Leadenhall Australia Pty Ltd v Doman
[2021] SADC 45
•21 April 2021
District Court of South Australia
(Civil)
LEADENHALL AUSTRALIA PTY LTD v DOMAN AND ORS
[2021] SADC 45
Judgment of his Honour Judge Slattery (ex tempore)
21 April 2021
BANKRUPTCY - BANKRUPTCY COURTS - COSTS
On 30 November 2018, Leadenhall Australia Pty Ltd (‘Leadenhall’) obtained a judgment in its favour in the sum of $706,019.40 against Peter Doman and Jason Doman. Orders for costs were also made against Peter Doman and Jason Doman following trial. Subsequent to the orders of the trial Judge, Peter Doman and Jason Doman became bankrupt and remain undischarged bankrupts. Leadenhall has commenced a number of applications in aid of its attempt to recover the judgment sum. In one of the applications, Mrs Rosalind Doman became an interested party. These applications by Leadenhall have been unsuccessful and on a judgment on one of them a cost order was made against Leadenhall by a Master of this Court. On the same application, Master Olsson has made a cost order in favour of the first interested party, Mrs Rosalind Doman. The addition of the first interested party and the cost order in favour of Mrs Rosalind Doman is disputed by Leadenhall.
By application heard by this Court on 13 April 2021, Leadenhall seeks to be released from the obligation at law not to disclose or use recent affidavits of the bankrupts and to be at liberty to use them in proceedings to be filed in the Federal Circuit Court. Leadenhall also seeks orders that the costs applications of the first, second and third respondents on the unsuccessful applications by Leadenhall be stayed pending the hearing and determination of the proposed proceedings in the Federal Circuit Court. Leadenhall also seeks an order that order 1 made by Master Olsson dated 22 February 2021, that the judgment creditor pay the interested party’s costs, be quashed or set aside.
The application to quash or set aside the decision of the Master was treated as an appeal against that decision.
Held:
1. Leadenhall is released from its implied obligation at law not to disclose or use the affidavit of Peter Doman sworn 15 March 2021 and the affidavit of Jason Doman sworn 21 February 2021 for a purpose other than that for which it is given.
2. The appeal of Leadenhall is dismissed.
3. The application for a stay of the orders of Master Olsson is dismissed.
4. The bankrupts are to have their costs of the application, including counsel fees, fixed at $1,500.
5. Mrs Rosalind Doman is to have her costs of the application, including counsel fees, fixed at $1,500.
Observations about whether and in what circumstances a relationship of debt arising between two parties at arm’s length may be the subject of a trust.
Uniform Civil Rules 2020 (SA) r.21.1(4 ); Bankruptcy Act 1966 (Cth) s 58; Jacobs Law of Trusts 7th Ed, JD Heydon and MJ Leeming, LexisNexis Butterworths; The Law of Trusts, Scott and Fratcher, 4th Ed, referred to.
House v R (1936) 55 CLR 499; Kison v Papasian (1994) 61 SASR 567, discussed.
Harman v Secretary of State for the Home Department [1983] 1AC 280; Fitzgerald v Fitzgerald (1910) 10 SR (NSW) 488; Cohen v Cohen (1929) 42 CLR 91; Ex Parte Broad (1984) 13 QBD 740; Ex Parte Patience; Makinson v The Minister (1940) SR (NSW) 96 at 100, considered.
LEADENHALL AUSTRALIA PTY LTD v DOMAN AND ORS
[2021] SADC 45
This action between Leadenhall Australia Pty Ltd (Leadenhall) and Peter Francis Doman and Jason Paul Doman commenced as an action in debt. Following a trial before Judge Chivell, there was a judgment for Leadenhall for the amount of $706,019.40. Although it is unclear from the papers whether the judgment sum or any part of it has been paid, Peter Doman and Jason Doman are now undischarged bankrupts (the bankrupts) and I will accordingly presume that the judgment sum remains unpaid. I am also aware that costs orders were made in favour of Leadenhall by Judge Chivell but I am unaware if there has been an assessment of those costs by the Court or whether there has been any collateral agreement in relation to those costs orders.
Ms Hillary Orr has been appointed the Trustee in Bankruptcy (the Trustee) of the bankrupt estates of each of Peter and Jason Doman. As a result, Leadenhall is an unsecured creditor in the bankrupt estates of both of them.
Leadenhall has commenced a number of applications in aid of its attempt to recover this judgment sum. Implicitly, it appears that Leadenhall suspects that the bankrupts have arranged their affairs to avoid payment of the judgment sum. That is a matter for the Trustee. The applications by Leadenhall in this Court have included for freezing orders against the assets of Peter and Jason Doman and Mrs Rosalind Anne Doman, the wife of Peter Doman and the mother of Jason Doman. Various orders were also sought against a number of companies associated with or otherwise related to the Domans. These companies appear to act as the Trustees of various trusts which I will presume are family discretionary trusts. Applications were made for examination of the two bankrupts and also for leave to be relieved from the Harman obligation.[1] Each of these applications were refused by various Masters of this Court. This present application involves three judgments of Master Olsson; number 25 of 2020 dated 16 October 2020, number 26 of 2020 dated 23 October 2020 and number 27 of 2020 dated 28 October 2020.
[1] Harman v Secretary of State for the Home Department [1983] 1AC 280; see generally, Cross on Evidence, 12th Australian Edition, JD Heydon, Lexis Nexis Butterworths at 25055.
It is not necessary here to canvas each of the judgments made by the Master in relation to the applications. In the usual course of such applications, costs would follow the event and because the applications failed, it may be expected that Leadenhall would have an obligation to pay costs to the successful party or parties. Some costs orders have been made by Master Olsson against Leadenhall on Judgment number 26 of 2020. There are two extant judgments of the Master: number 25 of 2020 and number 27 of 2020 where the issue of costs has not yet been resolved. These judgments involve decisions about Leadenhall’s applications to appoint receivers to a number of the aforementioned companies (number 25 of 2020) and that Leadenhall be released from it is implied undertaking in respect of documents (number 27 of 2020). The Master is to hear the parties on the questions of costs of these failed applications on 27 April 2021.
In the Master’s decision number 26 of 2020 dated 23 October 2020, the Master made an initial costs order against Leadenhall on the application. At a hearing before the Master on 22 February 2021, an argument arose about that initial costs order. This concerned Leadenhall’s application on FDN 134, part D of FDN 163 and the orders that were made for Leadenhall to pay the costs of the application. At the time, an interested party, Rosalind Doman had been included in the proceeding as a first interested party. Rosalind Doman potentially had an interest on the question of costs on this failed application of Leadenhall. However, that issue was not considered and no order was made about her entitlement to costs in that initial order.
I have read the transcript and the supporting documents tendered during argument before the Master on these failed applications by Leadenhall. There is no challenge that as an interested party, Rosalind Doman may potentially have a costs entitlement. She was a person joined under r.21.1(4) of UCR 2020. The notes to that rule read as follows:
Notes: An interested party may choose not to participate in the proceeding, or to participate only to a limited extent, but this will not affect the proceeding as between applicant and respondent.
The costs rules that apply as between applicant and respondent do not apply as between applicant and interested party. If the interested party does not participate in the proceeding, no costs order will ordinarily be made as between applicant and interest party. Even if the interested party does participate, costs will not necessarily follow the event due to the limited role of an interested party in contrast to the role of a respondent.
The application against Rosalind Doman appears to have been substantive. She appears to be, or at the relevant times was, the controller of corporate trustees of a number of trusts associated with the Doman family, which hold property beneficially for the cestui que trustents of those trusts. This was said to be relevant to the question of the rights (if any) of Leadenhall against those trustee companies. I use these expressions advisedly because, in the usual course, these are matters for the Trustee in Bankruptcy and in the Leadenhall debt action those corporate trustees were not joined as parties.
The Master later separately dealt with the issue of costs in relation to Rosalind Doman as an interested party at the hearing on 22 February 2021.[2] The Master said that she had awarded costs against Leadenhall in decision number 26 of 2020;[3] that she understood that there remained some outstanding issues for determination relative to the question of costs and that she had found against Leadenhall on each occasion; that following her decision she was to decide the question of whether or not there should be an order for costs against Leadenhall, and if so, in favour of which party. That appears to have been accepted as the correct position by all of the parties.
[2] Transcript 22 February 2021, 9.
[3] Transcript 22 February 2021, 2.20 et seq.
The Master said that the question of to whom costs are paid and whether costs are to be paid to the Trustee in Bankruptcy in the case of Peter Doman and Jason Doman, should be the subject of further argument. She took a different view about whether or not Rosalind Doman as an interested party should obtain a cost order in her role as an interested party in the action.[4] The Master suggested that Rosalind Doman was brought into the action by Leadenhall for the purpose of attacking assets over which she may only have had a legal or a legal and beneficial interest. The position is unclear. The Master had already made some findings and orders on the question of costs in her decision of 23 October 2020. An argument remained whether or not monies to be paid in satisfaction of those costs orders are paid to the bankrupts, or to Rosalind Doman in relation to the bankrupts, or to the Trustee in the Bankruptcy.[5] An outstanding issue was whether Rosalind Doman was entitled to an order for costs in her favour personally.
[4] Transcript 22 February 2021, 3.38 et seq.
[5] Transcript 22 February 2021.
The Master then heard submissions from counsel for the parties before her. Leadenhall submitted that despite Rosalind Doman being an interested party in the proceedings, there could be no resolution of any costs issue about her position because she had not formally been joined as a party to the proceedings. Leadenhall then submitted that first, the question of the joinder of the parties needed to be determined.[6] That submission was resisted by counsel for the bankrupts and Rosalind Doman; I think it is wrong.
[6] Transcript 22 February 2021, 7.18.
The Master said that the question of the costs claim in number 26 of 2020 of Rosalind Doman had been overlooked by her in her comments made on 23 October 2020 and that she had earlier raised this costs issue in her decision on the question of Rosalind Doman becoming an interested party in the action. The Master then heard further submissions from counsel for the respective parties.[7]
[7] Transcript 22 February 2021, 7, 8 and 9.
As a consequence, Leadenhall had an opportunity to be heard and to make submissions on costs on this particular issue.
The Master said in her decision number 26 of 2020 made on 23 October 2020 that she omitted to deal with the cost of the interested party, Rosalind Doman, and she needed to regularise the position.[8]
[8] Transcript 22 February 2021, 9.9 et seq.
The Master then made the following orders:
1. The judgment creditor is to pay the interested party’s costs of FDN 163 and this application for costs;
2. In terms of both orders, I certify the matter fit for counsel.
That is where the matter was left. There was then a discussion about whether or not and when the further cost arguments on the other two judgments number 25 of 2020 and number 207 of 2020 could be heard. They are to be heard on 27 April 2021.
An argument is raised by Leadenhall today that, in effect, the Master exceeded her jurisdiction by making the order for costs on judgment number 26 of 2020 in favour of Rosalind Doman on 22 February 2021. It was submitted that the Master acted under what might be described as the slip rule. I do not think that is a correct characterisation of the position. In exercising her general discretion, the Master made an addition to the record that was created in her decisions made on 23 October 2020 in respect of judgment number 26 of 2020. She intended to include a cost order in favour of Rosalind Doman. She did not do so and corrected the record accordingly. Thus, the Master exercised her cost discretion at that time rather than earlier. The parties were given the opportunity to make, and they did make, submissions on the question. The Master then exercised her cost discretion.
This was not a circumstance where the Master revisited an earlier exercised discretion and so to arrive at a new decision. To the contrary, the Master was exercising her discretion on that issue of costs for the first time. It was not necessary for the Master to do any more than announce her intention, hear submissions and then make her decision. This is what has occurred. It follows that there is no basis to review the order of the Master, nor is there any basis to quash it; the order was made after consideration of the parties’ arguments. All parties were given the opportunity to put written and oral submissions to the Master and after hearing argument, the Master made her decision. It also follows that there is no basis before me to grant a stay of this order of the learned Master.
On 13 April 2021, I heard an application by Leadenhall, the content of which is as follows:
1.That this application be specially returnable before a judge of the Court as a matter of urgency.
2.On the undertaking of the Applicant by his solicitor to file and prosecute with due diligence the application set out at Annexure 383 to the Twenty-Sixth Affidavit of Gregory James Finlayson filed herewith:
a.That the applicant be released from the obligation at law not to disclose or use, except for the purposes of the proceedings herein the affidavit of Jason Paul Doman sworn 21 February 2021 filed in this matter and the affidavit of Peter Francis Doman sworn 15 March 2021 and filed in this matter, to be at liberty to use in proceedings to be filed in the Federal Circuit Court of Australia as set out in Annexure GJF83 to the Twenty-Sixth Affidavit of Gregory James Finlayson filed herewith.
b.That the orders of Master Olsson of 22 February 2021 and the applications of the first, second and third respondents for costs be stayed pending the hearing and determination of the proceedings contemplated by Annexure GJF83 to the Twenty-Sixth Affidavit of Gregory James Finlayson filed herewith.
3.That order 1 herein of 22 February 2021, namely, “I amend my decision and orders on 23/10/20 (Decision No. 26 of 2020) to include the following orders: '5. The judgment creditor is to pay the interested parties' costs of FDN 163 and this application for costs. I certify the matter fit for counsel.', be quashed or set aside - UCR12.1(1).
4.Such other orders as the Court deems fit.
In support of the application, Leadenhall read the Twenty-fifth affidavit of Gregory James Finlayson, solicitor, sworn 21 March 2021. There was no serious challenge to the content of that affidavit although I place no weight on the content of paragraph 4 thereof which I consider to be an inaccurate gloss upon transcript which I have already discussed above. There was no opposition to the application under paragraph 1 (a) and I have given leave to Leadenhall to make use of those affidavits in any Federal Court proceedings. The terms of the proposed Federal Court proceedings are as follows:
Details of claim
On the grounds stated in the statement of claim, accompanying affidavit or other document prescribed by the Rules, the Applicant claims:
1. A declaration that the third respondent Trustee in Bankruptcy has the title to Peter Francis Doman's claims to costs in District Court of South Australia Leadenhall Australia Pty Ltd Australia v Peter Francis Doman and Others matter 672 of 2016 in respect of applications FDN 134, FDN 191 and FDN 197.
2. A declaration that the Third respondent, Trustee in Bankruptcy, has the title to Jason Paul Doman's claims to costs in District Court of South Australia matter Leadenhall Australia Pty Ltd v Peter Francis Doman and Others 672 of 2016 in respect of applications FDN 134 FDN 191 and FDN 197.
3. A declaration title to the order 2 of Master Olsson the District South Australia in matter 672 of 2016 dated 23 October 2020 vests in the Third Respondent Trustee in Bankruptcy.
4. A declaration that the title to the order 3 of Master Olsson of the District Court of South Australia in matter 672 of 2016 dated 23 October 2020 vests in the Third Respondent Trustee in Bankruptcy.
5. That the arrangement described in paragraphs 5-10 of the affidavit of Peter Francis Doman sworn 15 March 2021 filed in in District Court of South Australia matter Leadenhall Australia Pty Ltd v Peter Francis Doman and Others 672 of 2016 be set aside or avoided insofar as any costs recovered are payable otherwise than to the estate in Bankruptcy of Peter Francis Doman.
6. That the arrangement described in paragraphs of the affidavit of Jason Paul Doman sworn 21 February 2021 filed in in District Court of South Australia matter Leadenhall Australia Pty Ltd v Peter Francis Doman and Others 672 of 2016 be set aside or avoided insofar as any costs recovered are payable otherwise than to the estate in Bankruptcy of Jason Paul Doman.
7. A declaration that the applicant is at liberty to provide to the third respondent Trustee in Bankruptcy the documents sought in the section 77A Notice dated 8 April 2020 from the Third Respondent to the Applicant with respect to the estate in Bankruptcy of the Second Respondent.
8. A declaration that the applicant is at liberty to provide to the third respondent Trustee in Bankruptcy the documents sought in the section 77A Notice dated 8 April 2020 from the Third Respondent to the Applicant with respect to the estate in Bankruptcy of the First Respondent.
Claim for interim relief
The Applicant also claims interim relief.
1. That the respondents make disclosure on oath of all documents directly or indirectly relevant to the arrangement alleged in in paragraphs 5-10 of the affidavit of Peter Francis Doman sworn 15 March 2021 filed in in District Court of South Australia matter Leadenhall Australia Pty Ltd v Peter Francis Doman and Others 672 of 2016.
2. That the respondents make disclosure on oath of all documents directly or indirectly relevant to the arrangement alleged in paragraphs 5-8 of the affidavit of Jason Paul Doman sworn 21 February 2021 filed in in District Court of South Australia matter Leadenhall Australia Pty Ltd v Peter Francis Doman and Others 672 of 2016.
Although trite, it might be expected that any such application, if it were to be brought, would be brought by the Trustee in Bankruptcy seeking directions under the provisions of the Bankruptcy Act 1966 (Cth). In the circumstances, it is unnecessary that I say any more on that topic.
The application before me today seeks in order number 3 that the orders made by the Master on 22 February 2021 be quashed or set aside. As I said from the outset, it is not clear to me on what basis this court has jurisdiction to quash any order made by a Master of the court except upon an appeal.
The application before me has not progressed as if it was an appeal. As Mr Belperio for the first interested party, Mrs Rosalind Doman submitted, no notice of appeal has been provided, no grounds of appeal have been set out and none of the parties were on notice that the matter was to proceed as if it was an appeal. Notwithstanding those submissions which I accept, I have decided that in order to ensure that I deal with all matters before the court, I will deal with this matter on the basis that it is an appeal from the Master’s decision.
Having heard all of the oral submissions, having read all of the other submissions of the parties and the affidavit material filed in support by Leadenhall, I am of the view that there is no basis for this Court to interfere with the exercise of the costs discretion of the Master. The applicable principle in relation to the exercise of a discretion and a review by a superior court of the exercise of the discretion are to be found in the decision of the High Court in House v R.[9] At p 504-505, the plurality of, Dixon J, Evatt J and McTiernan J, held as follow:
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.
[9] (1936) 55 CLR 499.
In the submissions made by Leadenhall, no error in the way the Master exercised her discretion has been disclosed. There has been no submission that the Master acted upon a wrong principle, that she allowed extraneous or irrelevant matters to guide or affect her decision, that she has made a mistake upon the facts, that she has failed to take into account some material consideration or that the decision that she has reached is unreasonable or plainly unjust. There is no evidence to support any such contentions, if they were made. I am satisfied that the Master, who was seised of all of these applications within this action, is fully cognisant of all of the material facts applicable in relation to each of the judgments that the Master has published and that she has made her decisions appropriately and properly in the exercise of her cost discretion.
The order for costs was made by the Master after argument was put by Leadenhall that an interested party has no right to obtain a costs order. Rosalind Doman is an interested party in the proceedings and is therefore a respondent to an application to extend the scope of the orders made by the Court which has failed. I am satisfied that the Master was entitled to deal with the costs of the interested party and she did so appropriately. There is no basis in law or in fact to interfere with the exercise of the discretion of the Master. I am also satisfied that there were no orders to quash; the orders made on 22 February 2021 were the appropriate orders.
I come then to the balance of the interlocutory application within paragraphs 1, 2, 3 and 4 thereof.
In light of the orders which I have set out above that Leadenhall intends to seek from the Federal Court, which has exclusive jurisdiction in Bankruptcy, it is only necessary to say something briefly about the content of the affidavit of Peter Doman sworn 15 March 2021 and Jason Doman sworn 21 February 2021, both of which have been filed in these proceedings. The reason is that in paragraph 2(a) of its application, Leadenhall seeks to be released from its Harman obligation about the use of those affidavits to Federal Court and then seeks an order that the costs order made by Master Olsson on 22 February 2021 be stayed pending the hearing and determination of that application in the Federal Court. As I have earlier stated, such application is not brought by the Trustee in Bankruptcy but by Leadenhall which is an unsecured creditor. It is unusual at least to that extent. However, it revolves in part around the content of the affidavits to which I now turn. In his affidavit, at paragraph 6, Peter Doman says as follows:
6. In or around early 2019 (I do not recall the precise dates) I had a conversation with my son, Jason Doman (Jason) and my wife, Rosalind Doman (Ros) in which I said words to the following effect: “can you cover mine and Jason’s legal fees? If we went against Leadenhall and get our costs, you will get your money back then.”
7. At all times after this conversation which I deposed to at paragraph 6 above, I consider that any costs awarded to me in defending the applications would be repaid to Ros and that any money paid to me in respect of those costs would be held by me on trust for Ros.
It is plain enough from the content of that affidavit that Peter Doman was not adverting to any aspect of costs that would be payable directly to Rosalind Doman in her position as an interested party but he is referring to costs that he contends would be paid to him in his capacity as a party to the proceedings. That is an important distinction in relation to the relevant principles concerning solicitor’s liens for unpaid costs that may attach to a chose in action in relation to costs. I will discuss these matters later.
In his affidavit, Jason Doman says at paragraph 6 as follows:
6. Sometime in early 2019 (I do not recall the precise date) my father, Peter Doman (Peter), my mother Rosalind Doman (Ros) and I had a conversation in which Peter said words to the following effect: “Ros, can you cover our costs to defend these applications? If Jason and I can win against Leadenhall and costs, they will be repaid to you.”
7. At all times after this conversation which I depose to at paragraph 6 above, I consider that any costs awarded to me in defending the applications would be repaid to Ros and that any monies paid to me in respect of those costs would be held by me on trust for Ros.
In relation to both affidavits, the effect of this alleged arrangement is said to be the same. Without in any way indicating that I accept the legal and equitable basis for those arguments, it is necessary that I set out a description of them. The bankrupts contend any money payable on account of costs due would be paid to Peter Doman and to Jason Doman pursuant to a right for costs which they had against Leadenhall. That is, they would hold a chose in their favour to be paid an amount of costs by Leadenhall and that Rosalind Doman has no direct legal interest in those monies. Any interest that she may claim is said to be an equitable interest. It can rise no higher than any costs entitlement of Peter Doman, her husband, and Jason Doman, her son, which they contend they hold in trust for her.
The solicitors acting for each of the bankrupts are cognisant of their status as undischarged bankrupts after their personal estates have been sequestrated and so that they have a special status as undischarged bankrupts. It is common ground that the costs of the solicitors (and their professional obligation to pay counsel fees) for the bankrupts have been paid through the funds provided by Rosalind Doman. I was not made aware of any outstanding amounts due to those solicitors at the time of the bankruptcy or thereafter. So much was conceded by counsel before me in open court.
Although it is not necessary for me to finally decide this issue as this is an interlocutory hearing and it appears certain that there will be a hearing before the Federal Court, I consider that there is no merit in the trust argument and it will become an unnecessary distraction in the administration of the bankrupt estates. Having expressed that view, it behoves me to give some explanation therefore.
On the material before the Court, there was no disclosure until very recently (the date of the affidavits of Peter Doman and Jason Doman) of this alleged trust arrangement. There is no evidence to disclose that any fund has been settled, maintained for a particular or proper purpose or that there was any imposition of an obligation upon any trustee including about the way that the funds were to be used. They were always to be expended on costs payable by Peter Doman and Jason Doman. At the time they were expended, there could be no certainty about any recovery of any amount expended on costs. That level of certainty could never be established because it depended upon the court’s decision about the relevant applications.
The correct position appears to be that the bankrupts have placed themselves under an obligation to repay a debt to Rosalind Doman. Whether such an obligation could be said to be enforceable against the bankrupts does not require resolution by me. Nor for example, does the question of whether or not in entering this obligation, the bankrupts have obtained credit whilst bankrupt. A further consideration is that when there has been a proper review of the facts, the payments here may be properly characterised as gifts.
I think that the preponderance of authority indicates that the proposition that a trust could have been created in these circumstances is doubtful in law. In the text, Jacobs Law of Trusts 7th Ed, JD Heydon and MJ Leeming, Lexis Nexis Butterworths at p 12, [213] the learned authors say as follows:
[213] A debtor is not a Trustee for the creditor since there is no identifiable fund which the latter is entitled to compel the former to apply for the creditor’s benefit.[10] It may be difficult to tell whether a trust has been created or merely a debt incurred. The distinction is most important when any question arises of tracing the money into other property upon which it may have been spent.
[10] Fitzgerald v Fitzgerald (1910) 10 SR (NSW) 488; Cohen v Cohen (1929) 42 CLR 91.
In this case, it is not in contest that the money provided by Rosalind Doman has been expended on the payment of the bankrupts’ costs. It has thus then been extinguished as an identifiable fund.
The learned authors, in the same paragraph, go on to say as follows:
If there is only a debt, the creditor is limited to the common law remedy of action on that debt.[11] If the money was paid on trust, the payer may trace the money into any other identifiable property which the payee may have purchased with it. The answer to the question whether a debt or a trust was created in any particular case depends upon the intention of the parties. If the parties intended that the one receiving the money should hold that money for the benefit of the other or for the benefit of a third party, then it will be a trust because there is actual trust property.
[11] Scott and Fratcher, The Law of Trusts, 4th Ed Vol 1 at 12.1.
That is not this case. The money provided by Mrs Rosalind Doman was expended immediately on the liability of the bankrupts for costs.
The learned authors then go on to say in the same paragraph:
If the payee was entitled to use the money as his or her own, being under an obligation merely to repay the same amount of money at a future time, then the payer is merely a debtor.[12]
[12] Ex Parte Broad (1984) 13 QBD 740.
It was then submitted by the bankrupts that the Full Court decision in Kison v Papasian[13] may have application. The basis suggested was that there was some general right of equitable lien that may subsist ultimately for the benefit of Rosalind Doman. In Kison, the appellant sued the respondent for an amount of money. The action was heard, judgment was reserved but prior to the judgment being delivered, the respondent was made bankrupt. There was then a judgment and an order for costs made in favour of the respondent. The Trustee in Bankruptcy declined to take steps to enforce the order for costs as the Trustee took the view that any costs so recovered would be held on trust for the respondent’s solicitor who had not been paid for the cost of the legal work in the successful trial.
[13] (1994) 61 SASR 567.
The question was whether the solicitor had an enforceable equitable right to claim the costs payable on the orders of the Court under an equitable lien; he claimed an enforceable equitable right to any fund regardless of whether his client, the party in whose favour an order for costs was made, pursued the cost entitlement. The right of the solicitor claimed was an equitable right to be paid costs out of money recovered by dint of his exertions. The general rule is where an order for costs has been made in favour of the client, the equitable estate exists in respect of the proceeds of the order. At p568, King CJ held as follows:
It is well established, that a solicitor has an equitable right, often referred to as a lien, entitling him to be paid his costs out of monies recovered by his exertions. Where an order for costs has been made in favour of the client, the equitable right or lien exists in respect of the proceeds of the order. The nature of the right or lien is explained in the judgment of Jordan CJ in Ex Parte Patience; Makinson v The Minister.[14]
[14] (1940) SR (NSW) 96 at 100.
At p569, King CJ said that:
The benefit of a judicial order for costs is undoubtedly after acquired property. The Trustee however can only take that to which the bankrupt is entitled. The broad and general principle is that the Trustee in Bankruptcy takes only the property of the bankrupt and takes it subject to all the liabilities and equities which affected in the bankrupt’s hand. The Trustee acquires the property of the bankrupt subject to the rights of the third party…
It is clear from the authorities that the solicitor’s lien comes into existence when the order for costs is made… the lien comes into existence concurrently with the making of the order for costs. The Trustee can take the benefit of the order only subject to the lien. The lien arises by operation of law so that there is no preference under s 122. As the unpaid bill of costs of the solicitor is not less than the amount of the costs recoverable under the order for costs, the lien of the solicitor is coextensive with the order for costs. The bankrupt therefore has no interest in the order for costs. There is therefore no property arising out of the order for costs which is divisible amongst the creditors and which vest in the Trustee.
Mr Neate, counsel for the Trustee, submitted that in relation to the application of the decision in Kison, arguments about the existence of an equitable lien are yet to be had and so much may be accepted. However, the factual position is that Rosalind Doman has paid an amount on account of the costs of the bankrupts (incurred or to be incurred) either directly to the solicitors for the bankrupts or through the bankrupts to their solicitors. That is how the accounts of those solicitors (and counsel) have been paid.
It is unclear to me whether there is, to any extent, an unpaid lien in relation to costs in respect of which the equitable lien may have application. Whether there is will be a matter for the decision of the Master. It will also be necessary for there to be further affidavits filed in support of any such application. On the material before me, there is nothing to indicate that there are any costs outstanding to which any such lien may attach and therefore such an argument would fail. That is a matter for the determination of the Master.
The Trustee also submitted that Peter Doman was made bankrupt pursuant to a debtor’s petition presented on 4 January 2019 and Jason Doman was made bankrupt pursuant to a debtor’s petition presented on 2 January 2019. The Trustee became Trustee on 4 March 2019. The Trustee submits that under s 58 of the Bankruptcy Act 1966 (Cth) the property of the bankrupt judgment debtors vested in the official Trustee on 2 January 2019 and 4 January 2019 respectively and that any after acquired property automatically vested as soon as it is acquired. The Trustee submits that any chose in action for costs including a contingent right to a costs order vests in a Bankruptcy Trustee in respect of applications already on foot upon the Bankruptcy Trustee’s appointment and with respect to applications filed after a Bankruptcy Trustee’s appointment.
As I would understand the submissions of the Trustee, any such right is subject to the existence of any extant solicitor’s lien. However, the Trustee points out that the 2019 conversations adverted to in the affidavits of the Domans, occurred at a time when the undetermined portion of FDN 134 was already on foot and therefore the costs chose in action arising from that application had already vested in the judgment debtor’s Bankruptcy Trustee. The Trustee also submitted that FDN 191 was not yet filed or contemplated by the judgment creditor and that therefore pursuant to s 58(1)(b) of the Bankruptcy Act 1966 (Cth), the costs chose in action arising from those applications vested in the judgment debtor’s Bankruptcy Trustee immediately upon FDN 191 and 197 being filed with this Court.
The Trustee also submitted in relation to the creation of the trust that the right of Rosalind Doman is to pursue Peter Doman and Jason Doman for the debts and there was no sufficient certainty about the trust property. At the time of the 2019 conversations, the alleged trust property was unquantified and unknown and was subject to various contingencies including the judgment debtor successfully defending the action and then to obtain the benefit of costs orders and the recovery of those costs.
The Trustee submits that the conversation deposed to as between the bankrupts and Rosalind Doman agreeing to the loan was their agreement to fund the payment of their legal costs. As adverted to earlier, a gift is another possibility. The Trustee submits that no invoice was raised in the name of Rosalind Doman and no disclosure has ever been made of any such arrangement notwithstanding that legal advice had been sought. The Trustee emphasised that there were a number of contingencies within the arrangement and for example, it must have been known by Rosalind Doman that it was possible that a costs order might not be made in the bankrupt’s favour or that recovery would not be made. If so, Rosalind Doman was not able to establish that she could rely upon the 2019 conversation to her detriment and that she committed to pay legal fees in the knowledge that any recovery was conditional upon various events falling into place.
The Trustee also submitted that courts have traditionally refused to impose trusts where one of the parties has become a bankrupt and it was in the public interest for the Bankruptcy Law of the Commonwealth to operate with certainty. The 2019 conversations occurred after the judgment debtor’s bankruptcy and at a time when their property had already vested in the Bankruptcy Trustee. A finding that a trust exists will prevent the proper operation of the Bankruptcy Act 1966 (Cth), the principal focus of which is the getting in of the assets of the bankrupt which vested in the Trustee and then the pari-passu distribution of the property within the sequestrated estates to the judgment creditors.
The Trustee submits that any amounts payable is property of the bankrupts which are vested in the Trustee and any order should be made directing those funds to be paid to her solicitor’s trust account. I am unsure why the Trustee would ask for the amounts to be paid to her solicitor’s trust account because I am of the view that the only order that could be made by the Court would be that those costs be paid to the trust account held by the Trustee in relation to the respective bankrupt’s estates that are vested in her. That is a matter for the Master.
On the material before me, it is quite unclear whether in law, any such claimed trust can and does exist or that it could ever be proved that there is any trust in favour of Rosalind Doman that has arisen as a result of any aspect of the relationship between Peter Doman and Jason Doman and Rosalind Doman.
The question of the application of the principles in Kison is still to be determined by the Master who will also be required to make orders on the question of the costs payable in relation to the orders made by her on 22 February 2019. That is a matter that could be raised with the Master on 27 April 2021.
In my determination on the application by Leadenhall that is before me, I am unable to detect any basis upon which any application brought by Leadenhall should be marked specially returnable before a Judge of this Court; there is no basis for making any orders delaying the determination by this Court of the issue of costs claims made by Jason Paul Doman, Peter Francis Doman and Rosalind Anne Doman in respect of orders already made for example on 22 February 2021 and orders to be made following the hearings on 27 April 2021; there is also no basis for any stay of the orders made by Master Olsson pending any Federal Court proceedings and there is no basis that any orders made by Master Olsson on 22 February 2021 should be quashed or set aside.
My orders are as follows:
1.Subject to the grant of the application for relief against the Harman obligations in relation to the affidavits of the bankrupts dated 15 March 2021 (Peter Francis Doman) and 21 February 2021 (Jason Paul Doman), I dismiss the application;
2.I order that Peter Francis Doman, a bankrupt, have the costs of the application inclusive of solicitor’s fees and counsel fees in the amount of $1,500, which sum is payable forthwith;
3.I order that Jason Paul Doman, a bankrupt, have the costs of the application inclusive of solicitor’s fees and counsel fees in the amount of $1,500, which sum is payable forthwith.
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