McDermott v Wakim
[2013] FCCA 1950
•22 November 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MCDERMOTT v WAKIM | [2013] FCCA 1950 |
| Catchwords: BANKRUPTCY – Creditor’s Petition – Notice Stating Grounds of Opposition to Petition filed – alleged counter-claim, set-off or cross-demand against equitable owner of the judgment debt – other sufficient cause – dismissal of Petition refused – adjournment granted on limited basis due to delay in handing down of reasons. |
| Legislation: Judiciary Act 1903 (Cth) |
| Aussie Ideas Pty Ltd v Tunwind Pty Ltd [2006] NSWCA 286 Australian Bankruptcy Law and Practice, 6th Ed. |
| Applicant: | JOHN MCDERMOTT T/AS MCDERMOTT & ASSOCIATES |
| Respondent: | ELIAS GEORGE WAKIM |
| File Number: | SYG 2428 of 2012 |
| Judgment of: | Judge Lloyd-Jones |
| Hearing date: | 7 March 2013 |
| Date of Last Submission: | 6 May 2013 |
| Delivered at: | Sydney |
| Delivered on: | 22 November 2013 |
REPRESENTATION
| Counsel for the Applicant: | A. Spencer |
| Solicitors for the Applicant: | Sally Nash & Co |
| Counsel for the Respondent: | D. Ash |
| Solicitors for the Respondent: | Morgan Ardino & Co |
ORDERS
The Respondent Debtor, within seven days of the date of this order, file and serve an affidavit setting out the current status and all other relevant information in respect of any proceedings currently on foot in the Supreme Court of New South Wales as relied on by the Respondent Debtor in his Notice Stating Grounds of Opposition to the Petition filed on 4 March 2013.
The Creditor’s Petition be fixed for a date for hearing in this Court forthwith.
The Notice to Produce issued by the Respondent Debtor to the Applicant Creditor be set aside.
Costs be reserved.
There be liberty to apply on three clear days’ notice.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2428 of 2012
| JOHN MCDERMOTT T/AS MCDERMOTT & ASSOCIATES |
Applicant
And
| ELIAS GEORGE WAKIM |
Respondent
REASONS FOR JUDGMENT
Introduction
On 24 October 2012 the applicant creditor, John McDermott t/as McDermott & Associates (“McDermott”), filed a creditor’s petition (the “Petition”) in this Court against the respondent debtor, Elias George Wakim (“Wakim”). The Petition is based on a costs judgment entered in favour of the applicant in the Local Court of NSW on 14 May 2012 in the amount of $54,848.15, along with interest on that amount in the sum of $2,188.30, totalling $57,036.45. The applicant contends Wakim also owes the applicant costs ordered in the Federal Court on 8 October 2012, but those costs have not yet been assessed. This amount is estimated by the applicant to be approximately $23,619.20.
The applicant submits Wakim failed to comply on or before 8 October 2012 with a bankruptcy notice (BN1955/2013) served on him on 16 June 2012 (the “Bankruptcy Notice”). Wakim filed an application in the Federal Court (Proceedings NSD971/2012; Elias George Wakim v John Emmet McDermott) on 9 July 2012 seeking to set the Bankruptcy Notice aside on the basis that Wakim had a cross-claim or set off greater than the value of the Bankruptcy Notice on foot in the Supreme Court of NSW. That application was dismissed by his Honour Griffiths J on 8 October 2012: Wakim v McDermott [2012] FCA 1104.
After the dismissal of Wakim’s application in the Federal Court McDermott filed the Petition in this Court. On 6 December 2012 Registrar Ng made orders for substituted service of the Petition on Wakim. The matter next came before Registrar Tesoriero where Mr Ardino, solicitor for Wakim, appeared and sought an adjournment. This was opposed by the applicant, but was granted and the matter stood over to 18 February 2013 where it was referred to my docket. Orders were made setting the matter down for hearing on 7 March 2013. After hearing submissions from the parties at the hearing on that date, I indicated I would reserve my decision.
History
It is important at this point to consider the broader history of events involving Wakim in order to appreciate the submissions made by both parties in this matter. In setting out the following history I have quoted directly from the written submissions prepared by the applicant. I have not made any further direct attribution as this would make the summary unwieldy.
On 26 March 1980 Wakim slipped and fell in the course of his employment as a driveway attendant at a service station owned by a partnership. This partnership was constituted by a husband and wife, Tedros and Nawal Nader respectively, and ceased trading when the business was transferred to a company, T & N Nader Pty Ltd, of which the husband and wife were the sole directors and shareholders.
On 16 March 1984 Wakim commenced proceedings in the Supreme Court of NSW against Mr Nader alone. Ebsworth & Ebsworth were the solicitors acting for Wakim in the Supreme Court proceedings. On 16 July 1985 Wakim was awarded $860,000 in damages by the Supreme Court which, after payments of workers’ compensation had been taken into account, resulted in a judgment in favour of Wakim in the amount of $786,801.45 plus costs.
On 10 October 1985 Mr Nader presented a debtor’s petition upon which a sequestration order was made against his estate. The Official Receiver became the trustee of Mr Nader’s Bankrupt Estate. In or around October or November 1985 Wakim received $100,000 from the partnership’s workers’ compensation insurer. It appears that the liability of the insurer was capped at that amount.
On 28 February 1986 Wakim commenced proceedings in the Supreme Court against Mrs Nader seeking damages in respect of the same injury as founded in the earlier proceeding against Mr Nader.
On 24 June 1987 the Official Receiver in its capacity as trustee of Mr Nader’s estate commenced proceedings in the Equity Division of the Supreme Court against Mrs Nader under the Partnership Act 1892 (NSW). Peter McNally (“McNally”) of Lobban, McNally and Harney became the solicitor on record for the Official Receiver in those proceedings from 2 November 1987. On 19 November 1987 Chief Judge in Equity, Waddell CJ, declared by consent that the partnership between Mr and Mrs Nader was dissolved on 30 September 1983 and ordered that an account be taken of the partnership and the partners from 1 July 1979 to the date of dissolution. His Honour Waddell CJ in Eq commented that the evidence before him on that day did not support the making of all of the orders and declarations sought by the Official Receiver and ordered that the Official Receiver pay Mrs Nader’s costs of that day.
Wakim indemnified the Official Receiver in its capacity as trustee of Mr Nader’s estate to bring an equity suit against Mrs Nader seeking a declaration that the judgment debt made in Wakim’s favour on 16 July 1985 was a debt of the partnership. On or around 10 December 1987 Mr McNally, on instructions from the Official Receiver, sent a brief to advise to the late Mr C. Darvall QC. Mr Darvall provided his advice by memorandum dated 18 December 1984 and, based on that advice, the Official Receiver consented to the dismissal of those proceedings on the basis that each party bore their own costs.
Wakim was dissatisfied with the Official Receiver’s conduct of Mr Nader’s bankruptcy and, in particular, the resolution of the equity suit. Wakim commenced three sets of proceedings in the Federal Court:
a)The first in July 1993 against the Official Receiver in its capacity as trustee of Mr Nader’s estate alleging various breaches of duty;
b)The second in December 1993 against Mr Darvall alleging negligence in relation to advice he provided the trustee which led to the dismissal of the equity suit; and
c)The third in 1994 against Lobban, McNally and Harney, the solicitors retained by the trustee alleging negligence in similar terms to that alleged against Mr Darvall (together, the “Federal Court Proceedings”).
Mr Darvall died before the Federal Court Proceedings were heard and his insurer, HIH, was substituted as a defendant in his place.
Wakim retained the law firm Taylor and Scott to act in the Federal Court Proceedings. Taylor and Scott briefed Mr Murr SC and Mr Ogborne to appear at the hearings of the Federal Court Proceedings which took place between 13 and 16 June 2000 before his Honour Einfeld J who reserved his decision at the conclusion of the hearing. While the decision in the Federal Court Proceedings was reserved Wakim terminated the retainer of Taylor and Scott and retained Mr Hurley who, at that time, was practicing on his own account under the name “Brett Hurley & Associates”. An application for leave to file further submissions was made and submissions were provided in or around January 2001.
Judgment was then handed down by Einfeld J in the Federal Court Proceedings on 20 February 2001. Einfeld J dismissed the claim against the Trustee finding no breach of duty. The claim against Lobban, McNally and Harney was dismissed on the same basis. Einfeld J, in the proceedings against HIH, held that Mr Darvall had breached his duty to Wakim but that breach did not cause any of the loss alleged: Wakim v HIH Casualty & General Insurance Ltd (2001) 111 FCR 58.
Wakim instructed Hurley to lodge appeals in respect of all three decisions made by Einfeld J. Hurley took a position with McDermott & Associates, the applicant creditor in these proceedings, who thereafter commenced acting for Wakim. The appeal against the dismissal of proceedings against the Trustee was dismissed by consent with the parties bearing their own costs. In respect of the appeal against the dismissal of the claim in respect of the advice of Mr Darvall, Wakim failed to obtain leave to appeal against HIH, which had gone into provisional liquidation after judgment had been delivered by Einfeld J.
The appeal against the Trustee’s solicitors was heard on 4 March 2002 and the Full Court of the Federal Court handed down its decision on 3 July 2002. Their Honours Branson, Mansfield and Stone JJ found in favour of Wakim and set aside the orders of Einfeld J. The parties to these proceedings then settled the claim on the basis that Wakim was to receive $1,400,000. Pursuant to that settlement, Lobban, McNally and Harney were also required to pay Wakim’s costs, but Wakim has not enforced that obligation. On 22 September 2002 Wakim terminated McDermott & Associates’ retainer.
Before the settlement funds were received, it became apparent that there was a dispute between Wakim and McDermott & Associates in relation to the fees to which they were entitled. On 23 March 2004 Wakim, Hurley and McDermott & Associates came to an agreement that an amount would be set aside in a controlled monies account pending agreement or assessment in relation to costs. After the agreed amount was set aside, Wakim received the balance of $1,100,000.
Agreement on the amount to be paid to McDermott & Associates could not be reached and an application for assessment of costs was filed. Mr Salier was appointed to assess the costs charged by Hurley and McDermott & Associates. Mee Ling represented Mr Wakim on the assessment and, in the course of the assessment, prepared a number of objections, including:
a)That Mr Hurley was not on the Federal Court Register of Practitioners;
b)That Mr Hurley and McDermott & Associates were not entitled to charge on a time costing basis; and
c)That there was no costs agreement or, if there was, it was unjust.
It is important to note that there was no submission the costs should have been charged at the Federal Court scale.
Mr Salier issued his certificate of determination on 1 July 2005 and on 15 July 2005 McDermott of McDermott & Associates filed the certificate in the District Court of NSW. Wakim did not appeal the assessor’s determination. As there was no consent for the release of the monies in the controlled account McDermott filed a summons in the District Court of NSW on 11 October 2005, seeking declaratory relied in respect of the moneys held in the joint account. Those proceedings came before a registrar of the District Court on 6 February 2006 and directions were made for Wakim to file and serve any evidence upon which he sought to rely. No evidence was filed.
The Supreme Court proceedings came before Barrett J on 10 April 2006 where Mee Ling appeared for Wakim. At that time, Mee Ling submitted to the Court that Wakim had substantial cross-claims against both plaintiffs and there was jurisdiction in the Federal Court to order the costs to be repaid, for reasons that Mr Hurley was not at any relevant time enrolled upon the roll of practitioners kept pursuant to the Judiciary Act 1903 (Cth) and accordingly had no entitlement to practice in the Federal Court. Mee Ling sought an adjournment of three weeks to allow proceedings to be brought in the Federal Court. Barrett J granted the declaratory relief sought in the substantive application and ordered costs against Wakim. These costs have not been enforced.
On 13 June 2006 Wakim commenced proceedings against the partners of Taylor & Scott, Mr Murr SC and Mr Ogborne (the “Coleman Proceedings”) alleging that in respect of the proceedings before Einfeld J where they had acted for Wakim:
a)Taylor & Scott had failed to obtain all of his papers relating to the proceedings from the solicitors previously retained by him in the proceedings in the Supreme Court where Ebsworth & Ebsworth had acted for Wakim;
b)Taylor & Scott failed to make certain amendments to the statements of claim;
c)Taylor & Scott failed to collect evidence in respect of the claim against the Trustee;
d)Taylor & Scott had failed to confer with Wakim before the trial and did not brief the counsel of his choice; and
e)Taylor & Scott had made certain misrepresentations as to their preparation of the matter for hearing.
As against all of the defendants, Wakim alleged that the proceedings before Einfeld J were conducted negligently, in that:
a)The estate of Mr Darvall should have remained a party after he died;
b)The defendants in the Coleman Proceedings failed to run the argument that the trustee had no power to settle the equity suit against Mrs Nader;
c)The defendants in the Coleman Proceedings failed to lead certain evidence in respect of the claim against the trustee; and
d)The defendants in the Coleman Proceedings failed to argue certain matters against the trustee in respect of the administration of the bankruptcy.
Mr Wakim alleged, but for the defendants’ negligence, he would have recovered $3,000,000 rather than $1,400,000 for which he settled the appeal.
Between 13 June 2006 and 28 November 2007 the partners of Taylor & Scott were not served. The proceedings came before the Supreme Court on seven occasions during that period. Taylor & Scott were finally served on 28 November 2007. The defendants in the Coleman Proceedings filed an interlocutory application seeking to have the proceedings dismissed, which came before her Honour McCallum J on 4 July 2008. Her Honour reserved her decision and while that decision was reserved Wakim filed an application seeking to have the proceedings reopened. Her Honour heard that application on 12 September 2009. On 19 December 2009 her Honour handed down judgment dismissing Mr Wakim’s claim in the Coleman Proceedings: Wakim v Coleman t/as Taylor & Scott [2008] NSWSC 1377.
On 13 December 2007 Wakim commenced proceedings in the Supreme Court against Hurley and McDermott (the “McDermott Proceedings”) concerning their conduct in the Federal Court Proceedings before Einfeld J and the Full Court mentioned above. Wakim’s statement of claim pleaded as follows:
1. Conducting the matter through the Second Defendant as the solicitor having the carriage of the matter when the Second Defendant was not entitled o practise in any Federal Court by reason of his not having enrolled himself under the Judiciary Act;
2. Twice moving for leave to proceed to appeal against HIH when there was no money in the said HIH and HIH Support Group imposed terms which the plaintiff could not meet.
3.
3.1. Failing to pursue the Trustee appeal and giving the Plaintiff incorrect advice about the same and failing to obtain alternative counsel or otherwise represent the Plaintiff when the existing counsel refused to pursue the trustee appeal;
3.2. Failing to follow the Plaintiff’s instructions as to the damages arguments the Plaintiff wished to make;
4. Failing to obtain alternative counsel or otherwise represent the plaintiff when the existing counsel refused to pursue the trustee appeal.
5. Acting at all time for the Plaintiff by the Second Defendant when the said Second Defendant was not entitled to practise in the Federal Court.
Particulars of the loss and damage that was claimed included “The Defendants obtained a costs determination of costs in the sum of $208,698.40”.
The McDermott Proceedings first came before the Supreme Court on 12 March 2008 at which time the Statement of Claim had not been served. The McDermott Proceedings came before the Supreme Court on three further occasions where the Statement of Claim had not been served. On 24 June 2008 Wakim filed a notice of motion, not supported by affidavit, returnable on 1 August 2008 seeking to amend the Statement of Claim. The proceedings came before the Court again on 25 June 2008 where they were stood over to 1 August 2008. McDermott was served on 15 July 2008. When the proceedings came before the Court on 1 August 2008, they were set down for mention before her Honour McCallum J on 22 August 2008. On 12 September 2008 McCallum J ordered Wakim to serve any evidence in support of his motion to amend the Statement of Claim by 19 September 2008, which was not complied with.
Nothing of any moment seems to have occurred in the McDermott Proceedings between September 2008 and 1 July 2009 when the proceedings came back before Bradford R. There was no appearance on behalf of or by Wakim and the proceedings were stood over to 7 August 2009. On 30 June 2009 McDermott filed a notice of motion seeking to have the proceedings dismissed returnable on 7 August 2009. Mee Ling appeared for Wakim and the matter was then stood over to 4 September 2009. Orders were made on 4 September 2009 for Wakim to file any evidence he sought to rely on by 11 September 2009. The McDermott Proceedings next came before the Court on 23 September 2009 when Mee Ling, appearing for Wakim, sought a further adjournment and extension of the timetable which was granted. The proceedings were referred to the List Judge for setting down for hearing on 21 October 2009.
On 21 October 2009 the notice of motion came before Patten AJ at which time an application was made by Mr Ardino, appearing for Wakim, for a further adjournment. That application was refused and Wakim withdrew Mr Ardino’s instructions and sought to appear for himself with Mee Ling as amicus curiae. Leave was granted and Wakim appeared. On 23 October 2009 Patten AJ handed down judgment dismissing the McDermott Proceedings and ordering costs against Wakim. Those costs were quantified and subsequently registered as a judgment in the Local Court of NSW. The Bankruptcy Notice that forms the basis of the Creditor’s Petition the subject of these proceedings was issued pursuant to the Local Court of NSW Judgment.
Current Proceedings
The Petition before this Court was filed on 24 October 2012. On 4 March 2013 a notice stating grounds of opposition to application, interim application or petition (“Notice of Opposition”) was filed on behalf of Wakim. The Notice of Opposition set out the following grounds of opposition:
1. The source of the judgment debt for the bankruptcy notice founding the petition is an order for costs in litigation commenced by the respondent qua client against the applicant qua solicitor, in relation to the latter’s alleged professional negligence.
2. The applicant was insured by LawCover Pty Ltd.
3. By virtue of and pursuant to LawCover’s right of subrogation:
a) The applicant’s defence in that litigation was conducted by LawCover on the applicant’s behalf.
b) The applicant is the legal owner of the judgment debt, while LawCover is the equitable owner.
c) This petition is brought by LawCover in the name of the respondent.
4. The respondent has two sets of proceedings against solicitors insured by LawCover, and if he succeeds against one or other of the solicitors, LawCover, by virtue of and pursuant to its subrogation, will be liable to indemnify the relevant solicitor by paying any judgment, interest and assessed costs to the respondent on the relevant solicitor’s behalf.
5. The proceedings are referred to in the affidavit filed in support of this notice.
6. The respondent says that he has a counterclaim, set-off or cross-demand against the equitable owner of the judgment debt which could not have been relied on in the proceedings between the applicant and the respondent which is likely to exceed the judgment debt and that together with all the circumstances of the case provides sufficient cause for the Court refusing a sequestration order, or and alternatively reason to adjourn or stay the petition.
Mr Spencer, appearing for the applicant creditor, indicated that there are two aspects of the hearing before the Court. The first is the Notice of Opposition filed by Wakim. The Court must first decide whether or not sufficient cause exists for a sequestration order not to be made. If the Court finds that there is sufficient cause the proceedings should be adjourned or dismissed. However, if the Court dismissed the Notice of Opposition, there is no attack on the right of McDermott to seek to prove the matters necessary in order for a sequestration order to be made. I will first address the Notice of Opposition.
Notice of Opposition to Petition and Adjournment Application
Respondent Debtor’s Submissions
Mr Ash, appearing for Wakim indicated that he sought to move on the Notice of Opposition. This was supported by the Affidavit of Elias George Wakim sworn 8 July 2012 (the “Wakim Affidavit”). It should be noted that this affidavit was sworn for the purposes of the Federal Court Proceedings noted at [2] above, but, as it was sworn for an application to set aside the Bankruptcy Notice on a similar basis, was allowed to be read and relied on. Where the Wakim Affidavit refers to the Bankruptcy Notice it can be taken to be a referral to the Petition. Mr Ash also read the Affidavit or Rocco Michael Ardino sworn on 4 March 2013 (the “Ardino Affidavit”) in support of the Notice of Opposition.
Mr Ash submits there is other sufficient cause under s.52(2)(b) of the Bankruptcy Act for the Court not to make a sequestration order against Wakim. His application before the Court was also an application for an adjournment based on the facts set out in the Notice of Opposition.
The Ardino Affidavit advances the proposition that Mr Ardino, in his capacity as a solicitor, is covered by LawCover Pty Ltd. At [10] of the Ardino Affidavit it states:
10. I have been a solicitor in New South Wales since 1976. To the best of my information, knowledge and belief:
a) A practising solicitor such as the applicant creditor must or Mr Mee Ling or myself must hold professional indemnity insurance.
b) The policy in approved form is available from LawCover Pty Ltd (and annexed and marked with the letter “C” is a copy of an information sheet accessed from the Law Society’s webpage on 3 March 2013).
c) LawCover is subrogated to a solicitor in matters such as (a) the proceedings giving rise to the judgment debt; (b) these proceedings; and (c) the proceedings by the respondent against Mr Mee Ling.
d) Currently, there is an application by Mr Mee Ling that I not act for the respondent in [Supreme Court Proceedings 2012/18593]. I acknowledge that this must be resolved prior to the hearing of the notice of motion [in the Supreme Court Proceedings].
Mr Ardino goes on to state that he has been a solicitor in NSW since 1976 and to the best of his knowledge a practising solicitor must hold professional indemnity insurance. It then sets out the basis for his belief that LawCover is the only relevant insurer. Annexed to the Ardino Affidavit at “C” is a printout from the Law Society of NSW website which tends to suggest that professional indemnity insurance is required by the Legal Profession Act 2004 (NSW). Mr Ash draws the Court’s attention to paragraph two of that document states the approved insurance policy is available from LawCover.
Mr Ash submits the relevance of indemnity insurance provided by LawCover is that LawCover is the sole insurer in this respect. Wakim currently has two set of proceedings on foot; the first against the applicant creditor, McDermott and the second against Mee Ling t/as Adrian Mee Ling Solicitors. The claim against Mee Ling is a claim alleging professional negligence seeking compensation the amount of the specific costs order that forms the basis of the Petition. Mr Ash indicates that the legal argument is that LawCover acts for McDermott in these proceedings by subrogation. LawCover also acts by subrogation for McDermott in the Supreme Court and for Mee Ling in the Supreme Court.
Mr Ash submits that there is some controversy about the basis of subrogation. In essence, it is a concept of standing in someone else’s shoes and in Australia, at least, it is generally regarded as an equitable doctrine, with the end of that proposition being the true owner of the rights of both McDermott and Mee Ling is LawCover. If that is so, then Mr Ash submits the Court should adjourn the Petition until Wakim’s proceedings against Mee Ling and McDermott in the Supreme Court are resolved. If Wakim is successful against Mee Ling, the relief granted will discharge the money currently sought in the Petition.
Mr Ash took the Court to the decision of his Honour Rares J in Commonwealth Bank of Australia v Jeans [2006] FCA 693. He submits that what occurred in Jeans (supra) was that on the day of the hearing of the creditor’s petition, and after some very hard fought litigation, a situation arose where the respondent debtor was able to show the Court that the NSW Court of Appeal had said there was a triable issue, but interestingly not a triable issue against the applicant creditor itself, but against an officer of the applicant creditor for fraudulent involvement in the execution of the guarantee that founded the debt.
Mr Ash in particular refers the Court to [5] of Rares J’s decision in Jeans (supra) which states:
The prejudice to the bank of not my making a sequestration order today is that it may be affected by a dissipation of assets by the debtor after today including a dissipation in the pursuit of the litigation against Mr Cleary. I have been referred to the decision of the Full Court of this court in Ling v Enrobrook Pty Ltd (1997) 74 FCR 19 and in particular the court's statement of the test to be applied for the purposes of determining whether, pursuant to s 52(2) of the Bankruptcy Act 1966 (Cth), I could be satisfied by the debtor that ‘for other sufficient cause a sequestration order ought not to be made’ and that therefore I might in my discretion dismiss the petition. The court said (74 FCR at 26D-E):
The authorities also show that satisfaction that the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts may well provide a basis for a finding that there is a “sufficient cause” for a sequestration order not to be made (see, for example, Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303). But the authorities do not suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally. They only recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.
Mr Ash indicates that the authorities show that satisfaction a debtor is well advanced with litigation likely to result in the debtor being able to pay his or her debts may well provide a basis for a s.52(2)(b) discretion. They do not, however, suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally, but do recognise it is not in the public interest for a debtor to be forced into bankruptcy by reason of insolvency that is likely to only be of only short duration.
Mr Ash submits the importance of Ling v Enrobrook Pty Ltd (1997) 74 FCR 19 is that, despite Griffiths J dismissing the application set aside the bankruptcy notice founding the Petition, the weight of Mr Ardino’s evidence is that an insurer stands behind the Supreme Court litigation with Mee Ling and behind McDermott’s litigation and this is a cross-claim in the true sense. If that threshold cannot be reached, then Rares J’s decision in Jeans (supra) shows on the clearest authority that even if the relevant defendant in other court proceedings is not the applicant creditor themselves, there is litigation in the other court on foot that will meet the very judgment that founds the basis of the Petition before this Court. Accordingly, Mr Ash submits the appropriate course would be for the Petition to be adjourned pending their resolution of the proceedings involving Wakim, McDermott and Mee Ling in the Supreme Court.
Mr Ash sought to file in Court a document titled “Status of Proceedings” which purported to relate to the proceedings in the Supreme Court of NSW against Mee Ling and McDermott and their current statuses. This was objected to and Mr Ardino, Wakim’s instructing solicitor in the proceedings before this Court and the proceedings before the Supreme Court, was cross-examined in respect of the document. This cross-examination appears in the Transcript of the hearing at pp. 10 – 13. The document titled “Status of Proceedings” was then filed and is in the following form:
Status of Proceedings
Elias George Wakim vs. Paul Mee Ling (Re: McDermott)
Matter Number: 18593/2012
Orders Made by Registrar Bradford
Strike Out Motion and Proceedings Generally Stood Over to 13th March 2013 for referral to Duty Judge.
Note: Question of tutor for the Plaintiff to be explained.
Plaintiff to provide Affidavit as to the reason why unable to meet the Motion on 13th March 2013 if that was the case.
(“Proceedings 1”)
Elias George Wakim vs. Paul Mee Ling (Re: Taylor & Scott)
Statement of Claim not served as subject to amendment.
1st February 2013.
Orders Made: Stood over to 12th March 2013. Should the Plaintiff seek further extention (sic)?
Then he is to serve on the representative for the Defendant a copy of an Affidavit with such evidence to be relied upon by the 7th March 2013.
Any application seeking to extend time for service of Statement of Claim to be filed by 7th March 2013.
(“Proceedings 2”)
Elias George Wakim vs. John Emmett (sic) McDermott (Matter Number 213246 of 2012)
On 5th February 2013 the Registrar made orders as follows:-
Hearing of Strike Out Motion filed on 28th August 2012.
The Strike Out Motion fixed for hearing on 1st May 2013 before Windeyer J, with an estimate of half to one day.
The Plaintiff to serve its evidence by 25th March 2013.
The Defendant to serve its evidence by 15th April 2013.
(“Proceedings 3”)
Mr Ash submits that the document “Status of Proceedings” clarifies an aspect of the Mee Ling proceedings before the Supreme Court where there is an application by Wakim for an order that Mee Ling pay, effectively, the judgment debt. However, there is also currently a motion on foot seeking that the matter be struck out. Wakim has been ordered in the first Mee Ling proceedings to provide an affidavit attesting to why he is unable to meet the strike out motion, but has not done so as yet. The only inference that can be drawn is that Wakim will not be filing an affidavit and that must be read in the context of the question of a tutor. Mr Ash submits that the situation before and after 25 February 2013 is very different, given the mental state of Wakim prior to that date and indicates that Wakim would be attending court on 13 March 2013, in any case.
In respect of the second set of proceedings before the Supreme Court, also against Mee Ling, the “Status of Proceedings” speaks for itself.
As to the third set of proceedings in the Supreme Court as against McDermott, Mr Ash concedes that Wakim had not yet served his evidence prior to the time required by the Supreme Court which was 25 March 2013.
Mr Ash submits that before the Court is a debtor who is well advanced with his litigation which is likely to result in him being in a position to pay his debts in the near future, which falls within the longstanding authority of Ling (supra). If an adjournment was granted on the basis of Ling, then Mr Ash would be in a better position to address the substantive ground of the Notice of Opposition, being the LawCover subrogation claim. Mr Ash contends this is a live issue that needs to be addressed in further detail so that he can make good the grounds advanced in the Notice of Opposition. The time period sought would be to at least the end of March 2013, where at least two of the three proceedings before the Supreme Court would have been before the Court.
Applicant Creditor’s Submissions
Mr Spencer, appearing for the applicant creditor McDermott, indicates that he opposes both the Notice of Opposition and the Ling adjournment application.
In respect of the Ling adjournment application, that authority fits into a history of consideration about the powers of a court in the bankruptcy jurisdiction when a sequestration order would otherwise be appropriate that go back a number of years. In the circumstances that are currently before this Court a petitioning creditor has a prima facie right to the making of a sequestration order unless the debtor establishes some circumstances which would justify a departure from the usual practice: Cain v Whyte (1933) 48 CLR 639 per Henchman J at 646.1. The onus is on the debtor to show some cause which outweighs the interest of the public and the rights of individual creditors: Cain v Whyte (supra) at 646.2.
Mr Spencer submits that the fact a debtor has pending before a court a legitimate claim sounding in money against the petitioning creditor sufficient to satisfy the debt owing to the petitioning creditor can amount to “other sufficient cause”, but does not necessarily do so: Ling (supra) at 25A. Where it is probable that the claim will succeed the court should not make a sequestration order and dismiss the petition: Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 at 116.5. Where the court is satisfied that the debtor has a real claim but is unable to come to a view about the claim’s prospects, the court may adjourn the petition to allow the claim to be tried in the ordinary courts: Re Schmidt; Ex parte Anglewood (supra) at 116.5; Re James; Ex parte Carter Holt Harvey (No.2) (1994) 51 FCR 14 at 22D-F; Rigg v Baker (2006) 155 FCR 531 at 545 ([66]). However, whether the court adjourns is dependent on the particular facts in each case: Totev v Sfar & Anor (2008) 167 FCR 193 at 209 ([86]). In either case, evidence must be adduced that persuades the Court that the claim is a genuine and serious one having sufficient quantum and validity to justify a dismissal or adjournment of the petition: Anglewood (supra) at 116.5. The mere assertion of a claim is not sufficient: Re Player (1962) 19 ABC 277 at 282.1-282.6.
Mr Spencer contends that the mere production of a statement of claim in an action that pleads facts, if proven, is not sufficient. “A statement of claim is no evidence of anything”: Re Foster; Ex parte Basan (1885) 2 Morr 29 at 33 per Brett MR; Re Cox (1934) 7 ABC 98 at 101; Re Rivett; Ex parte Edward Fay Ltd (1932) 5 ABC 182; Re Player (supra) at 282; Re Verna; Ex parte Deputy Commissioner of Taxation (NSW) (1985) 4 FCR 181 at 187; Bhagat v Global Custodians Ltd [2002] FCA 223 at [53]. Further, it is also not sufficient for a debtor to file an affidavit which merely propounds a claim and states how the debtor proposes to establish it: Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350; Bhagat (supra) at [53]; Vogwell v Vogwell (1939) 11 ABC 83 at 88 per Latham CJ; Re Player (supra) at 282.
The obligation upon the debtor is to adduce evidence that provides reasonable grounds to litigate: Re Foster; Ex parte Basan (supra) at 34 per Lindley LJ; Re Duncan; Ex parte Modlin (1917) 17 SR (NSW) 152a; Re Rivett; Ex parte Edward Fay (supra) at 187 – 188 per Lukin J; Vogwell v Vogwell (supra) at 85 per Latham CJ; Bhagat (supra) ay [53]; Guss v Johnstone (2000) 171 ALR 598 at [39] per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ. In order to satisfy the obligations the debtor must provide sufficient evidence to the court to enable it weigh up considerations as to the legal and factual merits of the claim relied upon by the debtor and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the debtor’s claim: Guss v Johnstone (supra) at [40] per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ.
Mr Spencer submits that the law coming from Ling (supra) is that in certain circumstances it’s possible for a bankruptcy court to come to a concluded view about the value of an alleged set-off or cross-claim on the hearing of the creditor’s petition. The more common circumstance, however, is set out in Totev v Sfar (supra), where the court will come to the view there is a demonstrable claim and sufficient evidence has been adduced that there is such a claim, but it is impossible to come to a quantification of that claim. What that leaves is a question of the balance of accounts between the petitioning creditor and the debtor in a state of fogginess before the court. If the court is satisfied the claim is well advanced that can prompt the court to grant an adjournment. Mr Spencer contends it is only in those confined circumstances where a court will grant an adjournment of a creditor’s petition. Ultimately, the balance of accounts can be determined when those proceedings have concluded. Mr Spencer argues that this is not the situation before this Court.
Mr Spencer contends that if the Court was satisfied Wakim’s claim would succeed, there would be no justification in the dismissal of the Petition. If there is a real claim of which the Court could not form a view about prospects the Petition could be adjourned. But, importantly in either situation evidence must be adduced that persuades this Court that the claim is a genuine and serious one, having sufficient quantum and validity to justify a dismissal or adjournment. The mere assertion of an arguable claim is not sufficient. Mr Spencer submits there are a number of authorities (noted at [46] above) that state the mere production of a statement of claim in an action that pleads facts which, if proven, would support a claim is not sufficient. The only thing put by Wakim to this Court is pleadings. Mr Spencer argues that what is required is an affidavit that sets out some form upon which a person can be cross-examined, if necessary, as to what the facts are upon which the claim is based. This evidence does not need to reach the level sufficient to succeed at the hearing of the claim, but must be sufficient to satisfy this Court that a person who is insolvent should nevertheless be allowed not to have a sequestration order made against him and have his legal status changed. Mr Spencer submits there is clear authority for this proposition.
Mr Spencer further submits there is authority that states it is not sufficient for a debtor to file an affidavit which merely propounds a claim and states how the debtor proposes to establish it. The distinction made there in cases such as Bhagat (supra) is that Mr Bhagat in that matter filed an affidavit that highlighted handsome allegations of fraud, but they were made in conclusionary terms, similar to the terms in the affidavits filed by Wakim in these proceedings. They don’t give any clue as to whether there is something underlying those facts asserted, there is simply just the proposition that, somehow, Wakim was misled or has some claim for negligence or similar and it has to be sufficient for this Court to do a weighing exercise.
Wakim asserts in his Notice of Opposition that LawCover is the equitable owner of the judgment debt founding the Petition through subrogation. Mr Spencer contends that the rights of subrogation are complex things, as are insurance policies. One cannot stand here and say whether LawCover has a right to set off one debt against the other or whether certain deductibles stand in the way and who has the entirety of the equitable interest in these proceedings. For example no submissions were made on behalf of Wakim as to how it would be that the solicitor who might have paid a deductible isn’t entitled to have that deductible back in the event that moneys are recovered in relation to a defendant claim. This would stand in the way of the kind of set-off that would have to be demonstrated in order for Wakim to succeed in these proceedings, based on the submissions made by Mr Ash.
Wakim sets out his belief about his claim the Wakim Affidavit at [3]:
…The gist of my claim against McDermott in the Supreme Court is that, in obtaining fees from me in the amount of $208,698.40 … that neither he nor Hurley were entitled to, McDermott breached his fiduciary duties to me as a solicitor. …
Mr Spencer submits that a belief in these circumstances is almost an irrelevant thing. It is not for Wakim to demonstrate he has a belief in a claim, but instead he must demonstrate that he has a claim. He has not adduced any evidence substantiating that claim. Whether this belief is true is not to the point and no facts are given to allow the Court to reach a firm conclusion.
Mr Spencer refers next to [5] of the Wakim Affidavit where it states:
…McDermott breached his fiduciary duties to me by deceiving me…
What Wakim does not do is explain or set out any of the facts that explained what the purported deception was. He simply states that he was deceived as a conclusion and expects this to satisfy the Court he has a claim.
At [8] of the Wakim Affidavit, Wakim states he has made an application to set aside orders of Barrett J made in 2006. Mr Spencer contends that whether or not he has moved to set them aside, there is no reasonable explanation as to why it is now required six or seven years after these orders have been made they be set aside when they were effectively known about, when the money was deducted from the amount he was to receive from the compensation payout he had been awarded. Unless a person has been declared a vexatious litigant there is nothing preventing them from a filing a notice of motion at any time. However, that gives this Court no confidence that there is anything standing behind those motions, particularly when the person filing the motion produces no supporting evidence to make good those assertions.
At [10]-[15] of the Wakim Affidavit Wakim refers to the claim against Mee Ling alleging lack of diligence in pursuing the McDermott Proceedings. Mr Spencer contends what Wakim now says is, effectively, the reason why he was struck out in the McDermott Proceedings is Mee Ling’s fault, but does not set out in the affidavit enough to satisfy oneself Mee Ling was or was not at fault.
Mr Spencer contends in respect of the matters he has raised in the Wakim Affidavit, the following points should to be made:
a)Hurley was first retained in September 2000 and the retainer of McDermott & Associates (whom Hurley had joined) was terminated on 22 September 2002. The costs assessment in respect of the retainer was concluded with the issue of the certificate issued on 1 July 2005 and orders were made by Barrett J on 10 April 2006;
b)In cases involving breaches of fiduciary duties where the facts relied upon are precisely the same facts as would give rise to a claim of breach of contract or duty, the court will apply by analogy the limitation imposed by statute on claims of that kind, even if the breaches involve elements of dishonesty: Aussie Ideas Pty Ltd v Tunwind Pty Ltd [2006] NSWCA 286 citing Cia de Seguros Imperio v Heath Ltd [2001] 1 WLR 112, Belan v Casey (2003) 57 NSWLR 670 at [146] and [149] per Campbell J;
c)A cause of action in contract is complete when the breach occurs. A cause of action in tort is complete when damage accrues, even if the plaintiff is not aware of it: Cartledge v E Jopling & Sons Ltd [1963] AC 758 at 782 – 783; Hawkins v Clayton (1988) 164 CLR 539 at 543, 560 – 561, 587 – 588 and 598 – 602; Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 at 540, 554 – 555;
d)In both contract and tort the limitation period is six years pursuant to s.14 of the Limitation Act 1969 (NSW);
e)The breaches alleged all occurred before the money from the controlled moneys account was paid over which Mr Wakim pleads occurred on 4 May 2006 (Wakim Affidavit at Annexure “C3”, p.41);
f)Mr Wakim was aware of the conduct that amounted to a breach at the time the conduct occurred;
g)The claim that there was an express term in the contract of retainer to the effect that McDermott & Associates would charge at Federal Court rates was not ventilated:
i)Before the costs assessor, Mr Salier, when it would have been directly relevant to the assessment;
ii)Before Barrett J, when Mee Ling sought to resist the costs determination being paid from the controlled moneys account; or
iii)In the McDermott Proceedings when other allegations of breach of the contract of retainer were pleaded against McDermott & Associates;
h)No attempt was made by Wakim to appeal the costs assessment of Mr Salier;
i)No attempt is now foreshadowed to set aside Mr Salier’s costs assessment;
j)Other than simply asserting its existence Mr Wakim gives no evidence of how or when the term (noted at [56](g)) came to form part of the contract of retainer; and
k)Absent any attempt to explain these earlier omissions, the Court is justified in concluding the claim brought by Wakim is not bona fide.
Mr Spencer further submits the Wakim Affidavit contains no evidence demonstrating why, assuming that Wakim has a case, the remedy might involve a refund of all costs and disbursements paid to McDermott & Associates. Other than to assert that it equate to the total amount paid in fees Wakim adduces no evidence to support the calculation of the quantum of his cross-claim. Mr Spencer argues that such a result seems highly unlikely given the principles that govern compensation for fiduciary obligations, and the principles are stated by her Honour Gordon J in Parker, In the matter of Purcom No 34 Pty Ltd (In Liq) (No.2) [2010] FCA 624 at [23] – [24]. Even assuming Wakim was successful in demonstrating he was entitled to have been charged in accordance with the Federal Court cost scales rather than how he was, his likely measure of compensation would be the difference between the two. There is no evidence from which this Court could conclude that such a result would be in Wakim’s favour.
Mr Spencer contends that insofar as the allegations in the Wakim Affidavit under the heading “Set Aside Orders of Supreme Court on Ground Obtained by Fraud” (p.3) are concerned, the principles that apply to an application to set aside a judgment obtained by fraud were summarised by his Honour Kirby P (as he then was) in Wentworth v Rogers (No.5) (1986) 6 NSWLR 534 where it was held that:
A party who seeks to establish that a judgment ought to be set aside due to fraud must establish that the claim is based on newly
discovered facts; that the facts are material and such as to make it reasonably probable that the claim will succeed; that they go beyond mere allegations of perjury on the part of witnesses at the trial, and that the opposing party who took advantage of the judgment is shown, by admissible evidence, to have been responsible for the fraud in such a way as to render it inequitable that such a party should take the benefit of the judgment. (538D-539G).Mr Spencer asserts the Wakim Affidavit fails to establish that he even had an agreement with McDermott to pay in accordance with the Federal Court scales when the alleged fraudulent conduct is said to be “failing to bring [the agreement] to the attention of the assessor and the Court …”. Wakim was represented on both occasions, but his affidavit does not explain whether submissions were made on his behalf as to the existence of the agreement and if so why McDermott’s alleged omissions had the effect for which Wakim contends.
Mr Spencer submits as to the reference to Keith Hercules & Sons v Steedman (1987) 17 FCR 290 that Wakim suggests McDermott misrepresented the meaning of the case to both the assessor and the Court and had he not done so the result would have been different. At both times Wakim was represented. There is no expansion on what the misrepresentation involved or why both Barrett J and Mr Salier were misled by it. Mr Spencer argues that Hercules & Sons v Steedman (supra) identifies that the Federal Court Act 1976 (Cth) authorises (but does not mandate) the making of an order for taxation of solicitor client costs by a Federal Court Registrar in relation to the conduct of proceedings in the Federal Court. How that could have been determinative of any issue in the proceedings concerned is not explained.
Mr Spencer contends that since at least 2004 Wakim has been asserting a claim against McDermott & Associates and Hurley, especially at times when he was otherwise obliged to pay them money. The proceedings initiated by Wakim against McDermott & Associates were lodged in December 2007, but nothing was done to proceed them so they were dismissed. From October 2009 to July 2012 nothing else was done to progress any claim against McDermott & Associates and only after being served with a bankruptcy notice did Wakim file another statement of claim. From this the Court should infer that Wakim has no real intention of pursuing proceedings against McDermott & Associates.
Mr Spencer argues insofar as Wakim asserts he has a claim against Mee Ling, he gives no evidence in support of that claim. Whilst there is a statement of claim annexed to the Wakim Affidavit, this does not advance his cause. Mr Spencer submits that even on the assumption that Wakim succeeds against Mee Ling, s.99 of the Legal Profession Act 2004 (NSW) at best provides a power for the Supreme Court of NSW to order that Mee Ling pay Wakim an amount equivalent to the amount sought in the Bankruptcy Notice. It cannot relive Wakim of his liability inter partes to McDermott.
Mr Spencer indicates that there are proceedings filed by Wakim on foot (referred to at [38] – [41] above), however, as the Court has heard from Mr Ardino in cross-examination they have been all but struck out. The first set filed in the middle of 2012 have a strike-out motion in progress. There is time still for Wakim to put in affidavits, but he has not yet. In the second set of proceedings the statement of claim has not even been served yet. In the third set of proceedings there is a strike-out application on foot. This is the second time Wakim has lodged proceedings against McDermott and on the first occasion the proceedings were struck out. No evidence has yet been prepared by Wakim in the third set or proceedings, but there is still time.
Mr Spencer indicates these proceedings are not of a type that fit within the general rubric of the type that would normally be adjourned on a sequestration order. This is not an ordinary adjournment application. In order for an adjournment to be granted the debtor must come to court, demonstrate he or she has a progressed claim of a kind that a judge can see has real substance, real merit and will be pursued, and that in the discretion given to the court it would be more appropriate to adjourn the petition. This matter is not a matter of that nature. Perhaps in 2007, when the earlier proceedings against McDermott were on foot it may have been, but there has been a significant period of time passed since then. Mr Spencer submits that, accordingly, Wakim’s resistance to the making of a sequestration order must fail.
Respondent Debtor’s Submissions in Reply
In reply, Mr Ash submits that at pp.38 – 42 of Annexure “C3” to the Wakim Affidavit there is a traversal by Wakim of his relationship with Mee Ling during the course of giving instructions in the proceedings that were struck out by Patten AJ that gave rise to the costs order forming the basis of the Petition. Mr Ash submits that the statements made by Wakim are more than just a statement of belief. There are allegations in those pages about what was and wasn’t done, not only in respect of the proceedings before Patten AJ, but in respect of other things that hadn’t been agitated. These include things that may have had to have been done and were not done and, given the rubric of the proceedings, this is a good explanation of a claim against Mee Ling, a claim for reasons including Mee Ling himself and Wakim’s own mental position was only agitated in 2012.
Mr Ash contends that, looking at the proceedings before this Court using the Ling (supra) test, there is material that asserts dealings with Mee Ling that gave rise to dissatisfaction as well as prosecutions on against Mee Ling and McDermott. These proceedings may have strike-out applications on foot, but those have not yet been heard. There is still time for Wakim to put further evidence on in respect of the strike-out applications.
Mr Ash indicates that there are a number of other creditors of Wakim and that should be a consideration. “Balance” is the word used in Ling (supra) and by Rares J in Jeans (supra). There is a discretion that an insolvent person should not be continuing to “trade”, a term which is used as a result of the history of the bankruptcy jurisdiction. The term “trade” was used to deal with people trading when insolvent and to save their creditors. Mr Ash contends that in the last 200 years the bankruptcy law has changed to focus more on personal debtors so when looking at policies to do with trading in a market place, they must not be built up too high. Is there a real danger to the commercial world in respect of Wakim, who simply wants to prosecute his cases against the petitioning creditor and the solicitor he alleges failed to prosecute against the petitioning creditor or any prejudice to this specific creditor if that man is not given his opportunity.
Mr Ash submits there are strike-out applications on foot. These applications are to be determined by a superior court in the near future and the result will have a significant bearing on these proceedings. Mr Ash submits the Petition should be adjourned.
Consideration – Adjournment Application
The Notice of Opposition is advanced under the provisions of s.52(2)(b) of the Bankruptcy Act on the basis of “other sufficient cause”. Importantly, this provision needs to be considered in the overall context of the entirety of s.52 of the Bankruptcy Act. In Cain v Whyte (supra) at 646.1 his Honour Henchman J stated:
Prima facie, on the proof of matters mentioned in section 52(1), the Court will proceed to make an order for sequestration, and it is for the debtor to show some cause overriding the interest of the public in stopping of unremunerative trading and the rights of the individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.
(Emphasis added)
In the view of the learned authors McQuade and Gummow of Australian Bankruptcy Law and Practice, 6th Ed. Thomson Reuters, at 52.2.20 they state:
Accordingly, once a court is satisfied with compliance with the matters in s.52(1), it will only be in exceptional circumstances that it will refuse a sequestration order under section 52(2)(b). Nevertheless, “the circumstances which may constitute other sufficient cause are extremely variable. It is not appropriate to attempt to catalogue or circumscribe them”: Klein v Deputy Commissioner of Taxation (1985) 5 FCR 1 at 5, referring to Cain v Whyte (1933) 48 CLR 639; 6 ABC 117; 6 ALJR 457b at 645.
(Emphasis added)
One of the arguments advanced on behalf of Mr Wakim is the existence of three separate proceedings in the Supreme Court of NSW against Paul Mee Ling and John McDermott (which are detailed at [38] above). In circumstances where the Court is being asked to exercise its discretion to decline to make a sequestration order on the grounds that there exists a claim against the creditor or a third party for an amount equal to or greater than the amount the debtor owes the creditor, the debtor must show that the claim is genuine and serious which at the time of the request to exercise discretion the debtor has not been able to litigate the issue (Re LHF Wools Ltd (1970) Ch 27) and that it is a “real claim” that is “likely to succeed” having “sufficient validity…to justify dismissal or adjournment of the petition”: Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 at 116 and Re Kostezky; Ex parte Milder Elfman Szmerling Krycer Pty Ltd (1996) 67 FCR 101 at 106.
The only details available to this Court in respect of these three proceedings are contained in the document titled Status of Proceedings which was tendered at the hearing by Mr Ash appearing for Wakim and are discussed below. The submissions advanced in support of this document and its contents are set out above at [38]-[42]. The argument that Wakim was well advanced in the pursuit of these three pieces of litigation is not supported by the material contained in the Status of Proceedings. A detailed review of the relevant authorities is contained in the written submissions prepared by Mr Spencer and reproduced above at [45]-[50].
The obligation is on the debtor to adduce evidence to satisfy the court. I accept the written submissions provided by Mr Spencer set out at [47] above. The material relied upon by Wakim is as follows:
a)Affidavit of Rocco Michael Ardino sworn 4 March 2013;
b)Affidavit of Elias George Wakim sworn 8 July 2012;
c)Affidavit of Rocco Michael Ardino sworn 12 February 2013 attaching the “Second Bundle of Exhibits”;
d)“Status of Proceedings” document; and
e)Notice of Opposition (reproduced at [27] above).
Mr Spencer objected to the tender of item (d) on the basis that the whole status of the three proceedings was the main issue in the Notice of Opposition. The submission advanced on behalf of Wakim was that these three Supreme Court Proceedings were being actively pursued. In those circumstances the material should be submitted in the form of an affidavit with annexures so that the cross-examination of the person preparing the documents can occur. Mr Ash acknowledged that the document was an aide-memoire and not in the form of an affidavit. He stated that the “Status of Proceedings” had been prepared by an officer of the court who had conduct of the relevant litigation.
Mr Ash then indicated to the Court he would call Mr Ardino to give evidence in respect of the document that he had prepared entitled “Status of Proceedings” which had not been prepared in the form of an affidavit.
Mr Ardino gave the following evidence-in-chief, beginning at Transcript of 7 March 2013, p. 10.38:
MR ASH: Would you give his Honour, your name, address and occupation, please?
MR ARDINO: Rocco Michael Ardino, Suite 44, 23 Norton Street, Leichhardt. I’m a solicitor.
MR ASH: And you, I think, are the solicitor instructed by the debtor?
MR ARDINO: Yes, I am.
MR ASH: And you are instructed by him in Supreme Court proceedings against a Mr Mee Ling, solicitor?
MR ARDINO: Yes. I – I am.
MR ASH: And against Mr McDermott, a solicitor?
MR ARDINO: That’s correct.
MR ASH: May I show you a document. In your capacity as a solicitor for Mr Wakim in the matters that I’ve mentioned were you the person who caused that document to be prepared?
MR ARDINO: Yes. Yes. Yes, I was.
MR ASH: Have you had the opportunity to re-look at it in the box?
MR ARDINO: Thank you. I will. Yes. I’ve seen that.
MR ASH: That document is headed Status Of Proceedings?
MR ARDINO: Yes, it is.
MR ASH: Is that document, to the best of your knowledge, true and correct as at today?
MR ARDINO: Yes, it is. I made inquiries today to update ‑ ‑ ‑
Mr Ardino was then cross-examined by Mr Spencer beginning at Transcript of 7 March 2013, p.11.27:
MR SPENCER: Now, Mr Ardino, the sheet that you have in front of you refers, firstly, to a set of proceedings in which Mr Wakim, Mr Plaintiff, and Mr Mee Ling is the defendant. Do you see that?
MR ARDINO: Yes.
MR SPENCER: And when were those proceedings filed?
MR ARDINO: I couldn’t remember precisely.
MR SPENCER: All right. Doing the best you can sitting in the witness box, which month of 2012 were those proceedings filed in?‑‑‑
MR ARDINO: They would have been filed, perhaps, around about August, August of last year – something – July/August.
MR SPENCER: July or August of last year?
MR ARDINO: Of last year, roughly, I think.
MR SPECER: Yes. And ‑ ‑ ‑?
MR ARDINO: Or even, perhaps, later. I can’t remember, now.
MR SPENCER: Yes. And there has been a strikeout motion filed in that matter, has there?
MR ARDINO: The proceedings were not – the statement of claim was not served immediately. I think the first return date ‑ ‑ ‑
MR SPENCER: No. I’m asking you ‑ ‑ ‑?
MR ARDINO: Sorry.
MR SPENCER: I’m asking you a yes or no question?
MR ARDINO: Sorry.
MR SPENCER: Has there been a strikeout motion filed in those proceedings?
MR ARDINO: Yes, there is.
MR SPENCER: Yes. And that’s a strikeout motion, I take it, by those appearing for Paul Mee Ling?
MR ARDINO: That’s correct.
MR SPENCER: And was that filed this year or last year?
MR ARDINO: To the best of my recollection it might have been filed last year, but I can’t be 100 per cent sure of that.
MR SPENCER: All right. And so, that strikeout motion, together with the proceedings, are stood over to 13 March 2013, is that right?
MR ARDINO: Yes. It’s stood for – for referral to a duty judge. It was on – it was on for mention just recently.
MR SPENCER: No. I’m just asking you whether it has been ‑ ‑ ‑?
MR ARDINO: Yes.
MR SPENCER: I was asking you a yes or no question. Is it the strikeout motion and the proceedings stood over to 13 March?
MR ARDINO: Yes.
MR SPENCER: And has Mr Wakim sworn the affidavit referred to in the last paragraph under that first heading?
MR ARDINO: No. No. That hasn’t been prepared yet.
MR SPENCER: Thank you. Now, the second set of proceedings between Mr Wakim and Paul Mee Ling, that statement of claim, when was that filed?
MR ARDINO: That was filed roughly about the middle of last year, approximately.
MR SPENCER: Right. And it hasn’t been served as yet?
MR ARDINO: It hasn’t been served because it’s subject ‑ ‑ ‑
MR SPENCER: Thank you?
MR ARDINO: ‑ ‑ ‑ to an amendment.
MR SPENCER: And in the third matter between Mr Wakim and Mr McDermott, when was that statement of claim filed?
MR ARDINO: Could I just go back to that previous question for a moment.
MR SPENCER: I’m sorry, are you intending to change the answer you gave me?
MR ARDINO: I was just going to amplify in relation to service.
MR SPENCER: No. I only asked you when it was filed, and it hasn’t been served, has it?
MR ARDINO: Well, it – service is on its way because ‑ ‑ ‑
MR SPENCER: Has it or has it not been served?
MR ARDINO: No. It - it hasn’t been formally served.
MR SPENCER: Thank you?
MR ARDINO: It has not been formally served.
MR SPENCER: Now, in relation to the third set of proceedings, when were they filed?
MR ARDINO: Probably around about August of last year.
MR SPENCER: Is that the statement of claim ‑ ‑ ‑?
MR ARDINO: I think from memory.
MR SPENCER: ‑ ‑ ‑ to which you refer in the affidavit you’ve sworn in support of Mr Wakim’s application here today?
MR ARDINO: Yes.
MR SPENCER: And so ‑ ‑ ‑?
MR ARDINO: I would have to have a look at it.
MR SPENCER:‑ ‑ ‑ that’s the statement?
MR ARDINO: I believe it is.
MR SPENCER: Is that the statement of claim attached that was filed on 9 July 2012?
MR ARDINO: Sorry, could you repeat that, please.
MR SPENCER: You attached to your affidavit or annexed to your affidavit a copy of a document which is – in which Mr Wakim is the plaintiff and the respondent is John McDermott, and I’m referring to paragraph 3 of your affidavit sworn on 17 July 2012 and served in conjunction with these proceedings, a statement of claim that was filed on 9 July 2012?
MR ARDINO: What’s the question, sorry.
MR SPENCER: Is the statement of claim referred to in this note that statement of claim?
MR ARDINO: Yes, it is. Yes, it is.
MR SPENCER: And 9 July 2012, of course, is the day upon which you filed the application to set aside the bankruptcy notice, wasn’t it?
MR ARDINO: I can’t recall the date of that.
MR SPENCER: Well, wasn’t it the case that in your preparation on Mr Wakim’s behalf to apply to set aside the bankruptcy notice, you filed a statement of claim in the Supreme Court to support the contention at that time there were proceedings on foot against Mr McDermott who was, at that stage, the creditor?
MR ARDINO: Yes. That’s possible.
MR SPENCER: All right?
MR ARDINO: That’s possible because I recall that they were done close together.
MR SPENCER: All right. And so, a strikeout motion has been served in relation to that?
MR ARDINO: Yes, it has.
MR SPENCER: And that’s fixed for hearing on 1 May?
MR ARDINO: Yes, it is.
MR SPENCER: Has Mr Wakim served any evidence in relation to that strikeout motion?
MR ARDINO: Not yet, but he has until 25 March.
MR SPENCER: Has he served any evidence in relation to it as yet?
MR ARDINO: No, he hasn’t because ‑ ‑ ‑
MR SPENCER: Thank you, Mr Ardino?
MR ARDINO: ‑ ‑ ‑ he hasn’t had a mental capacity.
MR SPENCER: Thank you, Mr Ardino. Those are the questions, your Honour.
MR ASH: Nothing in reply, your Honour.
Proceedings 1, Wakim v Paul Mee Ling (re McDermott) (Supreme Court of NSW, matter 18593/2012) is an action claiming professional negligence – legal profession, breach of contract/retainer and breach of fiduciary duties – lawyer to client. These proceedings were filed on 18 January 2012 and a directions hearing was held before Registrar Bradford on 27 February 2013 where the matter was stood over to 13 March 2013for referral to the Duty Judge to hear a strike-out motion. Orders were also made for Mr Wakim to provide an affidavit setting out reasons why he was unable to meet the motion on 13 March 2013 if that was to be the case. This Court notes that the scheduled hearing before the Supreme Court was set down six days after the hearing of this matter before this Court.
However, there are no written or oral submissions giving details of the status of the issue in respect of a tutor being appointed by Wakim, nor is there any evidence before this Court giving details of whether or not any affidavit material sought to be filed and, if sought, the nature and contents of that affidavit material. It is acknowledged that any affidavit of this nature might be filed and not read in those proceedings, but those intentions have not been addressed. As these proceedings have been on foot for 14 months and are scheduled for hearing in six days time, and in the absence of any material prepared to satisfy the directions issued by the Registrar it is difficult to accept that these proceedings have been pursued and that the claim is genuine and serious with sufficient quantum to justify an adjournment of the Petition.
In respect of Proceedings 2 before the Supreme Court; Wakim v Paul Mee Ling (Re Taylor & Scott) (Supreme Court of NSW Matter 186713/2012), these proceedings were commenced on 13 June 2012 and are an action claiming professional negligence – legal professions, breach of contract/retainer – lawyer with client and breach of fiduciary duties – lawyer to client. However, the Statement of Claim has not yet been served on the defendant as it is subject to amendment. I note the requirements of the Uniform Civil Procedure Rules 2005 (NSW), specifically reg.6.2. Of particular importance are sub-rules 6.2(3), 6.2(4) and 6.2(5) which respectively state:
6.2 How proceedings commenced
…
(3) Originating process must be served on each defendant.
…
(4) Subject to subrule (5), originating process is valid for service:
(a) in the case of proceedings in the Supreme Court … for 6 months after the date on which it is filed …
(5) Failure to serve originating process within the time limited by these rules does not prevent the plaintiff from commencing fresh proceedings by filing another originating process.
At a directions hearing on 1 February 2013 orders were made standing the matter over to 12 March 2013 and that if Wakim should seek a further extension it was required to serve on the representatives of the defendant an affidavit setting out the basis for further adjournment by 7 March 2013. Again, this matter was scheduled for a directions hearing five days after the hearing of the Petition before this Court, but no evidence was led as to what election had been made or the nature of any affidavit that may be relied upon in those proceedings. This raises the serious question of how actively these Supreme Court proceedings were being pursued in light of the requirement that affidavit material was required to be lodged before that Court on the same day as the hearing of the Petition before this Court, but no evidence of what election had been made was forthcoming.
In respect of Proceedings 3 before the Supreme Court; Wakim v John Emmet McDermott (Matter 213246/2012) claiming breach of fiduciary duties by lawyer, the information at [38] above indicates that the matter was listed for hearing of a strike-out motion on 1 May 2013. On 1 May 2013 his Honour Windeyer AJ made the following orders:
1. Verdict and judgment for the defendant in proceedings 2012/213246.
2. The plaintiff’s notice of motion in proceedings 2012/213246 be dismissed.
3. The defendant’s motion in 2012/213246 be dismissed.
4. Each party to pay their own costs.
Accordingly, these proceedings have been dismissed and it is not necessary to give them any further consideration.
In situations such as those in this matter the Court must be satisfied that the debtor has a genuine and serious claim, having sufficient quantum and validity to justify a dismissal or adjournment of the petition. Mr Spencer addressed these issues in his written submissions reproduced above at [45] – [46] and I accept that approach is appropriate to the consideration in this matter. In Westpac Banking Corporation v Tsatsoulis [2003] FCA 406 her Honour Branson J at [15] stated:
In Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 26 the Full Court gave consideration to a contention that the courts recognise a public interest in allowing a debtor to prosecute litigation commenced by the debtor. The Court said:
The above authorities do not, in our view, support the appellant's contention that the courts recognise a public interest in allowing a debtor to prosecute litigation commenced by the debtor. The public interest recognised by such authorities is that which, in broad terms, is reflected also in s40(1)(g) of the Act; that is, that a sequestration order ought only to be made on the basis of an indebtedness which is not counterbalanced by a claim by the debtor against the petitioning creditor. Such authorities provide no comfort to a debtor who asserts a claim, not against his or her creditor, but against a third party.
The authorities also show that satisfaction that the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts may well provide a basis for a finding that there is a "sufficient cause" for a sequestration order not to be made (see, for example, Maddestra v Penfolds Wines Pty Ltd [(1993) 44 FCR 303]). But the authorities do not suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally. They only recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.
In ICM Agriculture Pty Ltd v Young (2009) 260 ALR 515 his Honour Lindgren J importantly makes reference to the threshold that should be adopted by a court when exercising its discretion, which is the critical issue in this matter. His Honour described that threshold question as follows at [85]-[86]:
85. In order to establish “other sufficient cause” (or, of course, ability to pay debts) Mr Young must establish that his claim against ICM is likely to succeed, not merely that he has an arguable claim: see the numerous cases listed in McQuade and Gronow, McDonald Henry and Meek’s Australian Bankruptcy Law and Practice (6th ed, Thomson Lawbook Co, as at 7 October 2009) at [52.2.22], especially Totev at [37]–[44].
86. The test is more stringent and demanding than that which applies under s 41(7) of the Bankruptcy Act, which relates to the extension of time for compliance with a bankruptcy notice where a debtor has applied for an order setting aside that notice on the ground that the debtor has a counterclaim, set-off or cross-demand of the kind referred to in s 40(1)(g) of that Act. As Allsop J observed in Totev at [45], the context is different under s 52(2)(b). The authorities referred to by his Honour show that the debtor’s claim against the petitioning creditor must be one which is “likely to succeed”.
Mr Ash indicated that in respect of the Notice of Opposition at Ground 1 there was no dispute that the judgment debt upon which the bankruptcy notice is based is an order for costs in litigation commenced by Wakim against John McDermott practising as a solicitor for professional negligence. The costs order itself arose from his Honour Patten AJ’s dismissal of those proceedings with costs. In Ground 2 Wakim advances that John McDermott as a solicitor was insured by LawCover Pty Ltd. The basis of that allegation is found in the Affidavit of Rocco Michael Ardino sworn 4 March 2013 at [10] where it states that, to the best of Mr Ardino’s knowledge, information and belief a practising solicitor such as Mr McDermott and Mr Mee Ling must hold professional indemnity insurance. The basis for that belief is that LawCover is the only relevant insurer. At Annexure “C” to that affidavit appears a print-out from the Law Society of NSW’s website, which suggests that professional indemnity insurance is required by the Legal Profession Act 2004 (NSW). However, there is no material in the form of an affidavit before the Court that clearly established that the insurer has intervened.
This is relevant as the Notice of Opposition claims that Wakim has on foot two groups of proceedings. The first against Mr McDermott the solicitor himself and the second against Mr Mee Ling who traded as Adrian Mee Ling Solicitors. Both proceedings include claims for professional negligence. Mr Ash contends that LawCover acts in the Supreme Court for both Mr McDermott and Mr Mee Ling by subrogation, although there is some controversy about the actual basis of subrogation in the case of Mr Mee Ling. Mr Ash argues that it is generally regarded as an equitable doctrine, the proposition being that the true owner of the rights and obligation both of Messrs McDermott and Mee Ling is LawCover. If that is so, then an adjournment on the basis that Wakim has a claim against Mr McDermott in the beneficial sense which is on foot in the Supreme Court should be granted so that if successful, money will come to Wakim which will enable the discharge of the debt that is being sought.
Mr Ash called on a notice to produce in the form permitted under the Federal Circuit Court Rules 2001 (Cth), which required the applicant creditor to produce documents evidencing or tending to evidence that LawCover was conducting the Supreme Court litigation on behalf of both defendants. Mr Spencer raised an objection on the basis of the proposition that someone would serve a notice to produce by fax as late as the day immediately prior to the hearing in circumstances where it would be obvious that there would be a debate about whether or not it was proper service of such a notice.
The first issue is that the notice to produce to produce calls for documents evidencing or tending to evidence certain matters that require the person who is served with that Notice to form some sort of view about the probative value of such documents as they have, but also to form a view about the extent to which the documents concerned might well attract legal professional privilege. If the proposition is that counsel appearing for Mr Wakim intends to put that there are insurers behind the Supreme Court proceedings that is a matter that is either right or wrong, but it is not something that should require Messrs McDermott and Mee Ling to effectively contribute to a judgment about what documents tend to prove that proposition.
The second element of the objection is that the notice to produce is offensive as it refers to one set of Supreme Court proceedings between these parties that was heard and determined in 2009. Those proceedings came to an end in 2009. They were cost orders and were the proceedings that gave rise to the judgment debt. The notice to produce read, as it stands, requires the applicant’s instructing solicitor to go back and identify documents that predate 2009 and were not in that solicitor’s care, custody or control as that solicitor did not conduct that matter at that time. There are documents that are also sought in relation to Mr Ling’s defence of the Supreme Court proceedings. The instructing solicitors who were recipient of the Notice are retained by Mr McDermott and it is not immediately apparent if those solicitors would have any documents that refer to Mr Ling’s defence of Supreme Court proceedings brought by Mr Wakim. The Court is being asked to determine the issue of whether LawCover was the insurer for Messrs McDermott and Ling, absent the terms of the policy and some understanding of what the rights of the individual verses the subrogated insurer are. Further, it is not possible to form a view about what kind of set off might be available to Mr Wakim in these circumstances. These are issues for those representing Mr Wakim to establish as they bare the onus of proof.
I have formed the view that the Notice to Produce is oppressive as it asks Mr McDermott’s solicitor to produce documents for a party who they do not represent and also because of the completely unreasonable timing of this request in respect of McDermott’s history, who did not retain this current firm of solicitors in respect of the 2009 proceedings. In these circumstances the notice to produce should be set aside.
Mr Ash referred the Court to the decision of his Honour Rares J in Jeans (supra) which summarises the long-running principals of Bankruptcy Courts stemming from Ling (supra) in relation to raising a cross-claim at the petition stage, rather than under s.41(7) of the Bankruptcy Act. At [5] in Jeans (supra) Rares J refers to a number of authorities that show that a debtor who is well advanced with litigation that is likely to result in the debtor being able to pay his or her debts has a basis for a s.52(2)(b) discretion and that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.
Mr Ash contends that based on the evidence of Mr Ardino that an insurer stands behind both Messrs McDermott’s and Mee Ling’s litigation and there is a cross-claim in the true sense, the case of Jeans (supra) shows that even if the relevant defendant in the other court proceedings is not a creditor themselves, it can be said by the court on the exercise of its discretion that there is on foot in that other court litigation which will meet the obligations of the debtor, then the appropriate course is to adjourn the bankruptcy proceedings until the proceedings in the other court can be heard.
The debtor, Wakim, has pending before the Supreme Court of NSW two claims seeking, ultimately, money against the Petitioning Creditor, McDermott. On the material available it would suggest that if Wakim was successful in those proceedings, sufficient funds may be available to set aside the debt owing to McDermott. In Ling (supra) the Full Court stated at 26:
The above authorities do not, in our view, support the appellant's contention that the courts recognise a public interest in allowing a debtor to prosecute litigation commenced by the debtor. The public interest recognised by such authorities is that which, in broad terms, is reflected also in s40(1)(g) of the Act; that is, that a sequestration order ought only to be made on the basis of an indebtedness which is not counterbalanced by a claim by the debtor against the petitioning creditor. Such authorities provide no comfort to a debtor who asserts a claim, not against his or her creditor, but against a third party.
The authorities also show that satisfaction that the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts may well provide a basis for a finding that there is a "sufficient cause" for a sequestration order not to be made (see, for example, Maddestra v Penfolds Wines Pty Ltd [1993] FCA 406; (1993) 44 FCR 303). But the authorities do not suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally. They only recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.
This approach was confirmed by his Honour Rares J in the decision in Jeans (supra) (reproduced at [36] above). The material available to the Court is clearly insufficient to establish the required status of establishing “other sufficient cause” that would support a dismissal of the petition. The evidence presented is clearly not sufficient to satisfy that requirement.
Where the threshold for the establishment of “other sufficient cause” is not reached the decision in Commonwealth Bank v Jeans (supra) per Rares J at [5] (reproduced at [36] above) does support the position that if the relevant defendant in the other Court proceedings is not the creditor themselves (in this case Mr Ling), then there is a basis for the exercise of discretion to grant an adjournment. This course can be followed, provided that the litigation in the other Court is on foot and a judgment in that action founds the basis in this Court, an adjournment can be made until those proceedings are heard and resolved. I am not completely satisfied in the circumstances in the matter before this Court satisfies that criteria.
On the material that is available, I am unable to come to a view about the prospects of success by Wakim in his Supreme Court proceedings. In those circumstances, this Court may adjourn the Petition to allow the claim to be tried in the ordinary course: Rigg v Baker (supra) per French J (as he was then) at [66]. As indicated in Totev v Sfar (supra) per Cowdroy J at [86], the issue of whether this Court grants an adjournment is dependent on the particular facts in those cases. Clearly the claims being made by Wakim have progressed past the status of being mere assertions as the proceedings have progressed various stages of filing in the Supreme Court, some of which have been served while others have progressed to being within the Supreme Court’s case management provisions. Consequently, I believe that the Creditor’s Petition should be adjourned in order for this Court to expeditiously be made aware of the status of the two remaining proceedings being pursued by Wakim in the Supreme Court, given the delay between the hearing of the Notice of Opposition and the handing down of these reasons. I will grant liberty to apply on three days’ notice, so that if it becomes apparent that the status of the three proceedings in the Supreme Court substantially change status, the Creditor’s Petition can be brought back before this Court for immediate hearing.
I certify that the preceding ninety-six (96) paragraphs are a true copy of the reasons for judgment of Judge Lloyd-Jones
Associate:
Date: 22 November 2013
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