Leonard Cohen and Co v Richardson
[2008] FMCA 308
•14 March 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| LEONARD COHEN & CO v RICHARDSON | [2008] FMCA 308 |
| BANKRUPTCY – Application for sequestration order – opposed application – whether judgment debt actually owed – whether adjournment pending appeal. |
| Bankruptcy Act 1966 (Cth), ss.43, 44, 52 |
| Ahern v DCOT (1987) 76 ALR 137 Ipp J “Lawyers’ Duties to the Court” (1998) 114 LQR 63 |
| Applicant: | LEONARD COHEN & CO |
| Respondent: | PHILLIP NOEL RICHARDSON |
| File Number: | PEG 41 of 2007 |
| Judgment of: | Lucev FM |
| Hearing date: | 19 November 2007 |
| Date of Last Submission: | 19 November 2007 |
| Delivered at: | Perth |
| Delivered on: | 14 March 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr B.W Ashdown |
| Solicitors for the Applicant: | Stewart Forbes |
| Counsel for the Respondent: | Mr C.S Williams |
| Solicitors for the Respondent: | Solomon Brothers |
ORDERS
A sequestration order be made against the estate of Phillip Noel Richardson.
The applicant creditor’s costs, including all reserved costs, be taxed by a Registrar of this Court and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act, 1966.
The date of bankruptcy be noted as 25 September 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 41 of 2007
| LEONARD COHEN & CO |
Applicant
And
| PHILLIP NOEL RICHARDSON |
Respondent
REASONS FOR JUDGMENT
Application
This is an application by a firm of solicitors, Leonard Cohen & Co[1] seeking the issuance of a sequestration order against Phillip Richardson.[2]
[1] Applicant.
[2] Respondent.
The Application is opposed by the Respondent who seeks that:
a)the creditor’s petition be dismissed;
b)the creditor’s petition be adjourned pending determination of an appeal to the Western Australian Supreme Court, Court of Appeal.
Facts
Prior proceedings
The history of prior proceedings in this matter is set out in this Court’s judgment in Richardson v Leonard Cohen & Co: [3]
[3] [2007] FMCA 78 (“Richardson”). In Richardson, and hence in the following quote, the current Respondent was Applicant and the current Applicant was Respondent.
“(4)On 16 September 2005 a judgment of Sleight DCJ of the District Court of Western Australia in matter no 970 of 2000 was entered, providing that the defendants (one of whom is the Applicant) in those proceedings pay the plaintiff (the Respondent):
a)the sum of $156, 661.91 (“the Judgment Sum”);
b)interest on the Judgment Sum of $83, 850.60; and
c)costs[4]
[4] Applicant’s Affidavit, 20 September 2006, para 5 and annexure PNR 2 (Applicant’s Affidavit).
(“Judgment Debt”).
(5)In the Reasons for Judgment Sleight DCJ began by describing the action as having “a long and unfortunate history”[5] which he then set out. Concluding, Sleight DCJ said:
[5] Leonard Cohen & Co v Richardson & Anor [2005] WADC 172 at para 1 per Sleight DCJ (“Leonard Cohen”)
“the history of this matter demonstrates that the defendants have deliberately attempted to frustrate the plaintiff’s attempts to obtain proper discovery, and in doing so they have sought to avoid putting the plaintiffs in the position which they will be able to prepare adequately for trial”[6]
[6] Leonard Cohen at para 65 per Sleight DCJ
and highlighted the defendants conduct as “manifest[ing] a disregard for the obligations of giving proper discovery.”[7]
[7] Leonard Cohen at para 64 per Sleight DCJ
(6)The Applicant was the first Defendant in Leonard Cohen. The reasons for judgment in Leonard Cohen make it clear that it is the conduct of the Defendants individually, and of their then solicitor, that was at fault.[8]
[8] Leonard Cohen at paras 18-20, 24, 29, 31-33, 36-38, 41-44 and 60-62 (and in particular para 61) per Sleight DCJ.
(7)The Court notes that Leonard Cohen was an appeal: “a complete review of the matter de novo by way of an actual re-hearing of the application which led to the making of the order”.[9]
[9] Leonard Cohen at para 50 per Sleight DCJ.
(8)The order made giving rise to the appeal in Leonard Cohen was a springing order made for discovery by Deputy Registrar Hewitt of the District Court of Western Australia on 5 May 2005 (which followed earlier orders for discovery made by the Deputy Registrar on 2 February 2005 and 21 March 2005).[10]
[10] Leonard Cohen at paras 27-30 and 39.
(9)In Leonard Cohen judgement was entered against the Defendants (including the Applicant) under O26 r15 of the Rules of the Supreme Court 1971 (WA) by reason of “the continuing disregard by the Defendants of their obligation to give proper discovery”.[11] O26 r15 provides for judgement to be entered if a party has failed to give discovery in accordance with an order.
[11] Leonard Cohen at para 65 per Sleight DCJ.
(10)On 15 September 2005 the Applicant, together with the other defendant, appealed the decision in Leonard Cohen to the Court of Appeal of Western Australia.[12] On 9 March 2006, in Richardson & Paligorov v Leonard Cohen & Co[13] Wheeler JA dismissed the appeal. The Applicant, who was the first named Appellant, was not represented on the appeal, although the second named Appellant was represented by the same solicitor that had represented both Appellants (as Defendants) in the District Court of Western Australia.
[12] Forbes Affidavit, 13 October 2006, para 2, annexure A.
[13] [2006] WASCA 64 (“Leonard Cohen Appeal”).
(11)Wheeler JA, having noted that the Appellants had “demonstrated a continuing disregard of their obligations … over a considerable period of time” in Leonard Cohen,[14] then recounts the Leonard Cohen Appeal case history, replete with a repetition of a failure to have regard to obligations in the appeal.[15] In conclusion Wheeler JA said:
“the appropriate course is to dismiss the appeal of both appellants, on the basis that the appellants have not obeyed the Rules or any order made under them; that is, they have not obeyed the Rules requiring the filing of the appellants case, nor have they obeyed the order of the Registrar requiring them to file that case. For those reasons, I dismiss the appeal in respect of both appellants.”[16]
(12)The Court also notes Wheeler JA’s observation that:
“So far as one can tell from the reasons in the District Court, simply looking at the history there disclosed, there is very slender merit, so far as one can discern, in the appeal.”[17]
(13)There has been no appeal against the judgment in Leonard Cohen Appeal. Most of autumn, all of winter and the early part of spring passed before, on 25 September 2006, the Applicant applied to the District Court to set aside the judgement in Leonard Cohen (Set Aside Application”).[18]
(14)The Set Aside Application followed the service on the Applicant of the Bankruptcy Notice, served according to a note on the copy produced by the Applicant at “4/9/06 at 7.30pm”.[19] The Bankruptcy Notice provided for payment, or satisfaction of, the debt within 21 days.[20]
(15)On 3 October 2006 Deputy Registrar Hewitt in the District Court dismissed the Set Aside Application (“Set Aside Decision”)[21]. The Applicant’s current solicitor (who also appears as Counsel on the Review Application) deposed[22] to the Deputy Registrar’s reasons for the Set Aside Decision as follows:
“The judgment entered by Judge Sleight was based upon his perception of the unsatisfactory conduct of the defendants in regard to discovery not the expiry of the time fixed by a springing order. As a consequence the Court cannot extend the time for compliance and thereby remove the basis for the judgment. The only redress open to the defendants would be by way of an appeal against his Honour’s order and such an appeal was launched and has been dismissed. This court lacking power the application is dismissed.”[23]
(16)On 4 October 2006 the Applicant (and his co-defendant in Leonard Cohen) appealed the Set Aside Decision to the District Court (“Set Aside Appeal”).[24]
(17)On the evidence there is no stay of the judgements or orders in Leonard Cohen, Leonard Cohen Appeal or the Set Aside Decision.”[25]
[14] Leonard Cohen Appeal at para 2 per Wheeler JA.
[15] Leonard Cohen Appeal at paras 3-7 per Wheeler JA.
[16] Leonard Cohen Appeal at para 8 per Wheeler JA.
[17] Leonard Cohen Appeal at para 8 per Wheeler JA.
[18] Applicant’s Affidavit, 20 September 2006, para 6 and annexure PNR 4.
[19] Applicant’s Affidavit, annexure PNR5 (being a further affidavit sworn 20 September 2006 (“Applicant’s Further Affidavit)) para 11 and annexure PNR1.
[20] Applicant’s Further Affidavit, annexure PNR1 at para 3.
[21] Forbes Affidavit, 13 October 1996, para 5 and annexure D.
[22] The practice of solicitor also appearing as counsel in circumstances where the solicitor/counsel has sworn an affidavit, or is likely to have to give evidence, is not one to be encouraged. The difficulties that may arise are many, and ought to be manifest: see Sheahan & Le Poidevin Industries Pty Ltd v Northern Australian Land and Agency Co Ltd & Ors (unreported Supreme Court of South Australia, Perry J, 4 February 1993) at paras 3-18; Pittorino v Meynert & Ors [2001] WASC 245 at paras 7-10; Ipp J “Lawyers’ Duties to the Court” (1998) 114 LQR 63 at 92.
[23] Williams Affidavit, 12 October 2006, para 9.
[24] Williams Affidavit, 12 October 2006, para 10 and annexure CSW 3.
[25] Richardson at paras.4-17 per Lucev FM. The footnotes which appear in this quote are the original footnotes from the judgment in Richardson, renumbered to conform with the numbering of the footnotes in these Reasons for Judgment.
In Richardson the current Respondent made an application for an extension of time for compliance with a bankruptcy notice, which application was dismissed.[26]
[26] Richardson at para 80 per Lucev FM.
In Richardson the Respondent argued various matters relating to discovery, a settlement deed and the terms of the Respondent’s retainer with the Applicant, particularly that they were champertous, alternatively constituted a contract by way of maintenance, and were illegal or contrary to public policy, and therefore unenforceable.
In considering the application for an extension of time for compliance with the bankruptcy notice, this Court had to form a view as to whether the Set Aside Appeal may be arguable or not.[27] The Court concluded that the Set Aside Appeal did not disclose an arguable case.[28]
[27] Richardson at para 48 per Lucev FM.
[28] Richardson at para 49 per Lucev FM
In Richardson the Court did not have to form a view concerning the argument that the Judgment Debt was not payable because the agreement upon which it was based (the Terms) was champertous, by way of maintenance or otherwise illegal.
Further attempts by the Respondent in 2007 in the District Court, and on appeal to the Court of Appeal, to re-agitate what were effectively the same issues failed resoundingly.[29]
[29] Richardson v Leonard Cohen & Co [2007] WADC 128; Richardson v Leonard Cohen & Co [2007] WASCA 205.
Law
The Court may make a sequestration order upon proof of the matters set out in s.52(1) of the Bankruptcy Act, and subject to the jurisdiction that makes sequestration orders under s.43 of the Bankruptcy Act and the conditions on which a creditor may petition under s.44 of the Bankruptcy Act being met.
The Applicant as petitioning creditor is also obliged to put before the Court affidavits:
a)verifying the petition;[30]
b)as to search of the records of the Court and the Federal Court as to any application in relation to the bankruptcy notice;[31]
c)of service of the bankruptcy notice;[32]
d)of service of documents required to be served under FMC (Bankruptcy) Rules, r.4.05; [33]
e)of search of the National Personal Insolvency Index no earlier than the day before the hearing date for the petition;[34] and
f)of debt on which the creditor still relies as owing.[35]
[30] Bankruptcy Act, s.47(1); Federal Magistrate’s Court (Bankruptcy) Rules 2006 (Cth), r.4.02 (“FMC (Bankruptcy) Rules”).
[31] FMC (Bankruptcy) Rules, r.4.04(1)(a) and (2).
[32] FMC (Bankruptcy) Rules, r.4.04(1)(b).
[33] FMC (Bankruptcy) Rules, r.4.06(2).
[34] FMC (Bankruptcy) Rules, r.4.06(3).
[35] FMC (Bankruptcy) Rules, r.4.06(4).
The Court has jurisdiction to go behind the judgment giving rise to the debt to determine if the debt really is owed by the Applicant to the Respondent, with the onus being on the Applicant, as debtor, to demonstrate that there exists a reason for questioning the debt.[36]
[36] Wolff v Donovan (1991) 29 FCR 480 at 481 per Davies J and 485-487 per Lee and Hill JJ.
The Court may also adjourn a creditor’s petition pending an appeal. In Ahern v DCOT[37] the Full Court of the Federal Court:
“It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings, provided the appeal is based on genuine and arguable grounds.”[38]
[37] (1987) 76 ALR 137 (“Ahern”)
[38] Ahern at 148 per Davies, Lockhart and Neaves JJ.
The Full Court then continued as follows:
“These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt.”[39]
[39] Ahern at 148 per Davies, Lockhart and Neaves JJ. Ahern has been followed many times: see the cases set out in paragraph 52.1.35 of Darvall & Fernon (Eds.), Australian Bankruptcy Law and Practice, Volume 1.
Ahern raises the question of whether or not there is or not a genuine dispute as to the relevant debt. In Re Verma: ex parte Deputy Commission of Taxation[40] the Federal Court posed the question as being whether:
“The present debtor demonstrated the existence of a genuine contest?”[41]
[40] (1984) 4 FCR 181 (“Verma”).
[41] Verma at 187 per Beaumont J.
In Verma the question of whether there was a dispute genuinely based on substantial grounds saw the Federal Court examine in detail the evidence so as to determine whether or not there was a genuine dispute.
The authorities establish that genuineness involves a consideration of whether the relevant appeal is brought in good faith, that is, that it is authentic and not spurious, and that part of that consideration relates to the substance of the grounds and the authenticity of those grounds. The other part involved looking at whether the relevant appeal has been prosecuted in good faith: Ex Parte Heyworth: in Re Rhodes[42]
[42] (1884) QBD 49; Lipov v Alexander Fraser & Sons (1978) 36 FLR 126 and Re Lewin & Glasson; ex parte Milmer (1986) 67 ALR 591. These authorities are discussed, albeit in the context of an application to the High Court of Australia for special leave, in Glentham Pty Ltd v McPhee [2007] FMCA 1939 at paras. 8-20 per Lucev FM.
Consideration
Accepting that this Court can go behind a judgment, and that it can do so more easily where there is as here a default judgment, the matter is ultimately one for the exercise of the Court’s discretion. Given:
a)the history of the litigation and the delays which have occurred (none of which are the fault of the Applicant); and
b)that the Respondent has now failed, resoundingly, twice in the District Court and twice in the Court of Appeal in attempts to allow it to effectively further pursue the matter with a view to undoing the order of Sleight DCJ giving rise to the Judgment Debt,
this Court does not consider it appropriate to go behind the Judgment Debt. There is a general principle of comity and recognition of other courts’ judgments which also underlies this Court’s view.
In any event, the Court does not consider the allegations of champerty and maintenance, or other illegality in the Terms, can succeed or are genuinely arguable. The Applicant was entitled to be paid for its services as a professional service firm, and the Respondent agreed to do so on the terms of a standard Law Society of Western Australia costs agreement. The express terms of that agreement preclude the implication of a term as to a success fee. Further, the evidence of the success fee agreement relied upon by the Respondent is, in any event, entirely hearsay and not admissible.
For similar reasons there is no basis on which the Application ought to be adjourned.
The Court is satisfied as to the matters required to be proved for the making of a sequestration order. Specifically, the Court accepts that there is:
a)an affidavit verifying the petition;
b)an affidavit of search of court records;
c)an affidavit of service of the bankruptcy notice;
d)an affidavit of service of relevant documents;
e)an affidavit of search of the National Personal Insolvency Index; and
f)an affidavit of debt still owed, subject to the discussion which follows concerning whether the Debt is still owed.
Conclusion
In the circumstances set out above the creditors petition will be granted, and a sequestration order will issue.
I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate:
Date: 14 March 2008
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