLOCUTORY RELIEF
3. 3. An order that the time for compliance with the Bankruptcy Notice be extended up to and including the date of the first direction’s hearing.
[If If this application is filed within 21 days of service of Bankruptcy Notice, time for compliance with Bankruptcy Notice is deemed to be extended under s41(7). No order extending time is required.]
Date……25/0/03… Signed: (Applicant or Applicant’s solicitor) ………Signed…………
9. The respondent has two arguments in respect to this document. Firstly he says that it is an application under s.41(7) Bankruptcy Act which requires an accompanying affidavit in order to bring into effect the automatic extension of the time for compliance with the bankruptcy notice until such time as the court decides whether the counter claim, set off or costs demand is one to which s.41(1)(g) Bankruptcy Act applies. The form does not include an application under s.30 or s.41(6A) Bankruptcy Act. An application of that type which would include an application to set aside the bankruptcy notice on the ground on invalidity requires an extension of the time for compliance with the notice from the court. If the time for compliance was not extended then an act of bankruptcy would have been committed if the notice had not been complied with by 1 October 2003.
10. The affidavit of Mr Lawrence is set out in full below utilising his own spelling and grammar.
“I WAS SERVED A BANKRUPTCY NOTICE ON THE 10 SEPTEMBER 2003 AT 8.30PM BY M.D. NIKOLAIDIS CO.
BACKGROUND. I AM A BUILDER I CARRY OUT BUILDING WORK FOR MR NIKOLAIDIS ON HIS HOME IN EXCHANGE FOR LEGAL WORK MR NIKOLAIDISDID NOT HONNER HIS PART OF THE DEAL I FILE A SUMMONS IN THE LOCAL COURT FOR $38,000 THE MATTER WAS STRUCK OUT UNDER THE BUILDERS LIC ACT 45 (A BUILDER CAN’T CLIM FOR WORK UNLESS IT IN WRITING) AS IT WAS NOT IN WRITING MY CLAIM FAIL. MR NIKOLAIDIS WAS AWARD LEGAL COST EQUAL TO 2 DAYS IN LOAL COURT MR NIKOLAIDIS RENDER A BILL FOR THAT OF $49,200 THIS COST ASSOR RULED THAT TO $27,409.56 MR NIKOLAIDIS FILE A BANKRUPTCY NOTICE DEC 2002 NO SZ-59/2002 THAT BANKRUPTCY NOTICE WAS STRUCK OUT IN FAVOUR OF WAYNE LAWRENCE WITH COST. THIS BANKRUPTCY NOTICE IS A 2ND ATTEMPT TO TAKE A SORT CUT AND NOT FOLLOW PROCEDURE. THE APPEAL COURT FOUND IN FAVOUR OF WAYNE LAWRENCE INCLUDING THE COST OF THE APPEAL THE COURT FURTHER REDCE THIS BILL TO $22,409.56 THE WAS NO ORDER FOR INTEREST THE CERTIFICAT AS TO ETEMINATION IS NOT A JUDGMENT TILL ENTER IN THE DISTRICK COURT THERE IS NO JUDGMENT FOR $22,409 BEEN SERVED ON WAYNE LAWRENCE. MR NIKOLAIDIS HAS BEEN ASK FOR A COPY OF SERVICE MR NIKOLAIDIS WON’T PRIVOED THAT I HAVE WRITTEN NO OF LETTE TO COME TO AGGEMENT BUT ALL MY LETTER GET REJECTED I HAVE MADE A OFFER OF $7,000 UNTIL OUR COST HAVE BEEN ASSESSMENT EXHIBIT A. MR NIKOLAIDIS SHOULD FOLLOW PROCEDURE SO THAT”
11. There were exhibited to the affidavit a series of letters, these letters which commence on 5 August 2003 and end on 23 September 2003, raise with Mr Nikolaidis the fact that the applicant has a claim for his costs of the appeal which he estimates at $18,000.00 including the costs in relation to an application to set aside a bankruptcy notice in the Federal Court. I am not entirely clear about this part of the claim because as I understand it the only proceedings in the Federal Court were proceedings before Registrar Hedge who made an order that the Respondent pay the Applicant the sum of $280.00 in respect to the struck out bankruptcy notice. In any event it is clear from the final letter of 23 September 2003 that the applicant only has a set off in relation to $18,000.00. The relevant parts of the letter state as follows:
“The defendants have a genuine offset for their costs of the appeal. I believe my cots (sic) to be approximately $18,000.00.
It is my offer to avoid the cost of Court to offer you the following:
Judgment amount for MD Nikolaidis & Co $22,409.56
Judgement amount for Wayne Lawrence
as to costs of appeal payable by MD
Nikolaidis & Co $18,000.00
Subject to assessment $4,409.56.
My offer is to pay you now the sum of $7000 until assessment is complete. And should there be a difference to pay those moneys on completion of the assessment.
It is my submission that you are not entitled to interest as you have never served judgment or entered judgment for $22,409.56. And the Appeal’s Court did not award you interest.”
It seems to me to be quite clear from a perusal of the affidavit and the annexures that they do not evidence a set off that is equal to or exceeds the amount claimed in the bankruptcy notice. It does not do this even if it is given the most benevolent construction required by Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 at 144. The Respondent says it is clear from the decision of the Full Court in Webb v Hunter (1995) 59 FCR 24 at 29-30 that where an affidavit has been filed which is not for the purposes of s.41(7) “An affidavit to the effect that the debtor has such a counter-claim, set-off or cross-demand as is referred to in subsection 40(1)(g)”, the time for compliance for the bankruptcy notice is not extended by the provisions of s.41(7).
12. When the case was argued before me the applicant withdrew the claim which he had under s.41(7) and relied solely on the claims which I have adumbrated and which fall within the provisions of s.41(6A). The applicant argued that this did not matter because if he had an arguable claim under s.41(7) the extension of time given to him would reserve the position until the hearing even if at the hearing the claim was withdrawn and reliance was placed only on the s.41(6) claim. The applicant also argued that the decision in Webb (supra) is no longer good law because the Bankruptcy Act has changed significantly since that date so far as s.41(7) is concerned. The change has been to require the form of application made in this case in place of an affidavit which was all that was required under the Act prior to the amendments in 1996.
13. In Ebert v Union Trustee Co. of Australia Ltd (1960) 104 CLR 346 at [350] Dixon CJ , McTiernan and Windeyer JJ held –
“The appellant cannot satisfy the court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out…. Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter- claim, set off or cross demand.”
14. The Applicant argues that the court has an inherent power to extend the time for compliance where an attack is made on the validity of the bankruptcy notice. He has referred me to the decision of Moore J in Rixon v Bryett [2001] FCA 433. In that case at [9] His Honour quotes extensively from the judgment of Neaves J in Re Lentini; Ex parte Lentini v CSR Ltd (1991) 29 FCR 363 where his Honour says:
“The time for compliance with the requirements of a bankruptcy notice may be extended after the expiration of the time limited by the notice for compliance provided an application to set aside the notice is made within the time so limited: see Streimer v Tamas (1981) 54 FLR 253; Thurgood v National Bank of Australasia Ltd (1981) 53 FLR 51.”
In this case there was an application to set aside the bankruptcy notice made within the time for compliance. But if that application was not a valid application because it was clear from the face of the affidavit in support that the grounds upon which it was brought had no basis then the question is whether the non-compliance is in any event excusable because the notice itself is invalid.
15. It is clear that a debtor cannot commit an act of bankruptcy by not complying with the requirements of a fundamentally defective notice: Re Francis; Ex parte Gartrell (1983) 77 FLR 80 where at [86] Lockhart J said:
“Both Hanby’s case and Vella’s case are essentially different from the present case. The bankruptcy notice here is fundamentally defective. It can never be the vehicle for the commission of an act of bankruptcy. The court therefore, has jurisdiction to set aside the bankruptcy notice: see Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125, and Vella’s case.”
16. It is therefore necessary to consider Mr Zipser’s two complaints about the bankruptcy notice itself. The first is that the annexed copy of the judgment or order relied upon is a copy of the judgment of the Court of Appeal. The second is that the interest that is claimed in the bankruptcy is interest claimed pursuant to s.95 Supreme Court Act. Mr Zipser argues that the proper course to have been taken by the judgment creditor was to have amended the original certificate of judgement issued out of the Local Court and attach that to the bankruptcy notice. The reliance upon a certificate of judgement issued out of the Local Court requires the reference to interest which is found in the notice to be a reference to s.39(1) Local Courts (Civil Claims) Act and not s.95(1) Supreme Court Act: Marshall v General Motors Acceptance Corporation Australia [2003] FCAFC 45.
17.
The judgment creditor argues that the order of the Court of Appeal is an order for the payment of a sum certain, namely $22 409.56 as at
22 May 2001 and that interest can be calculated on that figure pursuant to s.95(1) Supreme Court Act because the order is an order of the Supreme Court of NSW.
18. In order to answer the question it is necessary to consider the nature of the appeal. Appeals in respect of costs assessment are dealt with in subdivision 4B Legal Profession Act 1987. Section 208L deals with appeals against decisions of a costs assesor on a matter of law and s.208M deals with appeals against a decision of costs assesors by leave. The appeal in this case was originally under both sections. Master Harrison heard the proceedings and held that there was no error of law in the costs assessor’s decision and dismissed an application for leave to appeal, confirming the costs assessment. The debtor sought leave from the Court of Appeal to appeal against the decision of Master Harrison and leave to appeal was granted. The appeal was heard on a limited ground and was allowed. The judgment of the majority, delivered by Hodgson JA, included an order that the amount of costs allowed by the costs assessor were to be reduced by the sum of $5000.00. It is clear from the judgment that that decision must have been one made under s.208L(2).
19. At [30] of the judgment of Hodgson JA Lawrence v Nikolaidis [2003] NSWCA 129 His Honour says:
“It is not entirely clear whether the appeal brought under s.208L is properly regarded as an appeal against the determination of the costs assessor, or an appeal against the confirmation of that determination by the review panel; but I do not think this matters. The result is the same, and in relation to the question of law raised under s.208L and raised under the Notice of Appeal to this Court, the decision of the costs assessor was simply adopted by the review panel.”
At [53 – 57] His Honour analysed certain of the claims made by the creditor so as to decide whether or not they were properly allowable under what he described as “the anomalous exception favouring solicitors” [58]. At [60] His Honour said:
“To my mind, those findings would be unreasonable on the material provided; and accordingly, taking into account the costs assessor’s wrong statement of the test to be applied, I am satisfied that the costs assessor did apply the wrong test that he stated. And accordingly, I am satisfied that the Master was in error in holding that the correct test was applied.”
At [62] His Honour said:
“The question then is, what should be done. Section 208L(2) of the Act empowered the Master either to make such a determination as in her opinion should have been made by the costs assessor or to remit the matter to the costs assessor; and this Court has the same powers. Although the material is deficient, it seems highly unlikely that any review of the costs awarded would result in a reduction of more than a few thousand dollars; and it seems highly likely that the trouble and expense, and potential further costs, involved in further assessment of the costs would be out of proportion to this amount. On the other hand, I think the chance of a different result is sufficient to justify the appeal being upheld, and some order made.”
At [63]:
“In my view the following orders should be made:
1. Appeal allowed.
2. The respondent to pay the appellant’s costs of the appeal and to have a Suitors’ Fund certificate if otherwise entitled.
3. The amount of the assessment of costs to be reduced by $5000.00 to $22,409.56 as at 22 May 2001.
The determination made by the third order is the best I can make on the limited material I have, and on that basis amounts to the determination which in my opinion should have been made by the costs assessor.”
20. It seems to me that the nature of these orders are orders of a court seized of a “lis” which is required to and does determine the dispute before it. The orders of that court are therefore orders of what I would describe as a “primary” nature. They are orders which can be enforced themselves and they do not form an amendment to some other original order. The amendment has already taken place. The Court had the power to remit the matter but declined to do so. Instead it made the order set out above.
21. I am satisfied that this is a judgment in respect of which execution could be levied and it is therefore a judgment sufficient to found a bankruptcy notice. This being the case the reference to interest being claimed under s.95(1) Supreme Court Act is the appropriate reference.
22.
In these circumstances I am unable to find that the bankruptcy notice is invalid. For the reasons given earlier I am satisfied that an act of bankruptcy has occurred because of non-compliance. I am satisfied that the original “application” under s.41(7) was not a valid application and therefore there was no automatic extension of time for compliance.
I dismiss the application. I order that the applicant pay the respondent’s costs to be taxed, if not agreed, pursuant to the Federal Court Act and Rules.
I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Raphael FM
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