National Australia Bank v Larter (No.4)
[2007] FMCA 927
•21 June 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| NATIONAL AUSTRALIA BANK LIMITED v LARTER (No.4) | [2007] FMCA 927 |
In the matter of an application concerning John J Kells
| BANKRUPTCY – Costs – application for costs order against a legal practitioner – where practitioner’s evidence and submissions indicate he did not receive instructions from his client but through client’s husband – where husband admitted to wishing to keep wife out of the proceedings – where solicitor entered appearance and obtained adjournment – where solicitor caused court to adjourn matter by attempting to give evidence about his professional association with client from bar table – whether solicitor should pay costs thrown away. |
| Federal Magistrates Court Rules 2001 Federal Magistrates Court (Bankruptcy) Rules 2006 Legal Profession Act (NSW) 2004, ss.309, 317 |
| Macteldir Pty Limited v Roskov [2007] FCAFC 49 Da Sousa & Anor v Minister of State for Immigration, Local Government and Ethnic Affairs (1993) 114 ALR 708 |
| Applicant: | NATIONAL AUSTRALIA BANK LIMITED ABN 12 004 044 937 |
| Respondent: | WANDA LARTER |
| File Number: | SYG 2677 of 2006 |
| Judgment of: | Raphael FM |
| Hearing date: | 5 June 2007 |
| Date of Last Submission: | 5 June 2007 |
| Delivered at: | Sydney |
| Delivered on: | 21 June 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr J White |
| Solicitors for the Applicant: | Dibbs Abbott Stillman |
| Solicitors for the Respondent: | Mr J Kells |
ORDERS
John J Kells to pay the petitioning creditor’s costs of the proceedings from 6 November 2006 to 13 March 2007 on an indemnity basis. In default of agreement such costs to be assessed by a Registrar pursuant to Order 62 of the Federal Court Rules and the petitioning creditor to supply Mr Kells with a bill of costs in assessable form pursuant to Order 62 Rule 9(5).
John J Kells to pay the petitioning creditor’s costs thrown away by the adjournment granted on 20 March 2007 on an indemnity basis and in default of agreement as in order 1 above.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2677 of 2006
| NATIONAL AUSTRALIA BANK LIMITED ABN 12 004 044 937 |
Applicant
And
| WANDA LARTER |
Respondent
In the matter of an application concerning John J Kells
REASONS FOR JUDGMENT
These reasons respond to an application by the creditor pursuant to Part 21 Rule 21.07(1) of the Federal Magistrates Court Rules 2001 (the “Rules”) that the costs of the application for a sequestration order against Wanda Larter be paid personally by John J Kells, a solicitor, for the period between 6 November 2006 and 12 March 2007. A similar order in respect of the costs thrown away by an adjournment granted on 20 March 2007 is also made. Rule 21.07 is in the following form:
“Order for costs against lawyer
(1) The Court or a Registrar may make an order for costs against a lawyer if the lawyer, or an employee or agent of the lawyer, has caused costs:
(a) to be incurred by a party or another person; or
(b) to be thrown away;”
Rule 1.03(2) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (the “Bankruptcy Rules”) provides:
“Application of these Rules and other rules of the Court
(2) The other rules of the Court apply, so far as they are not inconsistent with these Rules, to a proceeding to which the Bankruptcy Act applies.”
Costs are dealt with in the Federal Magistrates Court (Bankruptcy) Rules 2006 (the “Bankruptcy Rules”) in Part 13:
“13.01 Basis for costs
(1) Subject to Division 13.2, a person who is entitled to costs in a proceeding to which the Bankruptcy Act applies is entitled to costs in accordance with Order 62 of the Federal Court Rules unless the Court otherwise orders.”
I am satisfied that there is no inconsistency between the provisions of Rule 21.07 and the costs provisions of the Bankruptcy Rules and that the court has power to entertain the application made by the creditor.
On 25 May 2007 the creditor served upon Mr Kells a notice to produce:
“1 Any agreement instrument or other document pursuant to which John J Kells was retained to act as a solicitor for Wanda Larter in these proceedings SYG2677/2006 in the Federal Magistrates Court (proceedings).
2. Any other document which records or otherwise refers to any instruction given by or on behalf of Wanda Larter to John J Kells to act as her solicitor in the proceedings.”
Mr Kells responded to the notice to produce by providing copies of an uncompleted document which was not tendered to me, although the notice to produce was tendered. Mr Kells stated in his written submissions:
“4. As to the early part of the proceedings in the District Court I had no contact with Wanda Larter because I was forbidden to talk to her. Neither counsel nor myself had any contact with Mrs Larter.
5. It was only when the bankruptcy matter came on foot that I was involved with Mrs Larter and that was only when I said she needs to put on affidavit evidence.
In paragraph 7 of some submissions filed on 17 May 2007 Mr Kells says:
“I suggest that technically speaking Mrs Larter did not become my client until after the bank served her with the bankruptcy notice. Mr Larter will tell you that at that time I advised him that I should put on an application to have the bankruptcy notice set aside similar to what I did in his case. He instructed me that that was not necessary as she was not involved in the case. As you will see in Mr Larter’s affidavit annexed hereto I gave him both the bankruptcy notice and creditor’s petition because he would not let me near her and at the time I did not know where Mrs Larter worked and Mr Larter would not tell me.”
In an affidavit filed by Mr Kells from Mr Bruce Ian Larter dated
17 May 2007 Mr Larter says:“11. About a couple of months later the NAB obtained substituted service for Mr Kells to serve a bankruptcy notice on my wife, Wanda Larter. Mr Kells spoke to me about this and when I objected he said words to the effect:
“It is out of my hands now I have to serve this on her or I will be in contempt of court.”
At that time Mr Kells did not know where Wanda worked and I refused to help him but said I would give her the document which I did. My reason for this was that the only papers Wanda had signed was the annexure marked “D” see below which clearly shows signature Down Holdings..
12. In relation to Wanda Larter’s bankruptcy notice Mr Kells suggested he do a similar action for her, namely put on an application to have it set aside. I instructed Mr Kells not to do that as it was not necessary, the matter would not go that far because of what I stated in paragraph 11 above. Further, I again refused to let Mr Kells talk to my wife about the matter.
13. A similar situation arose with the service of the creditor’s petition on my wife.
14. Even when the matter was before the court I kept refusing Mr Kell’s access to talk about it with her. It was only when the court gave directions for evidence to be put on that Mr Kells spoke to my wife and that was to prepare the affidavit of 13 March 2007.”
Section 309 of the Legal Profession Act (NSW) 2004 (“Legal Practitioners Act”) sets out a series of requirements that a law practice must disclose to a client or prospective client and in s.317 sets out the effects of a failure to disclose, which includes exempting the requirement to pay the legal costs and at 317.4:
“Failure by a law practice to comply with this division is capable of being unsatisfactory professional conduct or professional misconduct on the part of any Australian legal practitioner or Australian registered foreign lawyer involved in the failure.”
The bankruptcy petition in this matter was the subject of an order of Registrar Kavallaris on 9 October 2006 that personal service be dispensed with and that service be effected by sending the relevant documents to Mr Kells. The order of Registrar Kavallaris was given following her reading of an affidavit of Stacey Amanda Taylor sworn on 28 September 2006. That affidavit deposes a conversation on 22 September 2006 between herself and Mr Kells. Included in that conversation is the following:
“ST: Since Mr and Mrs Larter have refused to advise us of their current address we carried out further investigations and were trying to serve her personally in an effort to avoid incurring unnecessary costs in making an application for substituted service like we had to with the bankruptcy notice. Our client is well within its rights to continue bankruptcy action against her.
JK: Yes, I realise that but I have told you before that you should serve any documents for Mrs Larter on me.”
The creditor complied with Registrar Kavallaris’ order and served the creditor’s petition on Mrs Larter through Mr Kells. The return date of the creditor’s petition was 6 November 2006. The evidence which I have set out above reveals that Mr Kells never spoke to Mrs Larter although he told her husband of the issue of the creditor’s petition. On 6 November 2006 Mr Kells filed an appearance on behalf of Mrs Larter. He did not enter a notice of grounds of objection. He did not provide Mrs Larter with the cost disclosure statement required under s.309 of the Practitioners Act. He had no communication with Mrs Larter. Notwithstanding this Mr Kells appeared for Mrs Larter on 6 November 2006 and had the petition adjourned. The matter was adjourned until March 2007. The reason being that Mr Kells had indicated to the Registrar that there was an intention to do something about the judgment of the District Court of New South Wales that lay behind the petition. The matter then came back before Registrar Hedge on 6 March 2007. On that date Mr Kells appeared again and requested a further adjournment. Registrar Hedge noted that no notice of opposition had been filed, she was not satisfied that there was evidence to support an adjournment for three months to allow the filing of an appeal. She made orders requiring any grounds of opposition, affidavits in support of an adjournment or in opposition to the creditor’s petition to be filed and served by 13 March. The matter was adjourned until 9.30a.m. on 20 March before me.
On 13 March 2007 Mr Kells filed an affidavit sworn by Mrs Larter. The applicant accepts that this is evidence that Mr Kells had instructions from Mrs Larter as at that date. The applicant submits that as Mr Kells was not retained by Mrs Larter prior to 13 March 2007 he should personally pay the costs involved in the proceedings after 6 November 2006 because if he had not appeared then there would have been no appearance on behalf of Mrs Larter and the sequestration order would have been made that day.
The relationship between solicitor and client is a fiduciary relationship. Whilst I accept that instructions to a lawyer, even instructions retaining a lawyer, can be given by an agent on behalf of a principal client, the lawyer still has a duty to ensure that he is genuinely being retained by the principal and that the instructions which he receives are those of the principal. Whilst it will frequently occur that a husband serves as agent for his wife in relation to the retention and instruction of a legal advisor the lawyer must always bear in mind who the principal really is. The evidence that I have extracted above would appear to indicate that Mr Kells regarded Mr Larter as the principal rather than the agent. He took no steps to ensure that he was receiving Mrs Larter’s instructions rather than those of her husband. The evidence indicates that the husband wished to keep his wife in a state of ignorance and that Mr Kells was aware of this. In my view the actions of Mr Larter fell short of those of a proper agent and those of Mr Kells fell short of the responsibilities of a solicitor in his position. I do not think that Mrs Larter properly instructed Mr Kells and therefore he was not properly retained until he met her for the purposes of preparing the affidavit that was filed on 13 March 2007.
The helpful submissions of Mr White on behalf of the applicant’s contains a reference to a number of cases in which orders under Rule 21.07 had been made. These include:
(a)Khotsimeuang v Workcover Corp of SA [2006] FMCA 204 (per Lindsay FM) (no reasonable prospects of success)
(b)MZWOR v Minister for Immigration [2005] FMCA 845 (pursuit of proceedings without any basis in fact or law)
(c)Baik & Hanjuk Grocery Pty Limited v Minister for Immigration [2004] FMCA 543 (wasted adjournments)
(d)Xue Mei Bai v Minister for Immigration (No 2) [2006] FMCA 129 (failing to ensure that the factual allegations and outline of argument filed in the court accorded with solicitor’s personal knowledge from attendance at the hearing)
(e)Mahoney v Cp White of Hlb Mann Judd (No 2) [2005] FMCA 1578 (failure to make a proper assessment according to law of the prospects of success of this application and bringing the application on before the court as a matter or urgency together with the complete failure to provide any or any adequate affidavit material)
(f)SZBBF v Minister for Immigration [2004] FMCA 628 (incompetent preparation of court process)
(g)Abruzzese v David Jones Limited (No 4) [2004] FMCA 12 (causing proceedings to be dismissed by reason of failure to comply with self-executing orders)
(h)SZABF v Minister for Immigration (No 2) [2003] FMCA 178; SZDZH v Minister for Immigration [2005] FMCA 802; M231 of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] FMCA 206; Nari v Minister for Immigration (No 2) [2003] FMCA 510 (failure to attending a hearing).
Mr Kells denies that he was incompetent or grossly negligent, which, he argues, is a requirement for such an order to be made. But I do not think that is necessarily the correct method of approaching such an order in a case of this nature. I am more in sympathy with the views of the Full Bench of the Federal Court in Macteldir Pty Limited v Roskov [2007] FCAFC 49 where at [56] the Bench said:
“[56] The parties generally accepted as correct the statements of principle found in Levick v Commissioner of Taxation (2000) 102 FCR 155 at [43] and [44]. This, in a claim under Order 62 rule 9, it is necessary for a client to demonstrate a serious dereliction of duty by the legal practitioner or a failure on the part of the legal practitioner to fulfil a duty owed to the Court to aid in promoting, in the practitioner’s own sphere, the cause of justice. It will often be difficult for the court to know all of the details and circumstances of a legal practitioner’s instructions….
[57] Nevertheless it is equally important to uphold the right of the court to order a legal practitioner to pay costs wasted by the practitioner’s unreasonable conduct of a case. What constitutes unreasonable conduct will depend upon the circumstances of the particular case…. There must be something akin to an abuse of process.”
Here, Mr Kells undertook the opposition to a bankruptcy petition when he had no proper instructions so to do. He did not file a notice of opposition but he was successful in obtaining a four month adjournment. To the extent that the petitioning creditor incurred extra costs between the first return date of the petition and 30 March 2007 when it accepted that Mr Kells did have instructions for Mrs Larter, those costs must be paid by the solicitor who had no right to have been there at all. The solicitor was, in regard to the proceedings during that period, as an executor de son tort who should be responsible in full for all costs incurred as a result of his intermeddling.
When the matter came before me for the first time on 20 March 2007 I was met with an application by Mr Kells for an adjournment. The grounds for the adjournment was to allow for the progress of an appeal against the decision of Rolfe J in the District Court of New South Wales. In my reasons for decision handed down on 20 March 2007 I explained why I would not have been inclined to grant the adjournment requested:
“[4] It is the existence of this appeal that is the first ground upon which Mrs Larter relies to adjourn the bankruptcy petition and if this was the only ground I would have dismissed the application and proceeded to hear the petition. I say this because whilst the authorities are generous in allowing a person against whom judgment has been given an opportunity to appeal that decision before making a final sequestration order. This is not such a case.
[5] It is not such a case because the judgment upon which the petition issues has not been appealed. The debtor sought merely to cross-claim. The principles upon which the court should decide whether or not to adjourn a petition are have found in a number of cases of which Glew v Harrowell (2003) 198 ALR 331, Re Brink; Ex parte: Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433, Re Capsanis v The Owners – Strata Plan 11727 [2000] FCA 1262 and a case that I determined and referred to the relevant authorities Porter v OAMPS Limited [2004] FMCA 272 are but a few.
[6] Those cases make it clear that in order to obtain the court’s indulgence the debtors must show that they have a prima facie case that they are fairly entitled to litigate and that it is constituted by a genuine or bona fide claim. The difficulty with which Mrs Larter is faced in this regard is that there is little evidence from the transcript or otherwise, that would assist me in coming to any view about the arguability of her appeal. The judgment seems to me to indicate one matter upon which no argument has been raised in the papers, although it was mentioned by Mr Kells in submissions. It is that there was no evidence before the court that Electra has suffered any loss or damage so that even if the appeal was successful there would not be a claim. There would not be any money payable which would have the effect of setting off the amount owed by Mrs Larter to the bank. In those circumstances I would not be inclined to further adjourn this case.”
I then went on to deal with a further issue raised on behalf of Mrs Larter. This is what has been described in subsequent decisions in this case as the “Garcia” defence and in regard to that matter I had this to say in respect of the application for the adjournment:
“[9] In Mrs Larter’s case, the judgment was obtained by the bank on a summary judgment application, which meant that Mrs Larter only had to raise the possibility of this defence to have prevented judgment being entered against her. But she did not do so. Mr White has provided me with a draft of the preliminary issues he wished to raise. He had hoped that they would be heard today. Before lunch I raised this question with Mr Kells and I asked him to consider his client’s position and to provide me with some submissions upon my return from lunch. What Mr Kells did was to start giving me evidence from the bar table about his professional relationship with Mrs Larter, what he knew and what she knew. Of course, an advocate cannot do this. An advocate cannot be a witness and an advocate in the same proceeding. Mr Kells must resign his instructions in this case if he is to give this sort of evidence. He must advise his client that she should obtain other legal representation and that he may be a necessary witness.
[10] It is always unfortunate when the actions of a legal representative, that are hardly those that the court would normally expect to see, results in a client obtaining a benefit that they would not have obtained if the case had been run properly. I feel I am obliged now to give Mrs Larter a short adjournment so that the separate questions raised by Mr White can be determined. The adjournment which I shall grant will be as short as possible and I will make it clear to those to whom Mrs Larter may apply for representation that I will brook no further delay. I will expect the proposed separate questions to be determined on the day and if I am of the view that there should be no going behind the judgment then I will expect the bank to proceed with the application for a sequestration order. It should be understood that these reasons are determinative of any application for an adjournment arising out of the existence of the appeal from the decision of Rolfe J.”
Those reasons for decision were intended to indicate that I was prepared to hear submission in relation to the “Garcia” defence on 20 March but that I was unable to do so because of the conduct of Mr Kells in volunteering information from the bar table that should have been given as evidence. For that reason the time of the court and of the petitioning creditor was wasted on that day. It was wasted because of Mr Kells’ actions which were so clearly in breach of the admonition against a lawyer acting as advocate and witness in a cause: see, for example, Yamaji v Westpac Banking Corporation (No 1) (1993) 115 ALR 235 at 236; Clay v Karlson (unreported, WASC, 28 August 1997), where Templeman J opined:
“it is undesirable for a practitioner who is aware he is likely to be called as a witness in proceedings to continue to represent his client in them”.
Both cases approved of the comments made by Campbell CJ in Chapman v Rogers [1984] 1 Qd R 542 at 545 where His Honour, after referring to Halsbury’s Laws of England, which stated that “counsel or solicitors who are appearing as advocates in a case should not also act in the same case as witnesses”, cautioned solicitors from acting in a matter even where they would be likely to be a material witness “for the reason that it is desirable to avoid any suggestion of real or apparent conflict between the duty to the court and the obligation to the client”.
I am satisfied that Mr Kells’ conduct in this regard constitutes the serious dereliction of duty required by French J in Da Sousa & Anor v Minister of State for Immigration, Local Government and Ethnic Affairs (1993) 114 ALR 708 at 713 and meets the three tests set out by Drummond J In the Matter of Bendiech, unreported, FCA, 23 November 1994, referred to by me in SZABF v Minister for Immigration(No 2) [2003] FMCA 178 at [7]. I would order that Mr Kells pay the costs thrown away by the adjournment on 20 March 2007 on an indemnity basis.
The costs orders which I have made are orders that the costs should be paid on an indemnity basis and that any dispute as to the quantum be assessed by a Registrar pursuant to Order 62 Rule 9 of the Federal Court Rules, and in particular that the applicant provide to Mr Kells a bill of costs in assessable form pursuant to Order 62 Rule 9(5).
I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 21 June 2007
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