Moray and Agnew v Haggis
[2017] FCCA 129
•3 February 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MORAY & AGNEW v HAGGIS & ANOR | [2017] FCCA 129 |
| Catchwords: BANKRUPTCY – Creditor’s petitions – unpaid legal fees – grounds of opposition – whether Court should look behind judgments for the unpaid fees considered – petitioning creditor holding security over land owned by one of the respondents – value of the security considered. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.44, 52 Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) |
| Cases cited: Bryant v Commonwealth Bank of Australia [1995] FCA 1687 Radich v Bank of New Zealand (1993) 45 FCR 101; (1993) 116 ALR 676 Wolff v Donovan (1991) 29 FCR 480 at 486 Xu v Wan Ze Property Development Pty Ltd (2014) 315 ALR 523 |
| Applicant: | MORAY & AGNEW |
| First Respondent: | ROY HAGGIS |
| Second Respondent: | MARYANN FLORENCE |
| File Number: | SYG 2347 of 2016 |
| Judgment of: | Judge Driver |
| Hearing date: | 25 January 2017 |
| Delivered at: | Sydney |
| Delivered on: | 3 February 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr E A Walker |
| Solicitors for the Applicant: | Moray & Agnew Lawyers |
| The Respondents appeared in person |
ORDERS
The estates of Roy Haggis and Maryann Florence be sequestrated.
The applicant creditor’s costs (including reserved costs, if any) are to be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
The Court notes that the date of the act of bankruptcy is 13 April 2016.
The Court further notes that Consents to Act as Trustee have been signed by Raymond George Tolcher on 14 April 2016.
The Court notes the obligation on the petitioning creditor to enter, serve and notify these orders.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2347 of 2016
| MORAY & AGNEW |
Applicant
And
| ROY HAGGIS |
First Respondent
| MARYANN FLORENCE |
Second Respondent
REASONS FOR JUDGMENT
Introduction and background
The petitioning creditor (Moray & Agnew) is a firm of solicitors practising in Newcastle. They formerly acted for the first respondent (Mr Haggis) in litigation and the second respondent (Ms Florence) is his daughter who funded the litigation. Moray & Agnew were not paid for their services and obtained two judgments against Mr Haggis and Ms Florence, totalling $248,296.13[1]. Those judgments followed a solicitor and client costs assessment undertaken through the Supreme Court of NSW[2].
[1] affidavit of Patrick Kaluski, 15/11/2016 ‘PK1’ page 92 and page 96
[2] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 91 and page 94
The Official Receiver issued a bankruptcy notice founded on those judgments, being BN188659, on 22 March 2016 (Bankruptcy Notice).
The respondents applied to set aside the Bankruptcy Notice[3]. The application was dismissed by this Court on 31 May 2016[4].
[3] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 108
[4] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 123
Moray & Agnew relies upon the respondents’ failure to comply with the Bankruptcy Notice to petition for sequestration orders against the estates of the respondents.
Moray & Agnew holds security over the property of Ms Florence in the form of a mortgage on land situated at 62 Boundary Road, West Wallsend, NSW (Land)[5].
[5] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 136
A caveat was lodged by Moray & Agnew on the Land, and Moray & Agnew claims an interest in the Land as equitable mortgagee. Despite Ms Florence having sought the lapsing of the caveat, the Supreme Court extended the operation of the caveat indefinitely on 18 March 2016[6].
[6] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 140
Moray & Agnew has not surrendered its security. As a result, Moray & Agnew is deemed to be a creditor only to the extent by which the amount of the debt owing to it exceeds the value of its security[7]. I have accepted that Ms Florence’s debt to Moray & Agnew significantly exceeds the value of its security, and that it is in a position to present its petition against her.
[7] Bankruptcy Act 1966 (Cth) (Bankruptcy Act), s.44(2)
The respondents filed Grounds of Opposition on 29 September 2016 and 22 December 2016. These were further augmented by an additional document handed up in court by leave on 25 January 2017 on the hearing of the creditor’s petition. The grounds of opposition are lengthy and discursive and traverse a history of the relationship between Moray & Agnew and the respondents, in particular in relation to the legal proceedings in which Moray & Agnew acted. Counsel for Moray & Agnew has provided a convenient outline of that history.
The proceedings in which Moray & Agnew acted
In or about early December 2010, the respondents approached Moray & Agnew to provide legal services for them and their related corporate entities in proceedings that had already been commenced by them in the Supreme Court (substantive proceedings)[8].
[8] Tyneside Property Management Pty Ltd and Ors v Hammersmith Management Pty Ltd and Ors (Supreme Court Plaint Number 2631 of 2003); affidavit of Mr Kaluski 15/11/2016 at [4]
The substantive proceedings ran to a final hearing before Justice Brereton over 25 days in 2011, resulting in a judgment delivered in May 2013[9].
[9] Tyneside Property Management Pty Ltd and Ors v Hammersmith Management Pty Ltd and Ors [2013] NSWSC 635 (Brereton judgment); affidavit of Mr Kaluski 15/11/2016 at [7] and ‘PK1’ page 1
On 6 September 2013, Mr Haggis and the related corporate entities lodged an appeal against the Brereton judgment (appeal). On 29 November 2013, the NSW Court of Appeal ordered Mr Haggis and the other appellants to pay security for costs in the sum of $80,000 and stayed the appeal until the security was given[10].
[10] Tyneside Property Management Pty Ltd and Ors v Hammersmith Management Pty Ltd and Ors [2013] NSWCA 404; affidavit of Mr Kaluski 15/11/2016 at [8] and ‘PK1’ page 638
On 6 March 2015, the NSW Court of Appeal dismissed an application made by Mr Haggis and the other appellants (who at that stage were self-represented) challenging the order requiring security for costs to be given and staying the appeal[11].
[11] Tyneside Property Management Pty Ltd and Ors v Hammersmith Management Pty Ltd and Ors (No.2) [2015] NSWCA 37 (Court of Appeal judgment); affidavit of Mr Kaluski 15/11/2016 at [9] and ‘PK1’ page 647
Mr Haggis and the other appellants then sought special leave to appeal to the High Court of Australia. The application for special leave was dismissed[12].
[12] Tyneside Property Management Pty Ltd and Ors v Hammersmith Management Pty Ltd and Ors [2015] HCASL 127; affidavit of Mr Kaluski 15/11/2016 at [10] and ‘PK1’ page 656
It appears that security for costs has not been given, the stay of proceedings has not been lifted, and the orders made by Justice Brereton in the substantive proceedings have not been disturbed.
Cost assessment and judgments
Moray & Agnew had its fees assessed through the cost assessment process managed by the Supreme Court[13]. On 5 December 2014, a cost assessor appointed by the Supreme Court made a determination in favour of Moray & Agnew (Costs Certificate)[14].
[13] affidavit of Mr Kaluski 15/11/2016 at [12]
[14] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 91
On 6 February 2015, Moray & Agnew filed the Costs Certificate in the District Court (Proceedings No. 2015/00038009) and had judgment entered in the amount of $244,019.88 (first judgment)[15].
[15] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 92
The respondents applied for a review of the Costs Certificate in the Supreme Court. On 1 May 2015, a review panel appointed by the Supreme Court upheld the Costs Certificate and determined that the respondents were liable to pay for the review panel’s costs (Review Certificate)[16].
[16] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 94
On 29 January 2016, Moray & Agnew filed the Review Certificate in the District Court (Proceedings No. 2016/00029462), and had a further judgment entered in the amount of $4,276.25 (second judgment)[17].
[17] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 96
On 5 May 2016, the respondents challenged the assessment of Moray & Agnew’s costs by filing a Notice of Motion in the District Court proceedings 2015/00038009 seeking, among other things, leave to set aside, or alternatively stay, the first and second judgments (set aside application)[18]. The District Court dismissed that application on 19 May 2016[19].
[18] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 124
[19] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 127
Caveat proceedings
In the proceedings presently before the Supreme Court in which the operation of Moray & Agnew’s caveat was extended indefinitely (caveat proceedings), Ms Florence has filed a document styled “Defence and Cross-Claim” (cross-claim)[20]. Ms Florence has also served a Notice of Motion dated 10 August 2016 (motion)[21].
[20] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 144
[21] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 162
By her cross-claim, Ms Florence seeks orders setting aside the first and second judgments, along with the Brereton judgment[22].
[22] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 160
In the cross-claim and motion, Mr Haggis is referred to as the third defendant to the caveat proceedings. However, as can be seen from the summons[23], Mr Haggis is not a party to the caveat proceedings as he is not an owner of the Land. Nonetheless, the orders sought in both the cross-claim and motion include the joinder of Mr Haggis to the caveat proceedings. No such orders have been made[24].
[23] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 130
[24] affidavit of Mr Kaluski 15/11/2016 at [32]
At the time the motion was served, it was a procedural requirement of the Real Property List, being the list that the caveat proceedings have been placed in by the Supreme Court, that leave be given by the List Judge to file a notice of motion[25]. That requirement remains[26]. Leave has not formally been sought by Ms Florence to file the motion[27].
[25] affidavit of Mr Kaluski 18/1/2017 ‘PK2’ page 2
[26] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 165
[27] affidavit of Mr Kaluski 15/11/2016 at [34]
However, on 6 December 2016, the Real Property List Judge, Justice Darke, informed the respondents (through his Honour’s associate) that if leave was sought to file the motion it would not be granted on the basis that it is not appropriate to challenge the first judgment, second judgment, and Brereton judgment in the caveat proceedings. His Honour also noted that as the substantive issue (being whether Moray & Agnew has a caveatable interest in the Land) does not concern Mr Haggis’ interests, Mr Haggis should not be joined to the caveat proceedings[28].
[28] affidavit of Mr Kaluski 18/1/2017 ‘PK2’ page 4
No directions have been given by the Supreme Court for the filing of a defence to the cross-claim[29]. Nor has a hearing date been set for the caveat proceedings[30].
[29] affidavit of Mr Kaluski 15/11/16 at [35]
[30] affidavit of Mr Kaluski 15/11/16 at [36]
I was informed by counsel for Moray & Agnew that the caveat proceedings would next be before court on 10 February 2017 and that it would be desirable for these proceedings to be resolved before then. I accepted that proposition and have accordingly dealt with the matter as expeditiously as possible in order to provide judgment before that date.
The relevant material
Moray & Agnew rely upon an amended petition filed in court by leave on 11 November 2016. The amendment was permitted in order to deal with further and better evidence as to the value of the security held by Moray & Agnew. I received as an exhibit[31] a valuation of the property over which Moray & Agnew hold security. I also received the affidavit of Patrick Kaluski made on 18 January 2017 to which is exhibited documents evidencing the amount due on a first mortgage over the property held by the ANZ Bank.
[31] Exhibit A1
The creditor’s petition is otherwise supported by the verifying affidavits contained in it, two affidavits of personal service of the Bankruptcy Notice made by John Daley on 29 March 2016 and detailing the service of the Bankruptcy Notice on Mr Haggis and Ms Florence; affidavits of search and debt by Mr Kaluski made on 24 January 2017 and two Consents to Act as Trustee by Raymond George Tolcher signed on 14 April 2016.
At the trial of this matter on 25 January 2017 I found that Moray & Agnew had established a prima facie case for the relief they seek in the amended petition in that they had satisfied the formal requirements in the Bankruptcy Act and the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) for those orders.
The respondents’ Grounds of Opposition are supported by the affidavit of Mr Haggis made on 19 December 2016 and three affidavits by Ms Florence made on 27 September 2016, 10 November 2016 and 29 November 2016. A bundle of document is also exhibited to Ms Florence’s affidavit evidence.
Mr Kaluski also provided an affidavit made on 15 November 2016 in relation to issues raised in the Grounds of Opposition. Two bundles of documents are exhibited to his affidavit.
None of the deponents were required for cross-examination.
I have been assisted by written and oral submissions provided by counsel for Moray & Agnew.
Consideration
The Grounds of Opposition relied upon by the respondents are, as I have noted above, discursive and are expressed substantially in narrative form. Counsel for Moray & Agnew identified from the three written expressions of those grounds the following grounds of opposition:
a)they deny they are in truth indebted to Moray & Agnew, and ask the Court to look behind the first and second judgments having regard to the abovementioned history;
b)Mr Haggis says that making a sequestration order against him would be futile as he is impecunious[32];
c)they say that Moray & Agnew knew of their financial circumstances when it first acted and chose to act with that knowledge[33];
d)Ms Florence says Moray & Agnew should have to exercise its security before a sequestration order is made against her[34];
e)they say Moray & Agnew compromised its debt by “requesting” payment of a sum of $100,000 from the respondents[35];
f)they say they were not “properly” served with the petition[36]; and
g)they say the form and content of the petition and verifying affidavits justify refusing to make a sequestration order as:
i)they do not recognise an application to set aside the Bankruptcy Notice had been made[37];
ii)they do not recognise the Land having a value that accords with the opinion of the expert whose report Moray & Agnew relies upon to prove the respondents’ debt exceeds the value of its security[38]; and
iii)the petition, before being amended, stated that the value of the first registered mortgage, and the resulting extent to which the debt to Moray & Agnew is unsecured, was unknown[39].
[32] Grounds of Opposition dated 29 September 2016 at [1]
[33] Grounds of Opposition dated 29 September 2016 at [1]; Grounds of Opposition dated 22 December 2016 at “Introduction”
[34] Grounds of Opposition dated 29 September 2016 at [3]
[35] Grounds of Opposition dated 29 September 2016 at [5]
[36] Grounds of Opposition dated 29 September 2016 at [6]
[37] Grounds of Opposition dated 29 September 2016 at [2] and [6]; Grounds of Opposition dated 22 December 2016 at [1(c)]
[38] Grounds of Opposition dated 22 December 2016 at [2]
[39] Grounds of Opposition dated 22 December 2016 at [1(b)]
During the course of oral argument and in response to queries by me, Ms Florence and Mr Haggis made clear that they did not rely upon any technical objection to the creditor’s petition or the Bankruptcy Notice. In particular, they no longer rely on any issue of improper service of the petition or of the form and content of the petition and the affidavits of search and debt (which were, in any event, updated). I myself raised with counsel for Moray & Agnew whether a sequestration order ought not be made, at least against Ms Florence, until such time as the security held by Moray & Agnew over her property had been realised.
I now deal with those matters which remain to be resolved, by reference to the submissions of counsel for Moray & Agnew, which I accept, and the evidence.
Security
Section 44 of the Bankruptcy Act permits the holder of security over the assets of a debtor to present a petition for the bankruptcy of a debtor without surrendering its security if the amount of the debt owing by the debtor exceeds the value of the security. Thus, there is no obligation on a secured creditor to exercise or surrender its security before pursuing a sequestration order.
Where a petitioning creditor wishes to maintain its security, the following principles apply[40]:
a)the value of the applicant’s security stated in its petition need only be an estimate which is not arbitrary or capricious;
b)it is enough if the estimate is given genuinely and in good faith; and
c)the petitioning creditor must still establish at a hearing that the realisation of its security will not yield sufficient funds to be repaid in full.
[40] Bryant v Commonwealth Bank of Australia [1995] FCA 1687; Commonwealth Development Bank v Tancock (2001) 183 ALR 469 at [21]
When determining whether the amount of the debt owing exceeds the value of the security given, the Court should look to what is likely to be yielded upon realisation of the security[41].
[41] Re Vassis: Ex Parte Leung (1986) 64 ALR 407 at 417-419
In the present case, the Land is subject to registered mortgages in favour of ANZ bank that have priority over Moray & Agnew’s security[42].
[42] affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 142
In its petition, Moray & Agnew estimates the value of its security to be $72,000, leaving an unsecured debt of $198,689. It reaches the figure of $72,000 by subtracting from the estimated value of the Land ($400,000) what it understands to be Ms Florence’s debt to the first registered mortgagee, ANZ Bank ($328,000). The figure of $72,000 represents an estimate of what would be available to Moray & Agnew after the Land is realised (whether by Moray & Agnew or ANZ Bank).
The estimated debt to ANZ is based upon bank statements provided by Ms Florence to Moray & Agnew[43]. The estimated value of the Land is based upon a financial statement provided by Ms Florence pursuant to a public examination undertaken in the District Court[44]. As those estimates are based upon information provided by Ms Florence, they cannot be said to lack good faith.
[43] affidavit of Mr Kaluski 15/11/2016 at [42] and ‘PK1’ pages 170-173
[44] affidavit of Mr Kaluski 15/11/2016 at [43] and ‘PK1’ page 181
Moray & Agnew has adduced evidence of the value of the land through an expert, Mr Tew. Mr Tew values the property on an “open market” basis at $350,000 to $390,000, and on a mortgagee in possession basis at $315,000[45].
[45] Tew report 10/11/16
Documents produced by ANZ Bank show Ms Florence’s debt to ANZ Bank is $325,701[46].
[46] affidavit of Mr Kaluski 18/1/2017 at [6] and ‘PK2’ pages 6-8
Having regard to this evidence, it is clear that if the Land was realised for $390,000 (taking Mr Tew’s valuation at its highest) and ANZ Bank was paid out the $325,701 owing to it, there would only be a sum of $64,299 available to apply to Moray & Agnew’s security. That sum is far less than Ms Florence’s debt to Moray & Agnew, meaning that Moray & Agnew is not precluded by s.44 of the Bankruptcy Act from petitioning for a sequestration order to be made against Ms Florence. Neither should the Court, in the exercise of discretion, refrain from making a sequestration order on the basis of that security.
Impecuniosity/futility
The Court may consider refusing to make a sequestration order on the basis that doing so would prove futile. However, the courts have proven reluctant to refuse a sequestration order on this ground since it is usually only after sequestration, and upon an examination of the debtor’s affairs, that the assets available to creditors will become known[47].
[47] Radich v Bank of New Zealand (1993) 45 FCR 101; (1993) 116 ALR 676 at 686
The burden of proving there will be no assets available to creditors upon sequestration lies with the debtor, and is a heavy one. Resisting a sequestration order on this ground might be practically unachievable in most cases for the reasons explained by Drummond J in Radich at 697:
There is authority that, where the debtor has no assets, that may justify a refusal to make a sequestration order. But the consistent trend of the modern cases has been to make it increasingly difficult, as a matter of practicality, for a debtor to avoid bankruptcy on this ground. In Re Field [1978] Ch 371 , Megarry VC said: “A man may indeed be too poor to be made bankrupt: but the burden of proof is heavy.” This court, in Clyne v DCT (1985) 5 FCR 1 at 6 : “[T]his course has been regarded as appropriate only in cases where the lack of assets is clear beyond question so that the presentation of the petition amounts to oppression”: see also Re Darcy; Ex parte Pre-term Foundation (Full Federal Court, Fox, Wilcox and French JJ, 23 May 1988, unreported) and Bayne v Blake (No 2) (1909) 9 CLR 360 at 364 . The reason for this approach is obvious: when a petition is presented, it will not normally be possible for the court to know whether there will prove to be assets or not if the bankruptcy goes ahead: Clyne at 6–7.
Mr Haggis
The evidence given by Mr Haggis concerning his financial position shows:
a)a small excess of income over expenses which might be available to a trustee[48];
b)Mr Haggis is associated with a number of corporate entities that have been involved in property development in the past. Mr Haggis’ involvement in those companies, and any potential recoveries in relation to them, will be scrutinised by a trustee if Mr Haggis is subject to a sequestration order[49];
c)one of the companies Mr Haggis is associated with, Hellenic Flame Pty Ltd, is said by Mr Haggis to have received net proceeds from the sale of land totalling $140,000 which was applied to the payment of legal fees[50]. However, the company’s financial records show net proceeds from the sale totalling $475,000, and in the same year the sum of $345,000 being applied to “bad debts”[51]. The amount and application of the sale proceeds is something that would be of interest to a trustee given that Mr Haggis is the sole shareholder in the company; and
d)the financial records of another of the companies Mr Haggis is associated with, Tyneside Property Management Pty Ltd, shows that it was indebted to “Associates” to the extent of $743,000[52]. Those “Associates” are said to include “members” and “Others”[53]. The extent to which Mr Haggis might be owed money by the company, and any avenues which might be available to recover any such money, is also something that a trustee would investigate.
[48] affidavit of Mr Haggis 19/12/2016 at [14]
[49] affidavit of Mr Haggis 19/12/2016 at [6]-[8]
[50] affidavit of Mr Haggis 19/12/1016 at [6]
[51] affidavit of Mr Haggis 19/12/2016 at page 20 and page 22
[52] affidavit of Mr Haggis 19/12/2016 page 33
[53] affidavit of Mr Haggis 19/12/2016 page 34
Further, the merits of the present Supreme Court appeal proceedings (which Mr Haggis is a party to), and the opportunities which might exist for Mr Haggis’ estate to reap any benefit from their further pursuit, will need to be considered by a trustee.
In the present case, it cannot be said that Mr Haggis’ affairs are so simple as to make sequestration of his estate futile. Nor is it clearly beyond question that the sequestration of Mr Haggis’ estate will produce no property divisible among his creditors. Accordingly, a sequestration order against the estate of Mr Haggis should not be refused on the basis of his disclosed financial position.
Ms Florence
The fact that Ms Florence owns a substantial asset in the form of the Land and which she believes she has $23,500 equity in[54] shows the existence of at least one asset which might be available for creditors to benefit from. In those circumstances, a sequestration order against the estate of Ms Florence should not be refused on the basis of futility.
[54] affidavit of Ms Florence 19/12/2016 at [7] and [9]
Going behind the judgments
The judgment debts the respondents have to Moray & Agnew resulted from Moray & Agnew pursuing the statutory cost assessment process in place in NSW. Moray & Agnew’s pursuit of fees has already withstood three challenges by the respondents thus far: the first in the assessment itself; the second by way of review by a review panel; the third by way of the set aside application.
Central to the respondents’ opposition to sequestration orders being made is a belief that Mr Haggis and related companies should have succeeded in the substantive proceedings, and that Moray & Agnew took deliberate steps to cause their failure (despite Moray & Agnew being the solicitors acting for them in the substantive proceedings). Allegations to that effect were made in the course of the cost assessment process and found not to be supported by any evidence[55]. They have also been unsuccessfully pursued in the caveat proceedings.
[55] affidavit of Ms Florence 27/9/2016 pages 211-218 and pages 134-146
The respondents have also, thus far, unsuccessfully challenged the Brereton judgment through the appeal. The stay in place since November 2013 remains a continuing impediment to their successful prosecution. As matters stand, it appears unlikely they will be pursued to a hearing by Mr Haggis and the other appellants.
Appropriate circumstances must exist before the Court will exercise its discretion to go behind a judgment. The Court will not do so as a matter of course. The Court will ordinarily treat a judgment as satisfactory proof of debt unless there are substantial reasons for doubting whether there really is a debt due[56]. Where there has been a substantive contest on the merits, the power to go behind a judgment is not readily exercised[57]. There is a simple policy reason for courts exercising great restraint before re-considering disputes that have already been contested and determined, which is to provide finality and certainty to the parties. That policy was recognised in the Court of Appeal judgment itself at [18][58].
[56] Wolff v Donovan (1991) 29 FCR 480 at 486
[57] Xu v Wan Ze Property Development Pty Ltd (2014) 315 ALR 523 at 533
[58] Affidavit of Mr Kaluski 15/11/2016 ‘PK1’ page 654
In the present case, the merits of Moray & Agnew’s claim to its costs were contested by the respondents in the course of the cost assessment and review processes. The material put forward by the respondents in that process was voluminous (said by Ms Florence to comprise over 1000 pages of documents[59]), the submissions made by the respondents were lengthy[60], and the determinations made by the cost assessor and review panel were both considered and detailed[61].
[59] affidavit of Ms Florence 27/9/2016 at [15]
[60] affidavit of Ms Florence 27/9/2016 pages 68-98 and pages 112-209
[61] affidavit of Ms Florence 27/9/2016 pages 134-146 and pages 211-218
As noted earlier, the respondents have also unsuccessfully taken a further step to challenge the debt relied upon by Moray & Agnew by making the set aside application. The respondents did so with the benefit of legal advice[62] and procedural advice from the Supreme Court[63].
[62] affidavit of Ms Florence 27/9/2016 at [37]-[38]
[63] affidavit of Ms Florence 27/9/2016 page 309
With the appeal also at an ongoing standstill, the respondents look to have reached the end of the road in that pursuit.
This case does not fall into the usual category where the person who moves the bankruptcy court to go behind a judgment has been prejudiced because they were not aware of the judgment and have not had the opportunity to challenge it. It lies at the other end of the spectrum, the respondents having already gone to great lengths to challenge the debt despite as far back as December 2013 recognising that they owe Moray & Agnew a sum of money exceeding $350,000[64]. In the circumstances, a further examination of the debt relied upon by Moray & Agnew is not warranted.
[64] affidavit of Ms Florence 27/9/2016 page 35
Nor is it appropriate in the circumstances to adjourn the petition to allow the caveat proceedings to run their course. That is because:
a)the caveat proceedings concern whether or not Moray & Agnew has an interest in the Land owned by Ms Florence which is sufficient to support a caveat. The attempt by the respondents to extend the proceedings to a reconsideration of the cost assessment process has been blocked by the Supreme Court. The result is that the determination of the caveat proceedings will have no bearing on the existence of the debt supporting Moray & Agnew’s petition;
b)Mr Haggis is not a party to the caveat proceedings, and the Supreme Court will not give leave to the filing of an application for his joinder to them. Thus, so far as the petition for Mr Haggis’ bankruptcy is concerned, there is no utility adjourning these proceedings to await the outcome of the caveat proceedings; and
c)the caveat proceedings are at an early stage, having not yet been given a hearing date. It is conceivable that the case might not be heard until late this year or even next year given that that pleadings are not yet closed. The requirement for a petition to be heard within 12 months from the date of its presentation (s.52(4) of the Bankruptcy Act) means adjourning these proceedings to await the outcome of the caveat proceedings would place the petition at risk of lapsing.
It is plain that Mr Haggis and Ms Florence maintain a strong sense of grievance arising out of the failure of the litigation in the Supreme Court and the conduct of that litigation by their legal representatives. In that connection, they were represented by several firms of solicitors during the litigation of which Moray & Agnew was the fourth. They have vigorously contested the competence and even the honesty of their representatives and blame them for the failure of the litigation. Their numerous attempts to agitate their concerns have all proved fruitless. Having perused the extensive material relating to the conduct of the litigation and assessments of costs arising out of that litigation, I am wholly unpersuaded that a proper basis has been advanced for the Court to go behind the judgments obtained by Moray & Agnew.
Knowledge of the respondents’ financial circumstances
The respondents oppose sequestration orders being made on the basis Moray & Agnew knew at the time it commenced acting for them that they did not have the money to pay legal fees unless the substantive proceedings were successful.
This ground of opposition is tied to the “going behind the judgments” ground as it seeks to challenge the debt on the basis of knowledge of impecuniosity. The argument was advanced by the respondents in their submissions to the cost assessor[65] and the review panel[66]. The cost assessor and review panel both determined that it was the responsibility of the respondents to fund the legal proceedings Moray & Agnew was instructed in[67]. There is no forceful reason for a bankruptcy court to undertake a third level of review of the respondents’ obligation to meet payment of Moray & Agnew’s fees.
[65] affidavit of Ms Florence 27/9/2016 page 68
[66] affidavit of Ms Florence 27/9/2016 page 125
[67] affidavit of Ms Florence 27/9/2016 pages 143 and 217
Further, to the extent that the respondents suggest that the said knowledge of their financial circumstances meant payment of any legal fees to Moray & Agnew was contingent upon success in the substantive proceedings, Moray & Agnew’s cost disclosure and cost agreement provided to the respondents in December 2010 clearly show that such an arrangement did not exist[68].
[68] affidavit of Ms Florence 27/9/2016 pages 56-63
For those reasons, this ground of opposition must fail.
Compromise of debt
On 27 January 2015[69], 26 November 2015[70], and 18 January 2016[71], Moray & Agnew made without prejudice offers to the respondents to resolve the dispute between them about payment of fees on terms including payment of $100,000. All of those offers were made after the fees payable to Moray & Agnew were assessed.
[69] affidavit of Ms Florence 27/9/2016 page 107
[70] affidavit of Ms Florence 27/9/2016 page 230
[71] affidavit of Ms Florence 27/9/2016 page 233
The making of those offers does not amount to an admission that the respondents are not indebted to Moray & Agnew for the amount of the first and second judgments, or a compromise of those debts. It merely reflects a desire to resolve the costs dispute on terms aimed at avoiding the ongoing cost of recovery, and accords with the modern policy aimed at encouraging settlement of disputes. The fact that such offers were made does not mean that the respondents are not liable for the amount of the first and second judgments.
Conclusion
I am satisfied that Mr Haggis and Ms Florence committed the acts of bankruptcy alleged in the petition as amended. I am satisfied with the proof of the other matters with which s.52(1) of the Bankruptcy Act requires proof. Moray & Agnew have established the matters required by the Bankruptcy Act for the making of sequestration orders. Mr Haggis and Ms Florence have not established any ground of opposition justifying the exercise of the Court’s discretion against making those orders.
I will make the orders for the sequestration of their estates.
I certify that the preceding sixty-nine (69) paragraphs are a true copy of the reasons for judgment of Judge Driver
Associate:
Date: 3 February 2017
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