Neale v Mahony
[2018] FCCA 363
•20 March 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| NEALE v MAHONY | [2018] FCCA 363 |
| Catchwords: PRACTICE AND PROCEDURE – Application in a Case to amend substantive application – application refused. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.30, 40, 52 |
| Cases cited: James Woodward Neale v Bank of Western Australia Ltd; Bank of Western Australia Ltd v James Woodward Neale [2014] NSWSC 315 Ramsay Health Care Australia Pty Ltd v Compton [2016] FCA 1207 |
| Applicant: | JAMES WOODWARD NEALE |
| Respondent: | JOHN FRANCIS MAHONY |
| File Number: | SYG 847 of 2017 |
| Judgment of: | Judge Nicholls |
| Hearing date: | 7 August 2017 |
| Date of Last Submission: | 7 August 2017 |
| Delivered at: | Sydney |
| Delivered on: | 20 March 2018 |
REPRESENTATION
| Solicitors for the Applicant: | Mr T Hall of Hall Partners appeared at the hearing |
| Counsel for the Respondent: | Mr A Maroya |
| Solicitors for the Respondent: | Mahony Law |
ORDERS
The Applications in a Case made on 12 May 2017 and 16 June 2017 for leave to amend the substantive application and for the filing of a Statement of Claim are dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 847 of 2017
| JAMES WOODWARD NEALE |
Applicant
And
| JOHN FRANCIS MAHONY |
Respondent
REASONS FOR JUDGMENT
This is an Application in a Case (“AIC”) filed by Mr Neale in these proceedings on 16 June 2017, seeking that he be permitted to file an amended application and a Statement of Claim (“SOC”).
The respondent objects to the AIC.
Material before the Court
The material filed on behalf of Mr Neale that is currently before the Court is as follows:
a)The affidavit of James Woodward Neale, Retired Property Developer, made on 9 June 2017.
b)The affidavit of Andrea Lee, Solicitor, made on 14 June 2017.
c)The affidavit of Marcel Dagher, Director, made on 12 June 2017.
d)The affidavit of Yves El Khoury, [no occupation stated], made on 7 June 2017.
The material filed on behalf of Mr Mahony that is currently before the Court is as follows:
a)The affidavit of John Francis Mahony, Solicitor, made on 7 April 2017.
b)The affidavit of John Francis Mahony, Solicitor, made on 31 July 2017.
c)The affidavit of John Francis Mahony, Solicitor, made on 4 August 2017.
This material has not yet been formally read into evidence before the Court.
The parties have each filed written submissions in relation to the AIC. Mr Mahony filed written submissions on 1 August 2017. Mr Neale filed written submissions on 7 August 2017.
Before the Court
On 15 February 2017 the Bankruptcy Notice BN 211442 (“the bankruptcy notice”) was issued by Mr Mahony. It was served on Mr Neale on 1 March 2017.
The debt which is the subject of the bankruptcy notice arose from a judgment of the New South Wales Local Court in the amount of $31,515.62 in favour of Mr Mahony.
On 22 March 2017 Mr Neale filed an application in the Registry of this Court which, in effect, sought to set aside the bankruptcy notice on the basis that Mr Neale had a “cross-claim” which “exceed[ed]” the “judgment amount” (with reference to s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”)). Mr Neale did not have legal representation at the time of filing the application with the Court.
On 12 May 2017, Mr Neale, who at this time was legally represented, filed an AIC seeking orders that he be able to file an amended application and a SOC (“the first AIC”).
The parties first appeared before me on 17 May 2017. Mr Neale was represented by a solicitor, and Mr Mahony was represented by counsel. I made orders for the filing of evidence and written submissions by the parties, set down the first AIC for hearing, and extended the time for compliance with the bankruptcy notice.
On 16 June 2017 Mr Neale filed another AIC (“the AIC”), which, as described above, also sought the same relief from the Court as the first AIC (being leave to file an amended application and a SOC). The AIC was supported by the affidavit of Ms Andrea Lee made on 14 June 2017. Annexed to that affidavit at annexure “A” is the proposed amended application. Annexed to that affidavit at annexure “B” is the proposed SOC. I note that the proposed amended application and the proposed SOC referred to in the AIC (attached to the affidavit of Ms Lee made on 14 June 2017) are different to that in relation to the first AIC (attached to the affidavit of Mr Neale of 12 May 2017) (see further below).
The matter returned to the Court for directions on 19 June 2017. Mr Neale appeared in person and Mr Mahony was represented by counsel.
On that date I made orders, by consent, giving Mr Mahony the opportunity to file evidence and written submissions on both of the AICs, vacated the hearing of the first AIC, and listed the hearing of both AICs on a date to be administratively advised to the parties.
The hearing of both AICs occurred on 7 August 2017. The first AIC has now been subsumed by the AIC (see the heading on page 1 of Mr Neale’s written submissions which refers only to the AIC filed on 16 June 2017).
Background
For the purposes of the AIC, the following background is relevant.
Mr Neale had a commercial loan facility with the Bank of Western Australia (“Bankwest”). In October 2008 Bankwest was acquired by the Commonwealth Bank of Australia (“CBA”) and became a wholly owned subsidiary.
Following its acquisition by the CBA, the loans in Bankwest’s commercial loan book, including Mr Neale’s loan, became the subject of a review. During the process of the review, Mr Neale’s securities were allegedly “undervalued”.
Mr Neale had previously engaged Mr Mahony as his solicitor.
Relevant to the current matter, Mr Neale engaged Mr Mahony as his solicitor in respect of proceedings commenced by Mr Neale against Bankwest in the New South Wales Supreme Court regarding the “undervaluing” of his securities.
It would appear that the assertion is that Mr Neale commenced the proceedings in the New South Wales Supreme Court on the basis that Mr Mahony would then represent him, and join his proceedings with others, by filing a “representative action” against Bankwest on behalf of Mr Neale and other Bankwest customers. The amounts paid by Mr Neale to Mr Mahony, and the scope of Mr Mahony’s engagement is also in dispute.
On 11 September 2012, Mr Mahony’s estate was placed into bankruptcy.
Mr Neale was self-represented at the hearing of the New South Wales Supreme Court proceedings. Those proceedings were determined on 24 March 2014 (see James Woodward Neale v Bank of Western Australia Ltd; Bank of Western Australia Ltd v James Woodward Neale [2014] NSWSC 315 (“James Woodward Neale (2014)”).
On 12 September 2015 Mr Mahony’s estate was released from Bankruptcy.
Mr Mahony then commenced proceedings in the New South Wales Local Court against Mr Neale in respect of a claim for unpaid legal fees. Judgment was given in favour of Mr Mahony on 14 June 2016 in the amount of $29,963.46, plus costs on an ordinary basis, and costs on an indemnity basis from 11 February 2015 (see proceedings no. 2015/00164387).
Submissions
As set out above, Mr Neale has applied to set aside the bankruptcy notice. The immediate question for the Court is whether, at this time, Mr Neale should be permitted to amend his application to set aside the bankruptcy notice by way the proposed amended application and the proposed SOC (see annexures “A” and “B” to the affidavit of Ms Lee) and filed with the AIC on 16 June 2017.
Mr Neale’s solicitor submitted that the originating application (filed on 22 March 2017) was prepared at a time when Mr Neale was
self-represented. However, after obtaining legal representation, it became clear that the originating application required some amendment (described neatly before the Court as “surgery”). Mr Mahony opposes the granting of such leave.
A dispute emerged between the parties at the hearing of the AIC as to the nature of the proposed amended application and proposed SOC.
In opposing the grant of leave, Mr Mahony argued that the proposed amendment now sought by Mr Neale is to raise “a counter-claim,
set-off or cross demand”, which could have been raised in the New South Wales Local Court. Mr Neale rejects that proposition and presses that the proposed amendments are an attempt to “go behind” the New South Wales Local Court judgment.
The reason advanced by Mr Neale for the need to go behind the judgment, is that the judgment involved, amongst other things, an “abuse of process”. Mr Neale argues that the proposed SOC sets out the matters in support of that proposition. He asks the Court to grant leave to enable it to consider this issue, and the matters which are said to give rise to it.
With reference to, and further to, the background set out above, the elements necessary to understand Mr Neale’s position are as follows.
First, Mr Mahony obtained a judgment in the New South Wales Local Court against Mr Neale. The matter concerned claims for legal fees.
Second, Mr Neale (by way of the proposed amended application and proposed SOC) seeks to argue that there was an arrangement between Mr Mahony (the solicitor) and others, including Mr Neale, to proceed with litigation (the representative action) on behalf of these persons against Bankwest, concerning customer loans. The exact nature of the proposed representative action appears to involve allegations that there had been a “devaluation” of properties that were the subject of loans given by Bankwest.
The proposed action was described before the Court as being for the purpose of effecting “commercial recovery” for, amongst others, Mr Neale.
In other proceedings currently underway in the New South Wales Supreme Court, Mr Neale alleges that Mr Mahony did not act on instructions given to him to commence the proposed representative action in the Supreme Court proceedings and pursue “commercial recovery”.
In short, the complaint is that Mr Mahony sought recovery of legal fees and costs from these clients, including Mr Neale, in circumstances where he did not act consistently with the “basis” of the retainer given to him by those clients.
Third, Mr Neale also seeks to argue by way of his proposed SOC that Mr Mahony induced the retainer by making certain “representations” to Mr Neale and other clients. These included that there would be no pressing of payment for legal services until the proceedings against Bankwest resulted in a “commercial recovery”. [While this was the subject of Mr Neale’s submissions before the Court, I cannot see where in the proposed SOC such a claim is made.]
Fourth, in the context that Mr Mahony was, for some time, in bankruptcy himself, his claims against the debtors, including Mr Neale, were assets in his bankruptcy.
Fifth, Mr Neale relies on the affidavit of Ms Lee (made on 14 June 2017) to support the proposition that what is set out in the proposed amended application and proposed SOC (at annexures “A” and “B” to that affidavit) “justifies” this Court “going behind” the judgment of the New South Wales Local Court.
Sixth, in submissions before the Court, Mr Neale made reference to a number of other affidavits filed in the substantive proceedings before this Court (the affidavit of Mr Jame Neale made on 9 June 2017 (including two “annexures” and I note that this should be a reference to “exhibits”), the affidavit of Mr Yves El Khoury made on 7 June 2017, the affidavit of Mr Marcel Dagher made on 12 June 2017 and the affidavit of Mr Chris Evanian made on 9 June 2017 [not filed]).
I understood Mr Neale’s references to these affidavits to be for the purpose of emphasising that what Mr Neale was seeking in his proposed amended application and proposed SOC, was not to put a “counter-claim, set-off or cross demand” before the Court. Rather, it was to support the claim that the proposed amended application and proposed SOC were for the purpose of raising issues of an “abuse of process” in the New South Wales Local Court judgment, and therefore calling for the Court to go behind that judgment.
Mr Neale relied on Ramsay Health Care Australia Pty Ltd v Compton [2016] FCA 1207 (“Compton (FCA)”) (per Flick J), and the appeal in Compton v Ramsay Health Care Australia Pty Ltd [2016] FCAFC 106; (2016) 246 FCR 508 (“Compton (FCAFC)”) (per Siopis, Katzmann and Moshinsky JJ), for the relevant principles applicable to the Court’s discretion in going behind a judgment. Since the hearing of the current matter, the High Court published its reasons for dismissing an appeal against the Full Federal Court’s judgment in Compton (FCAFC) (Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 91 ALJR 803 (“Compton HCA”).
As is clear from what is set out above, the parties approached this matter from two different starting points. Mr Neale argues that the Court should exercise its discretion to go behind the New South Wales Local Court judgment. This is because, in essence, he asserts that Mr Mahony did not act on instructions given to him in his capacity as Mr Neale’s solicitor (that is, in not filing the representative action). That is not a matter where a “counter-claim, set-off or cross demand” is sought.
Mr Mahony argues that this is such a case where a “counter-claim,
set-off or cross-demand” is sought. Therefore attention is directed to s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).
Therefore, the immediate issue is how the proposed amended application and proposed SOC should be characterised.
First, it is important to note that what Mr Neale now seeks through the AIC is not just leave to file a SOC. As is clear from annexure “A” to Ms Lee’s affidavit (made on 14 June 2017), Mr Neale also seeks to amend his application to the Court.
That proposed amended application seeks eight “items”. For immediate purposes, I note that items 1- 4 seek declaratory relief from this Court.
There did not appear to be any dispute between the parties that a claim for declaratory relief is not (relevant to Mr Mahony’s case now) a “counter-claim, set off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order” (to use the exact wording of s.40(1)(g) of the Bankruptcy Act). Mr Mahony also relied on Re Thompson; Ex parte Thompson v Grimley Pty Ltd and Others [1995] FCA 1148; (1995) 61 FCR 544; (1995) 135 ALR 700 in this regard.
Nor was it satisfactorily explained before the Court, how, given the scope of the “items”, what was being sought was “only” declaratory relief.
There may be an argument that “classically” at common law, all relief sought is properly expressed by way of declaration. However, in my view, Mr Neale’s response (that he was seeking declaratory relief) to Mr Mahony’s position (that the relief sought was a “counter-claim,
set-off or cross demand”), is a diversion from the real task for this Court in this matter.
It is to be remembered that the substantive application before the Court originally filed by Mr Neale on 22 March 2017 is expressed in part (albeit by the applicant who was self-represented at the time), as a claim for “interim relief”, and as an application to set aside the bankruptcy notice. That is, an application made pursuant to s.30 of the Bankruptcy Act. [I note that the “interim relief” that the substantive application seeks is an order not only setting aside the bankruptcy notice, but an order made in this regard pursuant to “s3c(1)” of the Bankruptcy Act which was repealed in 1973.]
On the material before the Court, and on which there is no dispute between the parties, the bankruptcy notice arose from a judgment debt by way of orders made in the New South Wales Local Court in favour of Mr Mahony against Mr Neale.
Mr Neale now seeks to amend his application to the Court and to provide a SOC which, in essence, asks this Court to go behind the New South Wales Local Court judgment.
As set out above, the applicant relied on Compton (FCA) and Compton (FCAFC). As also set out above, since the time of the hearing of the matter before this Court, the High Court published its reasons in Compton (HCA) and by majority, dismissed the appeal from the Full Federal Court’s orders and judgment. In the circumstances, I did not consider it necessary to obtain further submissions from the parties in relation to the relevant consideration by this Court.
The following from the High Court judgment in Compton (HCA) provides direction for current purposes ([20], [25] – [28], [37] – [38] and [53]). [I have also included the High Court’s “summary”, relevant to the current proceedings, of what occurred in the Full Federal Court, as this was the judgment which Mr Neale relied on before this Court]:
“[20] The primary judge declined to go behind the Judgment. His Honour approached the issue before him on the basis that two questions were involved: first, whether the discretion to go behind the Judgment had arisen at all; and secondly, whether that discretion should be exercised in favour of going behind the Judgment. It may be that his Honour unduly complicated the resolution of the application before him: there was only one discretion to be exercised. As Barwick CJ explained in Wren v Mahony:
‘The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of [the petitioning creditor's] debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.’
…
[25] In a unanimous judgment, the Full Court (Siopis, Katzmann and Moshinsky JJ) granted leave to appeal and allowed Mr Compton's appeal.
[26] Ramsay argued that the decision of this Court in Corney v Brien established that a Bankruptcy Court should not go behind a judgment which follows a full investigation at trial at which both parties were represented. Ramsay argued that this decision stands for the proposition that ‘fraud, collusion or miscarriage of justice’ are exhaustive of the circumstances in which a Bankruptcy Court may or should go behind a judgment.
[27] The Full Court rejected that argument, concluding that neither the plurality judgment in Corney v Brien, nor the reasons of Fullagar J, established such a narrow view of the function of a Bankruptcy Court. The Full Court applied the approach of Barwick CJ (with whom Windeyer and Owen JJ agreed) in Wren v Mahony that in circumstances ‘where reason is shown for questioning whether behind the judgment ... there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof’ but rather must ‘exercise its ... discretion to look at what is behind the judgment’.
[28] The Full Court went on to hold that the primary judge erred in focusing on:
‘the way in which Mr Compton conducted his case in the Supreme Court rather than on the central issue, which was whether reason was shown for questioning whether behind the judgment there was in truth and reality a debt due to the petitioning creditor’.
…
[37] Mr Compton submitted that, by reason of s 52(1)(c) of the Act, and as Wren v Mahony concluded, the question for the Bankruptcy Court was whether the judge was persuaded that there was a debt truly owing to the petitioning creditor. It was said that the Bankruptcy Court should go behind a judgment where sufficient reason is shown for questioning whether behind the judgment there is in truth and reality a debt due to the petitioning creditor, and that sufficient reason was shown in this case.
[38] An examination of the competing arguments shows that, both in point of authority and in point of principle, Ramsay's contentions should be rejected and those advanced for Mr Compton accepted.
…
[53] Ramsay's argument that ‘miscarriage of justice’ in this context is confined to the kind of miscarriage of justice which would suffice to impeach the obtaining of the judgment echoes the contention unsuccessfully advanced in the course of argument in Wren v Mahony by the respondent's counsel, who submitted: ‘The Bankruptcy Court must not become an appeal court from other tribunals.’ That submission resonated only with the dissentients, Menzies J and Walsh J. That the submission failed to carry the day is understandable because the concern to which it gave voice is misconceived.”
[Footnotes omitted.]
In light of the above, the concern for this Court in relation to the substantive application by Mr Neale, is whether the debt which is the subject of the bankruptcy notice, is a “true” basis for the issuing of the bankruptcy notice. That is the basis on which Mr Neale, essentially, by way of his substantive application, is asking this Court to decide whether to set aside the bankruptcy notice.
It should be noted that, different to the current case, the circumstances in Compton (HCA) involved a failure to comply with a bankruptcy notice, the commission of an act of bankruptcy, and the subsequent presentation of a creditor’s petition (see Compton (HCA) at [12]). The current case involves the question of the setting aside of a bankruptcy notice.
Nonetheless, I understood Mr Neale’s argument to be, that in relation to the leave to amend the application (and to file a SOC), that the question for this Court, is whether leave should be granted to him to amend his application, such as to facilitate the consideration of whether this Court should go behind the judgment of the New South Wales Local Court.
In my respectful view, the focus of the High Court in Compton (HCA) and the Full Federal Court in Compton (FCAFC), involved s.52 of the Bankruptcy Act. That is, those Courts were concerned with the hearing of a creditor’s petition for the making of a sequestration order, and the scrutiny required by a bankruptcy Court in those circumstances, as to whether there is in “truth” a debt owing.
However, the current case does not involve (at this time) a creditor’s petition. As set out above, Mr Neale applied for the setting aside of the bankruptcy notice. In this light, I agree with Mr Mahony that the resolution of the current dispute arises from s.40 of the Bankruptcy Act, which is concerned with an act of bankruptcy, and in particular, at subsection (g), with a bankruptcy notice.
Section 40(1)(g) of the Bankruptcy Act is in the following terms:
“Section 40
Acts of bankruptcy
(1) A debtor commits an act of bankruptcy in each of the following cases:
…
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia - - within the time specified in the notice; or
(ii) where the notice was served elsewhere - - within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.”
I note that it was not in dispute between the parties that the consideration of the AIC does not involve final findings of fact. In this light, the affidavits filed with the Court, not having been “formally” read into evidence, nonetheless provide the basis on which the Court may consider the exercise of the discretion to grant the relief sought. There was also no dispute that the Court had the discretion to grant the relief sought if appropriate.
As a preliminary point, I also note that if Mr Neale’s argument that his proposed amended application and proposed SOC do not contain any “counter-claim, set-off or cross demand”, were to be accepted, then he cannot ultimately satisfy the Court that he has met a key requirement of s.40(1)(g) of the Bankruptcy Act. That is, that he has such a claim on which to base the setting aside of the bankruptcy notice. In this light, and in the context of s.40(1)(g) of the Bankruptcy Act, this would be a powerful argument in itself to refuse the leave to amend the substantive application.
It is to be remembered that Mr Neale’s current substantive application to the Court asserts that he does have such a “cross-claim”. This would enable Mr Neale at a final hearing to seek to satisfy the Court that the bankruptcy notice should be set aside. If there is no such claim, then plainly, s.40(1)(g) of the Bankruptcy Act cannot assist him.
Mr Neale does not now propose that any other part of the Bankruptcy Act can assist him. This leads to the question as to why he now seeks to also characterise the proposed case he seeks to pursue through his AIC, as being one that seeks only declaratory relief. The answer to that question does not need to be found by this Court, such as to dispose of the interlocutory proceedings. However, the answer may incidentally arise, separately, as a consequence of what appears below.
As set out above, I do not accept that Mr Neale now only seeks declaratory relief by way of his proposed amended application and proposed SOC. Irrespective of how he now seeks to describe that relief, what remains when regard is had to the proposed amended application and proposed SOC, is that the matters that the proposed SOC seek to raise are variously, in the nature of an attempt to assert a
“cross demand”, and possibly a “set-off” (that is, payments already made by Mr Neale to Mr Mahony, see the proposed SOC in relation to the first AIC at [18] on page 9 and 10 of annexure “A” to the affidavit of Mr Neale of 12 May 2017 and [16] of the proposed SOC annexed to the affidavit of Ms Lee of 14 June 2017 at annexure “B”).
I agree with Mr Mahony’s submissions that the purpose of s.40(1)(g) of the Bankruptcy Act is to permit a debtor to raise matters relevant to the debt owed to the creditor that could not previously have been raised. He submits that the plain words of s.40(1)(g) of the Bankruptcy Act for current purposes, requires Mr Neale to establish ([6] of Mr Mahony’s written submissions):
“i. a ‘counter-claim, set-off or cross demand’ of sufficient substance that the claim should be heard and determined in the usual way (Glew v Harrowell [2003] FCA 373; 198 ALR 331 at [12] (Lindgren J)); and,
ii. that the counter-claim, set-off or cross demand is ‘equal to or exceeding the amount of the judgment debt or sum payable under the final order’; but that,
iii. such ‘counter-claim, set-off or cross demand’ could not have been set up in the Local Court proceedings in which was obtained the order that founds the bankruptcy notice.”
In relation to the question of whether there is “sufficient substance” to Mr Neale’s “claim”, Mr Mahony referred to Glew v Harrowell, in the matter of Glew [2003] FCA 373; (2003) 198 ALR 331 (“Glew”) (per Lindgren J) at [9] which is as follows:
“There are authorities suggesting that Glew and Tresidder must satisfy me of the following interrelated and sometimes overlapping matters:
- that they have a ‘prima facie case’, even if they do not adduce evidence which would be admissible on a final hearing making out that case: Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 (‘Ebert’) at 350; Re Brink; Ex parte Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 (‘Brink’) at 141; Gomez v State Bank of NSW Ltd [2002] FCAFC 101 at [17], [18];
- that they have ‘a fair chance of success’ or are ‘fairly entitled to litigate’ the claim: Brink at 141; Re Gould; Gould v Day [1999] FCA 1650 at [27], [28]; Re Capsanis; Capsanis v The Owners – Strata Plan 11727 [2000] FCA 1262 at [11]; and
- that they are advancing a ‘genuine’ or ‘bona fide’ claim Re Capsanis; Capsanis v The Owners – Strata Plan 11727 [2000] FCA 1262 at [11].”
It may be that the first and second formulations are intended to cover the same ground. In Re Brink; Ex parte Commercial Banking Company of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135 (“Brink”) (at 141), Lockhart J treated, the reference to a “prima facie case” in Ebert v The Union Trustee Co of Australia Ltd [1960] HCA 50; (1960) 104 CLR 346, as a reference to “a fair chance of success”.
Before the Court, it was submitted on behalf of Mr Neale, that the “essence” of his “claim” (with reference to the proposed SOC) was as follows. Mr Mahony obtained a judgment in the New South Wales Local Court in relation to his claim for “legal costs” against Mr Neale.
By way of his proposed amended application and proposed SOC (that is, the case he now wishes to press), Mr Neale asserts that there were, at the relevant times, arrangements by which Mr Mahony (solicitor), sought and was given, a retainer by a number of clients, including Mr Neale, to initiate and pursue litigation (the representative action) against Bankwest (see [17] of the proposed SOC at annexure “B” to the affidavit of Ms Lee made on 14 June 2017) (the subject of proceedings before the New South Wales Supreme Court in James Woodward Neale (2014)).
The allegation is that Mr Mahony did not carry out his “instructions” to commence proceedings and effect “commercial recovery” for his clients, including Mr Neale. It should be noted that that is an allegation made in submissions. Mr Neale’s submissions also complain that Mr Mahony embarked on a course of obtaining judgments against his former clients (for legal fees), including Mr Neale, in circumstances where one of the bases for obtaining the judgments was contrary to the instructions said to have been given to him.
In the context of “sufficient substance” of the “counter-claim, set-off or cross demand” (Glew at [12] and see [67] above), a number of matters relevantly emerge. First, and noting that the proposed SOC was drafted with legal assistance, while the proposed SOC makes reference to the “[a]pplicant commenced to engage Mr Mahony as his solicitor in respect of proceedings commenced by the [a]pplicant against Bankwest” (at [14] of the proposed SOC at annexure “B” to the affidavit of Ms Lee of 14 June 2017), there is nothing in the proposed SOC about the actual instructions to commence the “representative action”. That is, the proposed SOC does not specify what instructions were given to Mr Mahony to show that Mr Mahony failed to act consistently with those instructions, or acted contrary to those instructions. Nor does it provide the detail of any such retainer, in the context of the claimed “representative action”.
In this circumstance, I agree with Mr Mahony that the proposed SOC fails to establish a causative link between what is generally alleged against Mr Mahony, and the damage Mr Neale claims to have suffered.
I should note that in this specific context, it was argued by Mr Mahony that the Court should have regard to his affidavits of 7 April 2017 and 31 July 2017 (filed in the substantive proceedings). The submission was that in these affidavits, Mr Mahony sets out whether, in his view, Mr Neale’s contentions are tenable or not tenable.
While this may provide some indication of the extent and nature of the contest between the parties, and what it may be, I do not consider this relevant for current purposes regarding whether to grant Mr Neale leave to amend his application.
It is to be remembered that for current purposes, it is not for this Court to “undertake a preliminary trial of the counter-claim, set-off or cross demand” (Brink at [141] per Lockhart J, as referred to at [10] in Glew).
It is, as was also said in Glew (at [10]), that the application of the criteria for determining whether there is a “counter-claim, set-off or cross demand”, “requires the Court to make some kind of preliminary assessment, though obviously not to determine the counter-claim,
set-off or cross demand finally”.
Any close examination of Mr Mahony’s “belief” as to the efficacy of Mr Neale’s proposed SOC runs the risk of going, in the current case, beyond a preliminary assessment.
As I respectfully understood the applicable authorities, the relevant assessment for this Court, in the weighing of the legal and factual merits of what Mr Neale now proposes to rely on in support of the case he has explained before the Court, can be, and is, sufficiently addressed with reference to his own proposed SOC and the explanation of his case.
Second, Mr Neale’s proposed SOC does not provide any quantification of the claim he seeks to make, nor it must be said, even any indication of the quantification of that claim.
In the circumstances, it is not possible for Mr Neale to satisfy the Court (as is required by s.40(1)(g) of the Bankruptcy Act), that there is a “counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under” the New South Wales Local Court judgment.
As was said in Capsanis, in the matter of Capsanis v The
Owners – Strata Plan 11727 [2000] FCA 1262 (per Hely J at [12]):“Taking the applicant's evidence at its highest, the applicant may have a claim against the respondent for loss of rent, which, when interest is taken into account, would be of the order of $6,000. He may also have an unquantified claim against the respondent for unparticularised damage to the home unit and for defamation in an unquantified sum. A counter-claim may include a claim for damages of tort, including in defamation. But if the applicant is to discharge the onus which s 40(1)(g) imposes upon him, there must be some material placed before the Court as to the likely quantification of the claim. Except for the lost rent claim, no such material has been placed before me. Thus, I am not able to be satisfied that the applicant has a counter-claim against the respondent which equals or exceeds the amount of the judgment debt. On that basis alone the application must be dismissed.”
Third, s.40(1)(g) of the Bankruptcy Act also requires Mr Neale to satisfy the Court that the case he now seeks to raise, could not have been “set up” in the New South Wales Local Court proceedings which led to the order upon which the bankruptcy notice is based.
Before the Court, Mr Mahony drew attention to Mr Neale’s affidavit of 9 June 2017 at [33] – [34]:
“[33] Mr Mahony never commenced a class action against BankWest or CBA and did not recover any monies from them as was meant to be his source of payments.
[34] I did not previously attempt to claim damages from Mr Mahony when he sued me for the $27,500 I commenced a claim, Annexure “O”, to offset the payment demanded from me which does not require him to have any funds.
There was no dispute between the parties that the relevant principle is as set out in Tzovaras v Nufeno Pty Ltd [2003] FCA 1152 (per Jacobson J) at [34] – [36]:
“[34] The question which arises is whether the cross-claim could have been set up as a matter of law. The position was stated succinctly by Lockhart J in Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135 at 139:-
‘The words ‘that he could not have set up in the action or proceeding in which the judgment or order was obtained’ mean ‘which he could not by law set up in the action’: see Re Jocumsen (1929) 1 ABC at 85; Re A Debtor per Avory J [1914] 3 KB at 730 and Re Stockvis (1934) 7 ABC 53 especially per Lukin J where his Honour said: ‘I take a counter claim, set off, or cross demand which could not be set up as one which, from the point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained ... Mere failure to take advantage of the opportunity can hardly be said to be inability’ (1934) 7 ABC at 57.’
[35] As Hill J observed in Re Ling; Ex parte Ling v Commonwealth of Australia [1995] FCA 1410; (1995) 58 FCR 129 at 132, the question is not to be determined by reference to practicalities. It is to be answered by reference to legal considerations. Thus, as his Honour said, the mere fact that there was in that case an excuse as to why the cross-claim was not brought will not avail a debtor who seeks to come within s 41(7) of the Bankruptcy Act if a cross-claim could legally have been brought.
[36] These propositions were affirmed by a Full Court (Lee, Goldberg and Kenny JJ) in Smart v Esanda Finance Corp Ltd [2000] FCA 235 at [17].”
See also Re Vicini; Ex Parte E.A Sealy & Co (1982) 64 FLR 323 where in relation to the principles outlined above, Fisher J States (at 326):
“In my opinion these statements of principle, which I respectfully adopt, determine the matter against the debtor. There was no reason in law why he could not set up his counter-claim in the creditor’s proceedings…”
I agree with Mr Mahony that on the material before the Court, and also in light of the arguments put to the Court by the parties, that there was no inhibition on Mr Neale to make the claim he now seeks to make before the New South Wales Local Court. At least, as a claim for an equitable set-off. I note that that is, in circumstances where Mr Mahony’s affairs may have been placed into bankruptcy at some point of the relevant time.
I should note that before the Court, submissions were made on whether Mr Mahony’s assets were vested in a trustee in bankruptcy at the relevant times (he was declared bankrupt in September 2012 and discharged from bankruptcy in September 2015). Further submissions were also made in relation to the duties of a solicitor. It is not necessary to consider these points given that, on the material before the Court, Mr Neale is unsuccessful in his current AICs.
Conclusion
In the circumstances, the AICs should be refused. I will make the appropriate orders.
I certify that the preceding ninety (90) paragraphs are a true copy of the reasons for judgment of Judge Nicholls
Associate:
Date: 20 March 2018
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