Liprini v Pascoe
[2012] FMCA 715
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| LIPRINI v PASCOE | [2012] FMCA 715 |
| BANKRUPTCY – Application to review decision of a trustee in bankruptcy in respect of a proof of debt – insufficient evidence to determine amount of costs in the absence of assessment or agreement in the particular circumstances of this case. |
| Bankruptcy Act 1966 (Cth), ss.82, 84, 102, 104, 181A Federal Court Rules (Cth) |
| Daevys v Official Trustee in Bankruptcy; In the Matter of Daevys [2011] FCA 398 Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56 Liprini v Liprini (unreported, Supreme Court of New South Wales, Equity Division, Nicholas J, No 2468 of 2008, 10 July 2009) Liprini v Liprini [2010] NSWCA 126 Mbuzi v Favell [2011] FCA 1439 Official Trustee in Bankruptcy v Pastro [2004] FCA 713 P T Garuda Indonesia Pty Ltd v Grellman [1994] FCA 913 Re Payne; Ex Parte: Kim Brevis Hurst v Maurice Alexander Levi the Trustee of the Property of Neville Ross Payne; [1986] FCA 320 Re Robert Henry Masters; Ex Parte: Elizabeth Gerovich and Hazel Henley v Bernard Putnin [1985] FCA 282 |
| Applicant: | KEVIN JAMES LIPRINI |
| Respondent: | SCOTT DARREN PASCOE AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLAN STEPHEN LIPRINI |
| File Number: | SYG 858 of 2012 |
| Judgment of: | Barnes FM |
| Hearing date: | 7 June 2012 |
| Delivered at: | Sydney |
| Delivered on: | 22 August 2012 |
REPRESENTATION
| Counsel for the Applicant: | Mr Anderson |
| Solicitors for the Applicant: | Collas Moro Ross |
| Solicitors for the Respondent: | Farrar Lawyers |
ORDERS
The decision of the respondent Trustee of the bankrupt estate of Allan Stephen Liprini to reject the applicant’s amended proof of debt dated 9 February 2012 is confirmed.
The application of 18 April 2012 is dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 858 of 2012
| KEVIN JAMES LIPRINI |
Applicant
And
| SCOTT DARREN PASCOE AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLAN STEPHEN LIPRINI |
Respondent
REASONS FOR JUDGMENT
The applicant, Mr Liprini, seeks review of a decision of the respondent, Mr Pascoe (as Trustee of the bankrupt estate of Allan Stephen Liprini), to reject an amended proof of debt dated 9 February 2012. The action was brought under s.104 of the Bankruptcy Act 1966 (Cth) (the Act) which provides that a creditor may apply to the court for a review of a decision of the trustee under subss.102(1), (3) or (4) in respect of a proof of debt.
Section 102 of the Act is relevantly as follows:
(1) The trustee shall examine each proof of debt and the grounds of the debt sought to be proved and, subject to the power of the Court to extend the time, shall, not later than 14 days after the expiration of the period specified in the notice of intention to declare a dividend as the period within which creditors may lodge their proofs of debt, either:
(a) admit the proof of debt in whole;
(b) admit it in part and reject it in part;
(c) reject it in whole; or
(d) require further evidence in support of it.
(2) Where the trustee rejects a proof of debt in whole or in part, he or she shall inform the creditor by whom it was lodged, in writing, of the grounds of the rejection.
In support of his application, Mr Liprini relied on his affidavit sworn on 31 May 2012 and an affidavit sworn by his solicitor, Aaron John Lovell, on 17 April 2012. Mr Pascoe relied on his affidavit sworn on 17 May 2012, affidavits affirmed by Michael John Sommerville on 22 May 2012 and 1 June 2012 and an affidavit sworn by Mirjana Pavlovic on 1 June 2012.
The background to these proceedings is outlined, in part, in the judgment of Allsop P in Liprini v Liprini [2010] NSWCA 126. Mr Liprini commenced proceedings under the Family Provision Act 1982 (NSW) against his brother, Allan Stephen Liprini (Dr Liprini), in relation to their late father’s estate. Redmond Hale Simpson, a firm of solicitors (referred to for convenience as Redmonds), acted for Mr Liprini. Consent orders for the payment of $770,000 to Mr Liprini by Dr Liprini were made on 6 December 2007. Dr Liprini did not pay this amount. Mr Liprini sought to enforce the consent orders. On 10 July 2009 Nicholas J ordered that Dr Liprini pay Mr Liprini $770,000 together with interest. These proceedings are referred to for convenience as the Supreme Court proceedings (see Liprini v Liprini (unreported, Supreme Court of New South Wales, Equity Division, Nicholas J, No 2468 of 2008, 10 July 2009)).
No issue arises in these proceedings in relation to Mr Liprini’s entitlement to payment of the judgment debt of $770,000 plus interest from Dr Liprini’s bankrupt estate. Relevantly, Nicholas J also ordered that:
4. …[Dr Liprini] pay [Mr Liprini’s] costs of these proceedings (such costs not to include the costs of preparation for all alternative grounds for relief as set out at paragraphs 3, 4 and 5 of the Summons filed herein) on a party and party basis;
5. Each party to pay their own costs of preparation for all alternative grounds for relief as set out at paragraphs 3, 4 and 5 of the Summons filed herein;
The Summons in question is not in evidence in these proceedings.
Dr Liprini filed a notice of appeal in the New South Wales Court of Appeal on 8 October 2009 (the Court of Appeal proceedings). Mr Liprini sought summary dismissal. Redmonds acted for him. On 24 May 2010 the appeal was dismissed by Allsop P “with costs”.
Mr Liprini presented a creditor’s petition based on the judgment of Nicholas J and on 3 September 2010 a sequestration order was made against the estate of Dr Liprini. Mr Pascoe was appointed Trustee of Dr Liprini’s bankrupt estate.
On 10 December 2010 Mr Sommerville of Redmonds sent Mr Liprini an invoice dated 8 December 2010 for work for which they had not received payment headed “Draft Bill Re Liprini v Liprini Claim for Provision under the Family Provision Act 1982”. It claimed fees and disbursements in the sum of $142,659.82 said to have been incurred from 27 April 2007 to 7 December 2010. It is apparent that this Draft Bill also included costs and fees incurred in relation to the bankruptcy proceedings between Mr Liprini and Dr Liprini in this court and the Federal Court. I note that when the Draft Bill was sent to Mr Liprini Redmonds advised him that they were in the process of “taxing the bankruptcy costs” and arranging for the limited costs ordered in the Supreme Court proceedings to be “quantified”.
On 21 January 2011 Redmonds wrote to Mr Liprini estimating that a maximum of around $113,000 would be approved as a proof of debt in respect of the bankruptcy and the Supreme Court proceedings. Mr Sommerville advised Mr Liprini that the limited costs order in the Supreme Court proceedings meant that they
cannot claim the costs of preparation of the re-opening of the case against your mother and father’s estates. Most of the work I did in terms of the preparation of affidavits etc went to that issue.
Mr Sommerville also advised Mr Liprini that a lot of the costs in the Draft Bill related to “negotiations with banks etc in respect of your personal debt issues” that would not be recoverable from the Trustee as they were not part of the court proceedings with Dr Liprini.
On 29 July 2011 Redmonds sent Mr Liprini a more detailed and itemised bill of costs dated 27 July 2011 said to be from 27 April 2007 to 12 July 2001 (sic). A copy of this memorandum of fees and disbursements (and itemised items up to 17 February 2010) is in evidence before the court as an annexure to Mr Sommerville’s affidavit. It is in the sum of $142,553.26 and after deduction of amounts of $3,807 and $12,200 (a total of $16,007) received from the Trustee pursuant to Certificates of Taxation of Costs dated 29 April 2011 and 3 May 2011 in relation to bankruptcy proceedings it stated that the balance due was $125,546.26.
On 13 December 2011, Redmonds obtained a Certificate of Determination of Law Practice and Client Costs owed to them by Mr Liprini in the sum of $142,553.26. The costs assessor determined that credit should be given for the sum of $16,007 that had been paid and that Mr Liprini should pay Redmonds $126,546.26.
On 15 December 2011 Redmonds registered a Certificate of Judgment in the District Court of New South Wales against Mr Liprini for the unpaid costs in the amount of the Certificate of Determination. On 23 December 2011 the District Court of New South Wales ordered that Mr Liprini pay Redmonds the sum of $126,546.26.
On or about 9 February 2012, Mr Liprini lodged the amended proof of debt with the Trustee seeking payment of the sum of $126,546.26 and unquantified interest on the basis that this related to the legal costs incurred by him in the Supreme Court proceedings against Dr Liprini. The proof of debt is described as an amended proof of debt. There is no evidence before this court as to any original proof of debt although an extract from the Trustee’s report to creditors dated 6 June 2011 referred to a claim from Mr Liprini “of approximately $95,000 pursuant to a judgment for legal costs”. The report also stated that when that claim had been taxed and a proof of debt lodged for that amount an “equalizing part dividend” would be declared for that claim.
In his amended proof of debt Mr Liprini claimed that Redmonds had informed him that they would not provide him with any help or information. In support of the amended proof of debt Mr Liprini provided the Trustee with a copy of Redmonds Draft Bill dated 8 December 2010, the costs assessor’s Certificate of Determination of Law Practice and Client Costs dated 13 December 2011, the Certificate of Judgment and the notice of order made by the District Court. He also provided a copy of a letter from Redmonds to him dated 15 June 2006 enclosing a solicitor/client costs agreement and a copy of the 2009 orders made by Nicholas J in the Supreme Court proceedings.
On 15 February 2012, Mr Pascoe’s office acknowledged receipt of the proof of debt. On or about 20 February 2012, Mr Pascoe wrote to Mr Liprini referring to the amended proof of debt and to the fact that he had been provided with a copy of the Supreme Court judgment of Nicholas J including Order 4, on which the proof of debt appeared to be based. The letter continued:
You have failed to properly prove your debt. I have received limited information and supporting documentation. I note that you do not intend to provide further clarification or supporting documentation. I therefore propose to deal with it by starting with the amount allowed by the Certificate of $142,553.26 (the discount of $16,007 is irrelevant as it was all incurred after the date of Judgment and I do not intend to admit any amounts incurred after the date of Judgment anyway).
I propose to admit:
A.Disbursements clearly dated and incurred up to the date of Judgment, 10 July 2009.
B.Legal fees incurred from the first item mentioning the Summons, 18 September 2007, to the date of the Judgment, 10 July 2009, subject to below.
C.I have excluded items that appear to relate to matters other than in Order 4.
D.I have also deducted 10% of the total of the above based on the specific exclusion in Order 4 for the preparation of alternative grounds for relief as set out at paragraphs 3, 4 and 5 of the Summons.
On this basis, Mr Pascoe indicated that he proposed to admit the amount of $65,060.06 (consisting of $35,342.70 in solicitor’s fees from 27 April 2007 to 10 July 2009 plus $36,946.25 disbursements (including counsel fees) less 10% in relation to the Order 4 exclusions). He enclosed a spreadsheet calculating this amount. Mr Pascoe asked Mr Liprini, if he agreed, to advise in writing by 29 February 2012 stating that he had amended the total amount claimed in his proof of debt to $65,060.06. If he disagreed he was requested to provide a detailed response with, if applicable, supporting documentation by 29 February 2012. The letter also advised that if Mr Pascoe and Mr Liprini did not “agree on the amount to be admitted”, Mr Pascoe intended to issue a Notice of Rejection, which would allow Mr Liprini 21 days to apply to the court seeking orders in relation to the decision.
On or about 28 February 2012, Collas Moro Ross Solicitors (Collas) wrote to Mr Pascoe on behalf of Mr Liprini, responding to his letter of 20 February 2012. That letter stated that Mr Liprini was unable to access his file held by his former solicitors Redmonds and that he could only provide limited information regarding the professional fees in their account of 8 December 2010.
Collas also advised that Dr Liprini had appealed the decision and orders of Nicholas J and enclosed a copy of the decision of 24 May 2010 in which Allsop P dismissed the appeal with costs. On this basis it was claimed that Mr Liprini was entitled to his professional costs and outlays up to and including 24 May 2010, the date of the decision of the New South Wales Court of Appeal (although it does not appear that a formal proof of debt was lodged in relation to the costs of the Court of Appeal proceedings). Collas included a calculation of the amount said to be claimed by Mr Liprini, including professional fees for the period up to the date of the judgment of Nicholas J in the amount proposed by Mr Pascoe, a proposed amount of $11,709.50 for professional fees for the period thereafter to 24 May 2010, disbursements on the basis proposed by Mr Pascoe up to 10 July 2009 and a proposed amount of $25,357.47 for disbursements up to 24 May 2010, with a total amount of $109,355.92.
Collas suggested (without elaboration) that the grounds for relief contained in paragraphs 3, 4 and 5 of the Summons in the Supreme Court proceedings were very minor aspects of the legal proceedings. They were instructed that there was no legal argument in relation to such alternative grounds of relief which were said to have been included only as a matter of completeness if the claim for primary relief was unsuccessful. In the circumstances and “in a spirit of compromise” Mr Liprini was said to be “prepared to accept” a discount of $2,500. The letter also advised that there may be further costs orders in Mr Liprini’s favour in the Federal Court and concluded by indicating that in order to resolve the proof of debt and to facilitate expeditious resolution, Mr Liprini was “prepared to accept the sum of $105,000 in full and final settlement” on the basis that this was a “fair and reasonable compromise” given the extent of legal proceedings between Mr Liprini and the bankrupt. .
Mr Liprini’s solicitor emailed Mr Pascoe’s office seeking a response by further email of 5 March 2012. On that date, Mr Bowden, a senior manager in Mr Pascoe’s office, responded. He indicated that he would discuss with and seek instructions from the Trustee and let Mr Liprini’s solicitors know as soon as a decision was made.
On 15 March 2012 Mr Pascoe advised Mr Liprini’s solicitor that the costs orders of the Supreme Court proceedings and the Court of Appeal proceedings were on a “party to party basis”, that the costs had not been taxed or agreed to by the bankrupt prior to the date of bankruptcy and that in those circumstances he was willing to admit Mr Liprini’s claim for costs properly incurred under the orders with a 30 per cent discount on all professional fees (including counsel and agent’s fees) and that other disbursements properly incurred could be admitted in full. Mr Pascoe indicated that the alternative was to get the fees and disbursements taxed.
Mr Pascoe indicated that with a 30 per cent discount of $21,686.68 he was willing to admit the amount of $50,602.27 in respect of both solicitor’s fees and disbursements consisting of barrister’s fees for the period 27 April 2007 to 10 July 2009 in relation to the Supreme Court proceedings and also a discounted amount of $7,277.85 in respect of solicitor’s fees and barrister’s fees in relation to the Court of Appeal proceedings. In addition, disbursements of $12,817.47 were to be admitted in full. Mr Pascoe also proposed a reduction of $4,355.92 which was described as, in effect, the discount on the amount sought by the applicant for which he was prepared to settle (being the difference between $109,355.92 and $105,000 proposed in the letter of 28 February 2012) in relation to the grounds for relief in paragraphs 3, 4 and 5 of the Summons in the Supreme Court proceedings. On this basis, Mr Pascoe advised that he was “willing to admit” an amount of $76,035.47. If Mr Liprini agreed, he was to advise in writing by 22 March 2012 stating he had amended the total amount claimed in the proof of debt to that amount. If he disagreed, he was to provide a detailed response with applicable supporting documentation by 22 March 2012. Mr Pascoe reiterated that if they did not “agree” on the amount to be admitted he intended to issue a Notice of Rejection.
On or about 16 March 2012 Mr Liprini’s solicitors wrote to Mr Pascoe, taking issue with the conduct of the Supreme Court and the Court of Appeal litigation by Dr Liprini, the bankrupt, and indicating that in a final attempt to resolve the proof of debt Mr Liprini was “prepared to accept the sum of $90,000 in full and final settlement”. The letter suggested that this “offer” was open for acceptance until 19 March 2012 at 5 pm.
On 21 March 2012, Mr Liprini’s solicitor emailed Mr Pascoe’s office seeking a reply. On 23 March 2012, Mr Liprini’s solicitor sent a further letter by email to Mr Pascoe advising that, as no response had been received, they would seek instructions from Mr Liprini as the majority creditor “to bring a Creditor’s (sic) Meeting”.
On 26 March 2012 Mr Pascoe’s office emailed a letter dated 21 March 2012 from Mr Pascoe to Mr Liprini’s solicitors referring to the letter of 16 March 2012 and stating that Mr Liprini’s offer was “unsatisfactory” and that his proof of debt would be rejected in full in seven days on the ground that it was “pursuant to orders for costs on a party to party basis” and the costs “have not been taxed or agreed”. The letter advised that Mr Liprini would have 21 days to file an application in the Federal Court for review of the decision, but that Mr Pascoe was “willing to consider a further offer if made by 28 March 2012”.
On 27 March 2012 Collas wrote to Mr Pascoe referring to the prior correspondence between the parties and suggesting that the decision to reject the proof of debt and have Mr Liprini bring a review application would unnecessarily increase the costs of administering the bankruptcy and cause further delays for creditors seeking to recover their due entitlements. This was said to be “exacerbated” by the fact that Mr Liprini was unable to provide a taxation of his costs until he obtained his file. The letter noted that Mr Pascoe had indicated that he was willing to consider a further offer if made by 28 March 2012. It was said that this would result in Mr Liprini “unilaterally negotiating” his proof of debt. The letter concluded by asking Mr Pascoe to advise by return whether he was prepared to make a counter proposal.
On 28 March 2012 Mr Liprini’s solicitors again wrote to Mr Pascoe, referring to a telephone conversation between Mr Bowden and Mr Lovell, solicitor, in which it was said to have been confirmed that the Trustee was not going to provide a response to the matters raised in the letter of 27 March 2012. The letter advised that Mr Liprini had lost confidence in the ability of Mr Pascoe to administer the bankruptcy “in a timely and cost effective manner” and asked him to immediately consent to a change of trustee pursuant to s.181A of the Act. Collas advised that, failing this, Mr Liprini intended to request a creditors’ meeting seeking a resolution that Mr Pascoe be removed as Trustee and the appointment of a replacement Trustee.
On 29 March 2012, Mr Pascoe issued a notice of rejection of proof of debt under s.102 of the Act in relation to the claim of $126,546.26. The notice stated that Mr Pascoe had rejected Mr Liprini’s claim against Dr Liprini’s estate to the full extent of $126,546.26 on the grounds that he had submitted a proof of debt in this amount for legal costs ordered on 10 July 2009 by the Supreme Court and 24 May 2010 by the Court of Appeal and had not provided any evidence that the costs had been taxed or agreed and for that reason the proof of debt was rejected in full. It is not in dispute that the reference to taxed costs is intended to be a reference to an assessment of costs in accordance with s.364 of the Legal Profession Act 2004 (NSW).
Subsequently Mr Liprini’s solicitors asked Mr Pascoe to convene a creditors’ meeting. Mr Pascoe asked Mr Liprini’s solicitors to provide the written consent of another Trustee. This was provided on 4 April 2012. On 11 April 2012 Mr Liprini’s solicitors sought a response from Mr Pascoe as to whether he was prepared to consent to his removal or whether a creditors’ meeting was to be held. On 13 April 2012 Mr Liprini’s solicitor indicated that as no response had been received, Mr Liprini would have no alternative but to report the matter to the Insolvency and Trustee Service Australia. On 16 April 2012 Mr Bowden of Mr Pascoe’s office responded by email indicating that he was preparing a Notice to Creditors for the transfer of the Trustee which he expected to issue on or about Wednesday 18 April 2012.
On 18 April 2012 Mr Liprini commenced these proceedings Subsequently there was further correspondence between Mr Liprini’s solicitors and Mr Pascoe’s office about the possibility of a change in Trustee, a creditors’ meeting and in relation to these proceedings. Neither a change in the Trustee nor a creditors’ meeting had occurred as at the time of the hearing.
Mr Liprini submitted that in circumstances where Mr Pascoe was prepared to admit a proof of debt in the sum of some $76,000 and where the parties were, as Mr Liprini’s counsel put it, less than $14,000 apart (having regard to Mr Liprini’s ultimate suggestion of the sum of $90,000) it would have been in the interests of Mr Liprini, other creditors and the bankrupt to avoid the costs of these proceedings and for the Trustee to have allowed the proof of debt in part as a commercially sensible response. It was submitted that because the Trustee had rejected the proof of debt as a whole, as a matter of commercial reality he forced Mr Liprini to bring this application.
The applicant acknowledged that the remedy under s.104 was a discretionary remedy and that the review undertaken for the purposes of s.104 was “not confined to the correctness or otherwise of the trustee’s decision” but was a “re-hearing” (see Daevys v Official Trustee in Bankruptcy; In the Matter of Daevys [2011] FCA 398 at [13] per Flick J and cases cited therein). It was nonetheless said to be of assistance if the party seeking the review could point to an error in the manner in which the respondent had approached the decision-making process. The applicant contended that the Trustee’s discretion had been exercised having regard to irrelevant considerations, namely costs recoverable by the Trustee from the bankrupt estate in the event of legal proceedings.
It was suggested for Mr Liprini that it was of significance that in each of the letters in which Mr Pascoe foreshadowed the possibility of rejection of the debt (which he ultimately rejected) he had reminded the applicant that he had a limited period in which to appeal or seek reconsideration of his decision in this Court. It was submitted that it could be inferred that this had been done deliberately in anticipation that Mr Liprini would bring such an application and that this would be for the specific purpose of increasing the costs that could be recovered from the estate by the Trustee and that this would be relevant to the exercise of the court’s discretion. It was submitted that in the exercise of his discretion not to allow the proof of debt the Trustee had taken into account an improper consideration and an irrelevant consideration from the point of view of the legality of his duties.
Counsel for the applicant submitted that Mr Liprini had obtained two orders in two separate proceedings in the Supreme Court and the Court of Appeal that the bankrupt pay his costs and that he could not be said not to be entitled at all to the payment of his costs from Dr Liprini’s estate. It was conceded that it could be argued that the amount of such costs was a matter for dispute. However it was submitted that the Trustee’s approach that because the costs had not been agreed or assessed there was no entitlement was an improper and incorrect approach to adopt in relation to the proof of debt. Rather, it was submitted that the approach the Trustee had previously taken in proposing to allow the proof of debt in part was appropriate.
It was also contended that the rejection of the proof of debt because there was said to be no evidence of agreement as to the amount of costs and the fact that the costs had not been taxed or assessed “flew in the face of” the Trustee’s evidence in cross-examination that he had in the past and may in this estate have admitted proofs of debt relating to legal costs which had not been taxed or assessed. On this basis it was submitted that the Trustee had adopted an incorrect approach to the consideration and allowance of the proof of debt by proceeding on the basis that because it had not been quantified in a strict sense it was not recoverable at all.
The applicant submitted that the reason the costs had not been taxed or assessed did not arise for consideration. However to the extent that it did, reliance was placed on the email Mr Liprini sent to his former solicitors on 8 February 2012 which referred to the fact that the Trustee’s office had said that the amount of over $126,000 left owing on his account to the solicitors was not the correct amount as there were a few amounts that were not claimable and had taken issue with the fact that the solicitors had not had the invoices taxed. This was said to be consistent with a letter of 17 February 2010, tendered in evidence in these proceedings, from Redmonds to Mr Liprini indicating that at that time Redmonds had not embarked on an assessment of costs because that would “cost money”. However it is notable that in this letter (which was apparently in response to questions from Mr Liprini) Redmonds also advised Mr Liprini that he would probably have to “brief” an expert costs assessor. Redmonds suggested that the costs would be recovered at a later date (after Dr Liprini was made bankrupt) but also informed Mr Liprini that he would not get “total compensation” and that while the “general rule” was that one would get about 80 per cent of legal costs back, in this case his solicitor had had to spend a lot of time “trying to hold creditors at bay and you won’t get any costs back for that”. Redmonds advised that they anticipated getting the costs assessed or quantified at a later stage, unless they could “do a deal” with the Trustee without a costs assessment.
It was also pointed out for the applicant that his former solicitors had responded to his email of 8 February 2012 on 9 February 2012, indicating that they were not prepared to take any further action on his behalf and would not be answering any further correspondence.
The applicant submitted that it was implicit in the costs order made in the Supreme Court proceedings that costs were to be paid to Mr Liprini by Dr Liprini in the sum agreed or, if there was no agreement, as assessed. There was said to be an implicit obligation on Dr Liprini’s Trustee in bankruptcy to endeavour to come to such an agreement. It was submitted that Mr Pascoe had appeared to acknowledge that he was under such a duty until he made his last offer, notwithstanding that thereafter he seemed to have taken the attitude that because he had not agreed on an amount and the costs had not been assessed they were not owing to the applicant.
The respondent accepted that based on the principles considered by the High Court in Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56 costs orders made before the date of the sequestration order that had not been assessed at that time would be provable debts within the meaning of s.82 of the Bankruptcy Act. However it was submitted that in this case there was insufficient evidence to enable quantification of the costs orders in issue and that the court should not vary the decision of the Trustee in relation to the amended proof of debt.
The respondent pointed to the absence of any reference to payment of costs “as agreed” in the orders in question and submitted that while Mr Pascoe had seriously attempted to reach an agreement with the applicant regarding what the costs might be, that unsuccessful process was not binding and did not oblige him to agree on an amount of costs standing, as it were, in the shoes of Dr Liprini, the party who had been ordered to pay such costs.
The Bankruptcy Act provides that a creditor who desires to prove a debt in bankruptcy shall lodge with the trustee a proof of debt in accordance with s.84 of the Act. Under s.84(2) a proof of debt is to set out particulars of the debt and, among other things, specify the "vouchers", if any, by which the debt can be substantiated.
As indicated above, s.102 provides for the admission either in whole or in part or rejection by the Trustee of each proof of debt sought to be proved and s.104 provides for review of the Trustee’s decision.
Both parties referred to the decision of Flick J in Daevys in relation to the principles applicable to the review of a proof of debt. As his Honour pointed out (at [8]), s.82 of the Act identifies those debts and liabilities which are provable in a bankruptcy. It is to be construed "generously or liberally" (P T Garuda Indonesia Pty Ltd v Grellman [1994] FCA 913 at [259] per Lockhart J).
Relevantly, as Flick J pointed out in Daevys at [10]:
Subject to the process of "review" provided for in s 104, the decision to accept or reject a proof of debt is a decision entrusted to the discretion of the trustee. When exercising that discretion the trustee is not required to formulate a proof of debt for a creditor. Thus, in Re Estate of Cook (1958) 18 ABC 162 at 169-170 Clyne J concluded:
…It was not the duty of the official receiver to formulate a proof of debt for Lang. The official receiver has a public position and has duties he is bound to perform. He has to examine every proof of debt, and the grounds of the debt and to admit it or reject it or require further evidence to support it.
In Re Van Laun; Ex parte Chatterton (1907) 2 KB 23, at p30, Cozens-Hardy MR said: "All that we now decide is that the trustee is entitled to say, “I will not admit your proof until you have given me reasonable means of satisfying myself whether the debt in respect of which you are proving is to any and what extent just and reasonable." (Emphasis added).
The nature of the review by the court under s.104 is "not confined to the correctness or otherwise of the trustee's decision. It is a 're-hearing'" (Daevys at [13]). Accordingly, as Toohey J pointed out in Re Payne; Ex Parte: Kim Brevis Hurst v Maurice Alexander Levi the Trustee of the Property of Neville Ross Payne [1986] FCA 320 at [10]:
... the parties may place before the Court such material as they wish, provided of course that it is relevant and otherwise admissible. ... The function of the Court is not to consider the correctness or otherwise of the trustee's decision in the light of the material before him but to determine, in the light of the material before it, whether the applicant has a debt that should be admitted to proof.
Flick J pointed out in Daevys at [14] that there “has been said to be an onus upon the party seeking "review" of a decision taken by the trustee” (see Re Robert Henry Masters; Ex Parte: Elizabeth Gerovich and Hazel Henley v Bernard Putnin [1985] FCA 282). In considering this issue in Re Masters Toohey J explained at [5]:
Counsel for the applicants submitted that the Court must make a decision, however unsatisfactory and inadequate the materials made before it may be. This is no doubt true but equally it is for an applicant to persuade the Court that a trustee's rejection of a proof of debt should be reversed. If an applicant fails to do this, the trustee's decision must be affirmed. As it is the applicant who claims to be a creditor of the debtor, this approach seems to me to be inevitable. On ordinary principles of evidence, one who seeks the intervention of the Court to alter an existing situation, in this case the rejection of a proof of debt, carries the burden of persuading the Court that it should intervene.
The solicitor for the Trustee referred to the fact that the primary basis for the applicant's amended proof of debt was Order 4 made by Nicholas J in the Supreme Court proceedings. This was an order that the defendant (the bankrupt Dr Liprini) pay the plaintiff's (Mr Liprini’s) costs on a party/party basis. However it was specified that such costs were not to include the costs of preparation for the alternative grounds of relief set out in paragraphs 3, 4, and 5 of the Summons. Moreover on the face of it this Order did not provide for the payment of costs as agreed. That, of course, would not preclude an agreement on costs, initially as appeared to be under discussion in the correspondence between Mr Liprini’s solicitors and the Trustee of the bankrupt estate of Dr Liprini.
Mr Pascoe suggested in the letters sent to Mr Liprini's solicitors during the process of attempting to agree on the amount of the costs, that if Mr Liprini agreed with his proposals he should lodge an amended proof of debt seeking the amount of costs agreed. However, contrary to the applicant’s submission, there was no “obligation” on the Trustee to reach such an agreement.
Moreover, as discussed further below, on the limited information provided by Mr Liprini about the matters excluded from the recoverable costs and also which of Redmonds’ costs were related to matters other than the Supreme Court and the Court of Appeal proceedings, the Trustee’s failure to agree on an appropriate amount for the legal costs of the Supreme Court (and the Court of Appeal) proceedings cannot be said to warrant any adverse inference about Mr Pascoe’s motivations or to indicate that he took an improper or irrelevant consideration into account. Furthermore it was entirely proper for the Trustee to advise Mr Liprini of the availability of rights of review of his decision in relation to a proof of debt, particularly having regard to the time limit for bringing such proceedings (s.104(3) of the Bankruptcy Act).
As to the quantification of the costs orders, as the respondent contended, because these were costs orders of the New South Wales Supreme Court and the Court of Appeal it is relevant to have regard to the provisions in relation to costs in the Civil Procedure Act 2005 (NSW). Section 98 of that Act gives the New South Wales courts the power to make orders in relation to costs. Subject to any contrary order, costs are to be assessed on what is described in the Civil Procedure Act as the "ordinary basis" (see s.98(1)(c) and s.3(1)). In other words, the legal costs payable as a result of a court order are to be assessed on the basis provided for in s.364 of the Legal Profession Act (see r.42.2 of the Uniform Civil Procedure Rules 2005 (NSW)). Under s.364 in essence the costs are to be those which are assessed as fair and reasonable having regard to all the relevant circumstances. There are a number of factors the costs assessor must or may have regard to under s.364. Such assessment is not the same as, and is not subject to the same criteria as an assessment of legal costs on the application of a law practice that has given a bill (see s.363). The costs assessment obtained by Redmonds was an assessment under s.363.
Under s.353 of the Legal Profession Act a person who is entitled to receive costs as a result of an order for the payment of an unspecified amount of costs may apply for an assessment of such costs. It would be open to Mr Liprini to make such an application.
Mr Liprini did not dispute that the award of costs on a party/party basis in the Supreme Court proceedings was an award of costs on the ordinary basis, as was the order of the Court of Appeal and that s.364 of the Legal Profession Act would be applicable to any assessment of such costs. Section 364(3) requires any assessment of party/party costs to be in accordance with the operations of the rules of the relevant Court that made the order for costs and any relevant regulations.
However Mr Liprini submitted that the decision of the Trustee should be varied to allow a proof of debt in the sum of $76,035.47 on the basis that the Trustee had been willing to accept such an amount on 15 March 2012. It was submitted that this was not a case in which it was necessary or possible for the applicant to have the costs assessed having regard to the time and expense involved and that it was for the Court to examine his claims and determine whether the claims were good or bad (see Mbuzi v Favell [2011] FCA 1439 at [26]).
Insofar as Mr Liprini submitted that he could not have the costs assessed because Redmonds would not release the file, both Mr Liprini and his present solicitor admitted in cross-examination that no request for the file had been made. Furthermore, Mr Sommerville's evidence is that at no time had Redmonds received a request from Mr Liprini or anyone acting on his behalf to produce or make available their files in relation to the costs orders in the Supreme Court and that if such a request were to be made it would have been favourably considered as the firm's costs and disbursements had not been paid since 22 April 2008 (with the exception of the payment of the bankruptcy costs which had been taxed under the Federal Court Rules (Cth)). Were Mr Liprini to obtain such an assessment the debts he claims would bear a certain value (cf s.82(4) of the Bankruptcy Act). He has not done so.
In the absence of any agreement or assessment of the legal costs in question it is necessary to consider whether the applicant has identified the quantum of the debt with sufficient particularity to enable the Court to determine that a debt of a particular amount should be admitted. The respondent did not dispute that there was an entitlement to lodge a proof of debt or that on receipt of a properly particularised claim there would be some monies payable to Mr Liprini in respect of the two costs orders that supported the proof of debt.
The evidence in support of the application before the Court in relation to identifying the underlying source of the costs orders and the quantification provides no basis on which the Court can be satisfied that the amount of $126,546.26 in the amended proof of debt could be admitted.
That is clearly correct and was not disputed by the applicant. That amount was based upon the Certificate of Taxation which Redmonds obtained for all their costs over a period of time and registered as a judgment in the District Court. The quantum of those costs is not the same as the limited costs on a party/party basis ordered in the Supreme Court proceedings and costs on the ordinary basis of the Court of Appeal proceedings.
I accept the unchallenged affidavit evidence before the Court from Mr Sommerville of Redmonds in relation to the difference between the total legal costs incurred by Mr Liprini and the costs in relation to the Supreme Court and the Court of Appeal proceedings. Mr Sommerville's evidence is that, consistent with what appears in the two bills of costs, it cannot be said that the entire legal costs of $126,546.26 referred to in the amended proof of debt were costs incurred by Mr Liprini against the bankrupt, Dr Liprini, in the Supreme Court and the Court of Appeal proceedings prior to the date of the sequestration order on 3 September 2010. Further, the amounts in the bills reflected assessed solicitor/client costs incurred by Mr Liprini and owed to Redmonds, consistent with the Certificate of determination of costs and Registration of Certificate of Judgment.
Accepting for present purposes that it is open to a creditor to substantiate an amount claimed for costs in a proof of debt by evidence other than an assessment or agreement, the difficulty in this case is that has not been done. It is for the creditor to establish which of Redmonds’ costs related to the costs orders. Mr Liprini has made no attempt to do so, except insofar as he submitted that there was evidence before the Court to enable it to carry out this task, in particular the letter of 15 March 2012 from Mr Pascoe's office suggesting that had Mr Liprini amended the proof of debt or submitted a fresh proof of debt in the sum of $76,035.47 it would have been allowed. On this basis it was submitted that the Trustee’s decision should be varied to allow a proof of debt in the sum of $76,035.47.
However, it is apparent from both the draft bill provided to the Trustee in support of the amended proof of debt and the Redmonds memorandum of fees and disbursements dated 27 July 2011 annexed to Mr Sommerville's affidavit of 22 May 2012 that there are items that do not relate to the Supreme Court and the Court of Appeal proceedings. The difficulty is that the extent to which this is so cannot be identified on the material before the Court.
Furthermore, there is now evidence before the Court from Mr Sommerville (of which Mr Pascoe was not aware as at 15 March 2012) that the amount of costs excluded in relation to the matters raised in paragraphs 3, 4, and 5 of the Summons in the Supreme Court proceedings is more significant than the discount applied in the letter of 15 March 2012. The extent to which the costs of Redmonds relate to such excluded matters cannot be quantified on the material before the Court.
The fact that the Trustee was willing to agree on a particular amount of costs as at 15 March 2012 on the material before him at the time is not such as to warrant such an order on the evidence now before the Court. This is a re-hearing as stated in Re Payne and Daevys. The Court’s function is not confined to a consideration of “the correctness or otherwise” of the Trustee’s decision on the material before him. Rather, the Court is “to determine, in light of the material before it” whether the applicant has a debt that should be admitted to proof (Re Payne at [10]). It is for the applicant to persuade the Court that the Trustee’s rejection of the amended proof of debt should be reversed.
On the evidence before the Court it would not be a proper exercise of the Court’s discretion in s.104(2) of the Act to order that the proof of debt be admitted in the amount of $76,035.47.
It is not appropriate for the Court to simply speculate as to the amount of a proof of debt or to formulate a proof of debt for a creditor in the absence of proper evidence. There is insufficient evidence to enable the Court to make any appropriate quantification of the amount of the limited costs provided for in Order 4 made by Nicholas J in the Supreme Court proceedings excluding the costs attributable to grounds 3, 4 and 5 in the Summons. There is no evidence about these grounds or the proportion of costs attributable to such matters before the Court.
Nor is it possible to identify with any precision those items attributable to properly recoverable costs on the ordinary basis in the Court of Appeal proceedings. One of the difficulties in this respect is that the bankruptcy proceedings against Dr Liprini were on foot at the same time as the Court of Appeal proceedings. Some of the items in the Redmonds’ bills clearly relate to the bankruptcy proceedings, although the extent to which this is so cannot be determined on the evidence before the Court. Notwithstanding that the costs in relation to the bankruptcy proceedings have been taxed and paid out of the estate of Dr Liprini, Mr Liprini did not attempt to identify items in the Redmonds’ bills attributable to the Court of Appeal proceedings.
I cannot be satisfied on the evidence before the Court that, having regard to the evidence about the extent of the costs attributable to matters excluded by Order 4 in the Supreme Court proceedings and the work done for Mr Liprini that was not related to the Supreme Court or the Court of Appeal proceedings including the fact that some of the costs related to bankruptcy proceedings (which have been taxed and paid by the estate), a proof of debt should be admitted in the amount sought by the applicant or some other quantifiable amount.
In addition, Mr Sommerville's evidence is that Redmonds’ costs as set out in the two bills provided to Mr Liprini included a substantial amount of costs incurred when Mr Sommerville was acting on behalf of Mr Liprini in relation to various creditors' enforcement proceedings due to his debts and poor financial state, albeit at the same time as the Supreme Court and bankruptcy proceedings.
It has not been established that the proof of debt should be admitted for the amount of $76,035.47. Nor is there sufficient evidence to enable the Court to determine the amount of the costs that should be allowed on some other basis.
The onus is on the applicant to provide sufficient evidence to enable quantification of the costs ordered in the Supreme Court and Court of Appeal proceedings. He has not done so.
It may well be that if in the time covered by their bill Redmonds had only acted for Mr Liprini in the Supreme Court and the Court of Appeal proceedings and the costs orders in question were not limited, such costs orders could have been quantified by the Court in a review of a decision of the Trustee under s.104 of the Act. However that is not the case here.
Under s.102(1) of the Act it is open to the Trustee either to admit a proof of debt or reject a proof of debt in whole or in part, or to require further evidence in support of it. In this case the Trustee quite properly on the evidence before him and in the absence of agreement on costs reflected in an amended proof of debt, rejected the proof of debt in whole. He had sought to reach an agreement on costs and had at various stages raised with the applicant the possibility of providing further evidence in support of the proof of debt. No such further evidence was provided. Mr Liprini has not now put forward sufficient material to satisfy the Court that the proof of debt should be accepted at a figure different to that specified in the amended proof of debt (Official Trustee in Bankruptcy v Pastro [2004] FCA 713 at [47]).
Like the Trustee, the Court is not required to formulate a proof of debt for the creditor in the absence of reasonable means of being satisfied not only that a debt exists but also to what extent. On the material before the Court I am not satisfied that the Court should reverse or vary the decision of the Trustee to admit the proof of debt either in whole or in part.
No order was sought that further evidence should be required by the Trustee in support of the proof of debt. However, there is no suggestion that Mr Liprini could not lodge a further (properly documented) proof of debt. In the particular circumstances of this case, on the evidence before the Court, the decision of the Trustee in relation to the amended proof of debt lodged by Mr Liprini on 9 February 2012 should be confirmed and the application filed on 18 April 2012 should be dismissed. I will hear submissions in relation to costs.
I certify that the preceding seventy-four (74) paragraphs are a true copy of the reasons for judgment of Barnes FM
Date: 22 August 2012
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