McVeigh v Edwards
[2004] FMCA 375
•15 June 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| McVEIGH v EDWARDS | [2004] FMCA 375 |
| BANKRUPTCY – Application for sequestration – whether bankruptcy notice defective – whether debtor has set off against applicant creditor – no set off established – whether to exercise discretion to sequestrate – sequestration ordered. |
| Applicant: | DEAN ROYSTON McVEIGH |
| Respondent: | TOMMY EDWARDS |
| File No: | BRG78 of 2004 |
| Delivered on: | 15 June 2004 |
| Delivered at: | Brisbane |
| Hearing date: | 27 April 2004 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Counsel for the Applicant: | Ms Downes |
| Solicitors for the Applicant: | Miller Harris Lawyers |
| Respondent: | In person (by his son MICHAEL EDWARDS) |
ORDERS
That a sequestration order be made against the estate of TOMMY EDWARDS.
That the Applicant’s costs of and incidental to the petition including reserved costs, if any, be taxed in accordance with the Federal Court Rules and paid from the estate of the Respondent in accordance with the Bankruptcy Act 1966.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG78 of 2004
| DEAN ROYSTON McVEIGH |
Applicant
And
| TOMMY EDWARDS |
Respondent
REASONS FOR JUDGMENT
Tommy Edwards, “the debtor”, is 73 years of age and opposes a creditor's petition filed and relied upon by Dean McVeigh (the applicant). The applicant seeks sequestration of the estate of the debtor.
The petition filed 18 February 2004 relies on an Act of Bankruptcy constituted by the debtor's alleged failure to comply with a bankruptcy notice served on the debtor on 11 September 2003. The judgment relied upon to found the bankruptcy notice is a final costs order made by White DCJ on 6 September 2002. The costs were to be assessed on an indemnity basis. Registrar Bingham assessed costs under the order in the sum of $48,375.43. The order confirming this assessment is dated 21 March 2003.
History
I am satisfied that the chronology of events leading up to the costs order is accurately set out at exhibit "TGM3" to the affidavit of the applicant's solicitor, Timothy McGrath, filed on 23 April 2004. It details a number of interlocutory steps after proceedings were initially commenced in the District Court of Queensland (proceedings 33/2000) by the debtor in March 2000 against the defendants TG Wright and Others and TG Wright Management Services Pty Ltd ("the company").
After the commencement of the litigation the company appointed the Applicant as administrator. During the course of the administration the debtor sought directions on at least one occasion in the Supreme Court of Queensland. A trial on the substantive matter, being a claim characterised by the trial Judge as:
“A claim for specific performance of the agreement for the recovery of money”
took place on the 3rd and 4 December 2001.
The effect of the judgment of White DCJ delivered 8 March 2002 was that the defendants were found to be indebted to the debtor Tommy Edwards in the sum of $276,470.79. It seems that by the time judgment in favour of the debtor was delivered the company had been wound up and its directors declared bankrupt. It appears that in the absence of any dividend being paid to unsecured creditors of the company or the bankrupts, the judgment was virtually worthless.
The reasons for judgment of White DCJ can be found as exhibit TGM1 to the said affidavit filed on 23 April 2004. Some serious issues of credit and improper conduct on behalf of Mr Edwards towards his mortgagee were found by the trial Judge. However the trial Judge says that:
“I am not satisfied that the plaintiff intended that the bank suffer an actual financial loss and under those circumstances I am of the view that in spite of the plaintiff's improper motive in having the sale of his property recorded in the way it was the loss to him occasioned by refusal to enforce the contract will be out of proportion to the seriousness of the fraud.”
After delivering his judgment DCJ White ordered that Mr Edwards:
“File a written application in the Court specifying the orders sought in respect of and incidental to the costs of the action.”
This somewhat unusual direction appears to flow from a discussion which took place after judgment had been delivered where the counsel retained by Mr Edwards, a Mr Sumner-Potts, indicated an intention by the plaintiff to seek a somewhat special and extraordinary order for costs against, Mr McVeigh, personally.
On 21 March 2002 Tommy Edwards applied to the District Court, inter alia, for the following orders:
“1.That Dean Royston McVeigh, liquidator of the first defendant personally, jointly and severally with the second and third defendants, pay the plaintiff's costs of and incidental to these proceedings as and from 15 November 2001 on a full indemnity basis.
2.Alternatively that the first, second and third defendants pay the plaintiff's costs of and incidental to these proceedings as and from 15 November 2001 on a full indemnity basis.”
Subsequent to the said application for costs the trustees in bankruptcy for each of the personal defendants were joined to the costs application. The issue of costs was the subject of a hearing before White DCJ on 16 September 2002. A full transcript of those proceedings is annexure B to an affidavit of the solicitor for the debtor sworn 1 April 2004 (incorrectly shown as 1 April 2003) and filed with my leave.
The hearing before me proceeded on 27 April 2004. Mr Tommy Edwards was too ill to appear by telephone from North Queensland. His son, Michael Edwards (who claims to hold an enduring Power of Attorney on behalf of his father) appeared by telephone for his father without objection from Counsel for the Applicant.
Both parties filed written submissions. In the case of the debtor these consisted of nine pages of closely typed arguments supplemented by a binder of documents detailing his view of the history of the proceedings. I have carefully read and considered these submissions. However it is not necessary, to properly dispose of this matter before this Court, to make findings in respect of all the issues raised in those submissions.
On 28 April 2004 the Registry of this Court received by facsimile from the debtor a further lengthy submission. The solicitors for the applicant by letter raised no objection to these additional submissions even though they seemed to be a later attempt to introduced some additional evidence. I am not satisfied that the additional submission which I thoroughly read takes the issues to be determined by me in this matter any further.
Further attempts to introduce further material were made by letters directed to me from the debtor's son, Michael Edwards, dated 17 May 2004 and 3 June 2004. It is quite improper to send documents in this way to a judicial officer whilst judgment is reserved. I have ignored those documents and have not read them.
Grounds of opposition to petition
The Notice of Opposition filed on 5 April 2004 identified the following grounds:
(1)The bankruptcy notice was defective in form.
(2)There is in equity and at law, a set off or cross demand which would render the said notice ineffective.
Additionally in the written submission it is submitted that to sequestrate the estate of the debtor who is:
“a 73 year old illiterate pensioner that has no other income and has no realisable assets that could be sold to settle the debt.”
would be an exercise in futility. I shall deal with these grounds sequentially.
Alleged defect in bankruptcy notice
The debtor says the notice is invalid because it was signed by the solicitors for the judgment creditor Messrs Miller Harris. In fact, the notice is signed by Tim McGrath, the partner of Messrs Miller Harris who has the conduct of the litigation and who is claimed to be the creditors "authorised agent". It is also asserted that the creditor did not have the personal benefit of the judgment. I will deal with that issue shortly.
No defect in the bankruptcy notice is created by Mr McGrath signing the notice.
Who has the benefit of the judgment and is a set-off available?
It is conceded that the debtor has the benefit of a judgment against the company TG Wright Management Services Pty Ltd and Thomas Wright and Alex Sokolovski. As earlier noted the company is in liquidation and the two directors Messrs Wright and Sokolovski are both bankrupt.
The Applicant, who is the administrator of the company, claims he is entitled to the benefit of the judgment against the Debtor personally. If that is correct then it would not be possible to set off the debts owed to the debtor by the company (in liquidation) against the debt owed to the administrator of that company personally.
In the applicant's written submissions at paragraph 5(c), the argument is advanced that because Mr Edwards' application was seeking an indemnity costs order personally against Mr McVeigh the order of White DCJ of 6 September 2002 is for the personal benefit of Mr McVeigh as administrator.
I record the following relevant exchanges from the transcript of proceedings before White DCJ on 6 September 2002. For the purpose of these transcripts I note the following appearances as appear on the transcript:
Mr W P Jiear (of Quinn & Scattini) for the plaintiff (Debtor)
Mr R Perry (instructed by Miller Harris) for the first respondent (Applicant)
Mr M Daubney SC (instructed by VJ Butler and Associates) and with him Mr G Beacham, for the second respondent
Mr D Morzone (instructed by McDonalds) for the third respondent
Mr M Liddy (instructed by Edna Cuthbertson & Co) for Mr K Cuthbertson and Edna Cuthbertson and Co.
At paragraphs 209 to 212:
MR PERRY: Can I record that it - it is my understanding that from Mr Edwards position, that is the party represented by Jiear, the position is as follows, that Mr Edwards being the plaintiff in the application for costs, either consents to or does not oppose the dismissal of the application for costs against Mr McVeigh personally.
MR JIEAR: That's correct. Jiear,t here, your Honour.
HIS HONOUR: Yes, Mr Jiear.
MR PERRY: And secondly with that - that order therefore being made by consent, as I understand it, that - - -
MR JIHEAR: Not opposed.
MR PERRY: Not opposed, thank you. With that order being made, as I understand Mr Edwards position, it is that he concedes that an order for indemnity costs in favour of McVeigh, Morris and Fordyce is appropriate and the issue therefore is who should pay those costs, that is whether it is Edwards personally, the solicitors or a combination of the two.
MR JIEAR: Jiear here, your Honour. That's correct there is a secondary element to this though…
HIS HONOUR: Mr Jiear, I don’t understand this,” not opposed”.
MR JIEAR: I don’t - I'm loathe to consent to those - those orders, your Honour. I won't - I can't really oppose the dismissal of the application. Certainly I haven't seen material which would justify its being maintained.
MR PERRY: That being the case, can we start at the - - -
HIS HONOUR: Well, no, just before we go on with that, Mr Perry - - -
MR PERRY: Yes.
HIS HONOUR: I'm not unsympathetic to your difficulty, Mr Jiear - don't - don't misunderstand me, but if I simply make the order now without reasons, is that binding on your client?"
MR JIEAR: Your Honour, I don't know why it wouldn't be.
MR PERRY: Yes, I agree, your Honour.
HIS HONOUR: In light of your instructions, that would be binding on your client, is that right?
MR JIEAR: Yes, your Honour. I would - can't see a reason why it wouldn't be binding on my client.
HIS HONOUR: In other words, there can be no appeal on the basis that I didn't give reasons or the decision was wrong, whatever?
MR JIEAR: I haven't turned my mind to that, your Honour.
HIS HONOUR: I'm not going to make the order without hearing all of the evidence and giving reasons unless it is by consent, because that's the problem. If Mr Edwards is vacillating to the extent that you're unable to say you consent to the order on his behalf, how can I make the order just off the cuff without giving reasons and without hearing all the evidence on it?
MR JIEAR: I understand, your Honour.
HIS HONOUR: I think it's a pretty sensible - - -
MR PERRY: But - - -
HIS HONOUR: …it seems the way the case has been going so far it seems to me to be a fairly sensible course to take. But I don't see how I can make that order so that it binds Mr Edwards in respect of any appeal or any right of appeal because if he still has a right of appeal the - the judgment would certainly be overturned if he appealed because I wouldn't be giving reasons, I haven't heard all the evidence. Do you agree with that proposition, Mr Perry?
MR PERRY: Your Honour, I guess I can see some difficulty. I think that, however, from what I've heard from Mr Jiear this morning the fact that he does not oppose it and from what he's just said in response to your Honour's questions would seem to make the dismissal of the application, frankly, a formality. But that is ultimately in Mr Jiear's court.
But everything I've heard this morning and what's been communicated to me which made me make the statement that I did at the beginning would seem to indicate that the dismissal of the application from the perspective of the plaintiff who brought it is simply a matter of formality now.
MR JIEAR: Well, given the - oh, given the matters set out in the transcript your Honour, and I - I have seen, I couldn't sensibly oppose any order dismissing the application for special - the application for special cost,s in effect.
And then further after discussion took place between White DCJ and counsel about rule 304 of the Uniform Civil Procedure Rules (Queensland) 2001 the following exchange occurred (at page 213):
MR JIEAR: Yes, I am, your Honour. I have - I have instructions certainly not to proceed with the application. My instructions - - -
HIS HONOUR: So, that was the original application…
MR JIEAR: For costs personally against Mr McVeigh.
HIS HONOUR: Mr Jiear, do you apply for leave on behalf of your client to discontinue the application for costs against Mr McVeigh personally?
MR JIEAR: Yes, your Honour.
HIS HONOUR: All right. Does everybody else consent to Mr Jiear being given leave? Mr Morzone?
MR MORZONE: Yes, the third respondent consents, thank you, your Honour.
HIS HONOUR: Mr Daubney?
MR DAUBNEY: With a reservation only in respect of our - our costs of that application we consent, your Honour.
HIS HONOUR: Yes. And it's the substantive application only, Mr Perry?
MR PERRY: Yes, your Honour.
HIS HONOUR: Mr Liddy? You're probably not concerned with that one, but for the sake of completeness you consent to it no doubt.
MR LIDDY: Well, I don't think I've got any standing in relation to that but I - - -
HIS HONOUR: Probably not.
MR LIDDY: Yes.
MR JIEAR: No, he doesn't. Your Honour, I would have thought with respect, the - the substantive application was the plaintiff's application, as you say, for costs which - of which a supplementary part of that was this application for a special costs order.
I understand from my discussions with Mr Perry there would be any opposition to an order that the plaintiff be paid his standard costs as against the company.
HIS HONOUR: Yes.
MR JIEAR: - - - of the action and the trial.
MR DAUBNEY: That's always been - Daubney, your Honour - that's always - as your Honour knows, that's always been the position of the respondent.
And further at page 215:
HIS HONOUR: Yes. See, Mr - well, you see, that - I - I gave formal judgment and after doing so Mr Sumner-Potts then gave notice - I would think for the first time - that an application was to be made on behalf of the plaintiff for an order for costs against Mr McVeigh personally.
And because of the sort of grounds that he announced were going to be raised that's when I ordered that it be put off and that - that a formal application be filed and so on that led to this - this rather sad affair where the costs hearing is - looks as if it's going to be longer than the trial.
But my view is that you're entitled to costs up to that date. If - if Mr Sumner-Potts had simply asked for the standard order for costs on that day I would have made it. And I take it would have been unopposed, Mr Perry?
MR PERRY: Correct.
And then further at page 217 to 218:
HIS HONOUR: That disposes then of the costs of the claim. We now need to consider the costs of the costs hearing, and what's going to happen there. Are we going to continue with it? Are we going to continue with evidence and the like, or what?
MR PERRY: Your Honour, Perry again.
HIS HONOUR: Yes, Mr Perry?
MR PERRY: In light of, as I understand the position expressed by Mr Edwards's solicitor, that is that the appropriateness of the indemnity order in favour - in favour of McVeigh, Morris and Fordyce - - -
HIS HONOUR: That's as against Mr Edwards personally?
MR PERRY: Well, I think his point is as to who should pay it, but that is the appropriate costs order. The question is who should pay it? There are probably a couple of alternatives. One is that you grant an order for indemnity costs in favour of those three people against Mr Edwards. The second is that you grant an order for indemnity costs in favour of those three people against Mr Edwards and/or the solicitors; and the third is that some different course be proposed by Mr Edwards and/or the solicitors as to the resolution of who should be responsible for such a costs order. That seems to be the three that immediately come to mind.
HIS HONOUR: All right. Now, Mr Jiear, as a consequence of that order I've just made and in particular the discontinuance of the application for the special costs order, it would automatically follow, would it not, that Mr McVeigh, Mr Morris and Ms Fordyce should all have costs orders in their favour against Mr Edwards?
MR JIEAR: Ordinarily, yes, your Honour.
HIS HONOUR: Now, in each case, I take it, Mr Daubney, Mr Morzone and Mr Perry, you ask for such an order, but that the costs be assessed on an indemnity basis?
MR DAUBNEY: Correct.
MR PERRY: Quite, your Honour.
MR MORZONE: Yes, your Honour.
HIS HONOUR: Now, what do you have to say about it…
MR JIEAR: Your Honour - - -
HIS HONOUR: …the - the order for costs in the first place, and whether or not it should be on an indemnity basis, Mr Jiear?
MR JIEAR: Your Honour, I can't argue against there being an order against someone for costs on an indemnity basis given what has been said and put forward.
HIS HONOUR: Yes.
MR JIEAR: My submission is that the order ought to be as against the solicitors, not as against Mr Edwards.
HIS HONOUR: That's the indemnity order?
MR JIEAR: Yes.
HIS HONOUR: You accept that an order for costs on a standard basis should be against Mr Edwards but you say indemnity - - -
MR JIEAR: No…
HIS HONOUR: Order should be against the solicitors?
MR JIEAR: No, your Honour. I'm actually - my - my submission is that there should be no costs order against Mr Edwards; that there should be the indemnity costs order against the solicitors.
After making orders in respect of the costs application brought against the creditor personally in which the debtor was ordered to pay the costs on an indemnity basis the remaining exchanges in the transcript related to the directions for an application to be brought by Mr Edwards against his former solicitors.
The order White DCJ made 6 September 2002 at paragraph 3 provides specifically as follows:
3 - Order that the plaintiff pay the costs of the first, second and third respondents, including existing costs orders and including reserved costs of and incidental to the application filed on 21 March 2002 and hearing in respect thereof, to be assessed on an indemnity basis.
Interestingly, the first respondent is described as:
Dean McVeigh as administrator for TG Wright Management Services Pty Ltd.
ON the fact of the order, Mr McVeigh as administrator had the benefit of the order. The claim for costs of the substantive action followed the event that was not contested. It is obvious the claim for indemnity costs against Mr McVeigh personally was a flawed application and after hearing evidence for a day on 16 August 2002 and then changing solicitors, Mr Edwards instructed his new solicitors to withdraw the application for costs.
In the unusual circumstances of this matter, the order for indemnity costs was for the benefit of Mr McVeigh as administrator and could not be set off against the successfully obtained judgment in favour of the debtor against the company (in liquidation).
Should the debtor's estate be sequestrated?
Being satisfied, as I am, that an Act of Bankruptcy has been committed and that no set off exists and of the other matters set out in s 52 of the Bankruptcy Act 1966, the debtor asks me to exercise my discretion not to make a sequestration order.
The fact that the debtor admits he is insolvent is a relevant consideration. Usually a petitioning creditor should be entitled to the fruits of the litigation - in this case a sequestration order. Only in exceptional cases should sequestration not be ordered where the other matters prescribed by s 52(1) have been satsified. I do have some sympathy for the debtor. He was successful in expensive litigation against the company and its directors. He was entitled and did receive the benefit of a costs order against them. It was a hollow victory with the company liquidated and the directors bankrupt. His submissions made it clear he regards the whole process is unjust and unfair.
Stunned by the unsatisfactory nature of his victory, solicitors acting on his behalf launched and pursued a seriously flawed application for a "special costs" order. As White DCJ correctly observed the actions comprised by the application filed 21 March 2002, was an action brought by his solicitors as his agent.
It is not clear whether any proceedings (if continued) against his former solicitors were ultimately successful. I am not in the position to make any findings about the likelihood of those actions being successful. It was, however, an extraordinary application for costs made on his behalf.
It is unlikely that any creditors of the debtor's estate (of which the applicant and his former solicitors may be the largest) will obtain a payment from his estate – unless some dividend is received from the liquidators of the company or trustees of the directors' bankrupt estates. To that extent, the sequestration is likely to be an exercise in futility.
The chronology earlier referred to reveals a persistence in the litigious approach adopted by the debtor. Whether this was entirely the intention of Mr Tommy Edwards or one driven with almost exceptional zeal by his son Michael (on his behalf) is difficult to determine. If it had been the motivation of his son, as his attorney, then frankly Mr Tommy Edwards has not been well served by an objective assessment of his rights.
I have somewhat reluctantly come to the view that although the circumstances of this matter are unusual I am bound to exercise my discretion to sequestrate the estate of the debtor. This view is consistent with the Full Court’s decision in Ling v Enrobook (1997) 74FCR 19 at 26. I will so order.
I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Baumann FM
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