Nelson v Warawita
[2020] FCCA 3089
•13 November 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| NELSON v WARAWITA | [2020] FCCA 3089 |
| Catchwords: COSTS – Duty of a solicitor to the court – misleading statements made by a solicitor in the absence of the other party – solicitor to pay costs arising from the need to set aside orders made in the absence of the other party. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.109(1)(c), 222C. Federal Circuit Court Rules 2001 (Cth), r.21.07. |
| Other Materials: Gino Dal Pont, Lawyers’ Professional Responsibility (Thomson Reuters, 6th ed, 2017). |
| Applicant: | SIMON PATRICK NELSON |
| Respondent: | LALAN WARAWITA |
| File Number: | MLG 2380 of 2019 |
| Judgment of: | Judge McNab |
| Hearing date: | 30 October 2020 |
| Date of Last Submission: | 30 October 2020 |
| Delivered at: | Melbourne |
| Delivered on: | 13 November 2020 |
REPRESENTATION
| Counsel for the Applicant: | Ms V Holt |
| Solicitors for the Applicant: | Aitken Partners |
| Solicitors for the Respondent: | Mr Russell Mitchell of R. Mitchell Lawyer Pty Ltd |
ORDERS
The composition dated 27 October 2019 is terminated pursuant to section 222C(1)(e) of the Bankruptcy Act 1966 (Cth) (“the Act”).
Pursuant to section 222C(5) of the Act, a sequestration order is made against the estate of the Respondent.
The Applicant be appointed as trustee to the sequestered estate of the Respondent, pursuant to the Court’s discretionary power under section 222(3)(c) of the Act.
Mr Russell Mitchell, in his capacity as the Respondent’s legal representative, pay the Applicant’s costs of the proceeding fixed in the sum of $2500, pursuant to Rule 22.07 of the Federal Circuit Court Rules 2001 (Cth).
Otherwise, the Applicant’s costs of the proceeding are debts provable in the bankruptcy in accordance with section 114 of the Act and accordingly are debts of the type referred to in section 109(1)(c) of the Act.
A Registrar of the Federal Circuit Court of Australia refer these reasons for Judgment to the Victorian Legal Services Board.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 2380 of 2019
| SIMON PATRICK NELSON |
Applicant
And
| LALAN WARAWITA |
Respondent
REASONS FOR JUDGMENT
Delivered Extempore (Revised From Transcript)
The Bankruptcy Issue
This matter comes before the Court by way of an application filed on 24 July 2019 and amended on 14 April 2020. By way of the amended application, the Applicant seeks the following orders:
“4. An order that the Respondent deliver vacant possession of the Doveton property.
…
9A. An order that the Respondent pay to the Applicant the sum of $128,724.74 plus interest under the composition and costs.
9B. An order that the Respondent complete and sign a ‘Production of Title Consent Form exhibited to SPN-40 of the Affidavit of Simon Nelson sworn 31 March 2020, and provide the completed form to the ANZ Bank and the Applicant within 7 days of the date of the order.
9C. An order that the Respondent do all things necessary to enable the Applicant to register the mortgage dated 27 October 2019 and exhibited to SPN-40 of the Affidavit of Simon Nelson sworn 27 March 2020 on title to the Doveton Property.
10. Alternatively, to paragraphs 9A, 9B and 9C, an order that:
a. the composition as varied be terminated pursuant to sections 222 and 222C(1) of the Act; and,
b. that the Court, pursuant to section 222C (5) of the Act, make a sequestration order against the estate of the Respondent.”
In this matter I am not minded to adjourn the application. The Respondent has had every opportunity to deal with these matters. If the Respondent was so ill as to be incapable of managing his affairs he could have taken steps to appoint an attorney to assist him with the management of his affairs and this proceeding.
The affidavits which have been filed with the Court in support of the application, and which refer to earlier affidavits, show that there has been a significant effort made by the Applicant in this matter to accommodate the Respondent. Orders have been made which might have assisted the Applicant, but he has not complied with those orders.
The monies that are due to be paid by the Respondent under a varied composition, being in the sum of $128,724.74, became due to be paid on 25 January 2020 That amount was not paid. As of hearing this matter on 30 October 2020, only $50,000 has been paid towards that sum.
Whilst Mr Mitchell, who is the solicitor for the Respondent, has advised that he did not have instructions to oppose the application, he has made submissions that it is appropriate to adjourn the application by reason of the Respondent’s ill health, and the fact that the Respondent has recently sought assistance from friends who might assist him in paying all the monies due under the varied composition.
I am not satisfied that there is sufficient or adequate evidence before the Court which supports a finding that there is any real prospect of those monies being paid, given the past conduct of the Respondent.
In my view it is appropriate that the Court terminate the varied composition pursuant to s222C(1)(e)(i) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) by reason of the non-compliance with the terms of the varied composition by the Respondent.
I refer to the submissions that have been filed by the Applicant, which set out the background to the matter, make reference to relevant authority, and indeed a comprehensive summary of the provisions governing the task before me.
In refusing a request to adjourn the proceeding, the Court notes that the Respondent has been in a substantial breach of the terms of the varied composition which was entered on 27 October 2019, and was accepted by his creditors at a meeting on 25 November 2019. Since 25 January 2020, by the terms of the varied composition, the Respondent was required to pay the sum of $128,724.71 on 25 January 2020. In fact, the Respondent paid the sum of $25,000 on 21 January 2020 and a further sum of $25,000 on or about 13 February 2020, leaving an outstanding balance in the sum of $78,724.71.
I am mindful of the effects of bankruptcy on individuals and I am also very mindful of the effects of mental health on individuals and within the community. However, no comprehensive material has been provided to the Court in relation to the Applicant’s mental health, which might provide a basis for adjourning the matter.
The Respondent’s creditors have already entered into a varied composition, and that composition has not been complied with, and there is no material that has been put before the Court which would persuade me that it is likely that the terms of the varied composition are going to be complied with or that the Applicant’s costs, which have been incurred in the course of this proceeding, will be paid in a timely manner.
In those circumstances, the Court is satisfied that it’s appropriate that the varied composition is terminated under s222C(1) of the Bankruptcy Act. Relevantly, the Applicant has provided draft orders as to the Respondent’s failure to pay the value of the composition that include, amongst other things, that:
a)the composition dated 27 October 2019 be terminated pursuant to s222C(1)(e), (f) or (g) of the Bankruptcy Act;
b)pursuant to s222C(5) of the Bankruptcy Act, a sequestration order is made against the estate of the Respondent; and
c)the Applicant’s costs of the proceeding are debts provable in the bankruptcy in accordance with s 114 of the Bankruptcy Act and accordingly are debts of the type referred to in s109(1)(c) of the Bankruptcy Act.
I am satisfied that the creditors have been notified of the application and accordingly the Court will make orders in the terms set out in the Applicant’s draft orders.
The Costs Issue
On 8 April 2020 the Court set aside orders of the Court that had been made on 21 February 2020. The Court ordered, amongst other things, that the costs of, and incidental to, the Applicant’s interlocutory application be reserved and the matter was adjourned to a directions hearing on 2 June 2020.
On 28 July 2020 the Court made orders adjourning the proceeding for directions on 8 September 2020. Order 5 of those orders is as follows:
“5. On the adjourned date the question of costs reserved on 8 April 2020 will be determined and Mr Mitchell may make submissions regarding his conduct before the Court on 21 February 2020, and in particular,
(a) whether he had misled the Court regarding the extent to which the Respondent had complied with a varied composition entered between the Applicant and the Respondent, and
(b) whether he should personally bear the costs reserved on 8 April 2020.”
The Court made further orders on 8 September 2020, after hearing submissions from Mr Sheriff of Counsel who appeared on behalf of the Respondent, but was making submissions in relation to Mr Mitchell’s conduct as well. Order 5 of those orders provided that:
“5. By 4.00pm on 25 September 2020, Mr Mitchell (the respondent’s solicitor) file any further affidavits and submissions that he wishes to rely on in relation to Order 5 of the Orders made on 28 July 2020 and that otherwise the issue raised for determination by that Order be determined on the papers after 25 September 2020.”
The Court has received an affidavit from Mr Mitchell, sworn on 21 September 2020, together with an outline of submissions prepared.
I remain profoundly concerned about what occurred on 21 February 2020, and I do not accept the explanation as set out in the affidavit of Mr Mitchell, as being a reasonable explanation for what the Court was told by Mr Mitchell.
By way of background, the affidavit in support of an application to set aside the orders of the Federal Circuit Court made on 21 February 2020 was sworn by Mr Nelson on 31 March 2020. In that affidavit he sets out the background to the Respondent entering into a varied composition as a result of a proposal being put by the Respondent: see [4] of Mr Nelson’s affidavit.
The proposal made by the Respondent was that the Respondent would pay the trustee a further sum of $128,724.74 within 60 days of acceptance by the creditors of the variation proposal: see [5] of Mr Nelson’s affidavit.
On 25 November 2019 a meeting of creditors was held to vote on the Respondent’s variation proposal, and on 25 November 2019 Mr Nelson wrote to the Respondent confirming that the creditors had voted to accept his variation proposal.
At [17] and onwards, the affidavit of Mr Nelson confirms that, under the terms of the varied composition, Mr Warawita was obliged to pay to the trustee the sum of $128,724.74 by 25 January 2020. It states that he failed to pay that sum. It then states that on 29 January 2020 a Mr Paul Kennedy of from Aitken Partners sent an email to the Respondent’s solicitor, Mr Mitchell, stating that the Respondent had failed to pay the instalment due on 25 January 2020 and asking for information in relation to the payment.
On 13 January 2020, Mr Nelson was informed by Mr Kennedy that Mr Mitchell sent an email to Mr Kennedy stating, amongst other things, that Mr Warawita had advised him that the instalment due on 25 January 2020 was paid that day. On 13 January 2020 Mr Kennedy sent an email to Mr Warawita’s solicitor, Mr Mitchell, stating, amongst other things, that the sum of $25,000 was received on that day, but the instalment of $128,724.74 had not been paid, and that Mr Warawita had failed to take the necessary steps to enable the trustee to deregister the mortgage.
The matter came before the Court on 21 February 2020 and the Applicant failed to appear. It was explained in an affidavit of Mr Philip Fox filed on 31 March 2020 on behalf of the Applicant that, as a result of an oversight, he did not appear at the hearing on 21 February 2020: see [7] of Mr Fox’s affidavit, see also [22] –[23] of Mr Nelson’s affidavit. Mr Fox says at [11] of his affidavit that on 10 March 2020, he wrote to Mr Mitchell explaining the reasons for the trustee’s failure to appear at the hearing on 21 February 2020, and requested, amongst other things, that Mr Warawita consent to the setting aside of the orders made on 21 February 2020, and that Mr Mitchell had not responded to that correspondence at the time that the affidavit was sworn.
So against that background, in circumstances where the Applicant did not appear at the hearing on 21 February 2020, the Court asked Mr Mitchell about the status of the matter. The resulting conversation between the Court and Mr Mitchell was as follows:
“Mr Mitchell: Well, your Honour, I was just explaining before, the situation is that, since we were last here we’ve entered into a new composition with the creditors. So there’s being a variation of the original composition---
His Honour: Yes.
Mr Mitchell: ---and that hasn’t been complied with to the extent of 100 per cent at this – as of today, but about – I could say about 70 per cent of the money has been paid to the trustee and we’re waiting for the final payment to be paid.”
(Transcript, page 2, Line 5 – 16)
In my view, that is a false statement made by Mr Mitchell.
Mr Mitchell purports to explain in his affidavit affirmed on 21 September 2020 that when he was talking about the 70 per cent he was talking about the totality of the debt agreed by the creditors. At [11] Mr Mitchell states that:
“The payment of the money to which I was referring was to the totality of the debt in respect of the original composition. After taking into account the sale of assets and various contributions of the Respondent since entering into the original composition, the position was that the Respondent had paid approximately 70 per cent of the totality of the debt agreed by the creditors. That is the point I was trying to convey.”
In my view Mr Mitchell’s submission is simply not supported by the terms of the transcript, where he specifically refers to the variation of the original composition that has “not been complied with to the extent of the 100 per cent of the composition as of today”.
Further, the transcript indicates that the following discussion occurred between the Court and Mr Mitchell at the hearing on 21 February 2020:
“Mr Mitchell: I had correspondence with the trustee around about 10 days ago, but---
His Honour: Was there any reference to this proceeding?
Mr Mitchell: No. There wasn’t, no, because it was – I had a letter from the trustee and I responded to that and – but there was no mention of it. They have been using Aitken Partners to do the legal side ode of things --
His Honour: Yes.
Mr Mitchell: ---on behalf of the trustee, but I haven’t heard from them either and, I mean, there has been no communication because, obviously, the new composition has been put together, working ---
His Honour: Yes, yes.
Mr Mitchell: ---payments are being made and there’s really no need for any involvement, you know, legally at this point in time now.
His Honour: If you – if they had been here, you would have been making a submission that this proceeding is really of no utility now given the---
Mr Mitchell: ---Yes, yes. Certainly. Yes.”
(Transcript, page 3, Line 24 – 46)
The letter I presume that Mr Mitchell referred to to when he referred to correspondence from “about 10 days ago”, was the letter received from Mr Kennedy which was sent to him on 13 February 2020 and which I referred to earlier. That letter provides as follows:
“Dear Russell, the amount that was due on 25 January 2020 was the sum of $128,724.74 with interest accruing from 15 January 2020. Today we have received the sum of $25,000. Interest began to accrue on the full amount on 25 January 2020, pursuant to the law, and that was required to be registered. Your client was required to take all necessary steps to assist us in registering the mortgage over the Doveton property, however, your client has failed to do so. Please have your client rectify this within seven days. Should we not receive the balance of the payment in clear funds within seven days we will be making an application to the Court against your client and seek costs against your client and you personally without further notice.”
On that basis, I am of the view that Mr Mitchell assertions that payments were being made in accordance with the terms of the varied compsoition, as set out above, were false, and it was known by Mr Mitchell to be false, having regard to the fact that Mr Mitchell had been told by the Applicant or Applicant’s legal representatives that his client had not complied with the terms of the amended composition, and told that if it was not rectified then the application would proceed. It is plain that the varied composition was not being complied with and the suggestion that there had been no communication because the varied composition was ‘working’ was false.
I do not accept the explanation of Mr Mitchell that he was referring to some previous composition, and in particular I do not accept the explanation that he has given in relation to the comments that he has made to the Court about the communications that he had with either the Applicant or the Applicant’s solicitors.
I refer to the work of Professor Dal Pont in Lawyers’ Professional Responsibility, 6th Edition, chapter 17 under the heading ‘Candour and the presentation to the facts and the duty in its scope’, where Professor Dal Point states at [17.95]:
“As insisted in the administration of justice a lawyer must be able to command the confidence and respect of the Court. Central to this is a commitment to not knowingly mislead the Court on any matter. This duty is reflected in the professional rules by statute in Victoria and in manifold curial statements, including the following from a West Australian judge:
The duty of counsel is not to mislead the Court and any respect must be observed with – without regard to the interests of counsel or those whom counsel represents. No instructions of a client, no degree of concern to the client’s interests, can override the duty which counsel owes to the Court in this respect. At the heart the administration of this duty and the reasons for its fundamental importance in the due administration of justice, is that an unswerving and unwaverable observance of it by counsel is essential to maintain and justify the confidence which every Court rightly and necessarily puts in all counsel who appear before it.” [Kyle v Legal Practitioners Complaint Committee (1999) 21 WAR 56 at 73 per Parker J].
Professor’s Dal Pont’s commentary at [17.115] also notes that: “Lawyers must eschew statements or conduct that are half-truths or otherwise leave the Court with an incorrect impression”, a proposition for which he cites various authorities.
I am compelled to make these findings because there is no reasonable explanation for what has occurred during this proceeding, which, in my view, compounds the issue. Further, it seems that Mr Mitchell is of the view that he did nothing, or said anything to the Court, that was incorrect or misleading. If that is his position, I am of the view that Mr Mitchell’s position is troubling and problematic, as Mr Mitchell is appearing for vulnerable people who are relying upon him to represent them to the best of his ability as well as that the Court is relying upon his candour to achieve the proper administration of justice. In my view Mr Mitchell requires counselling and mentoring if he seriously contends that his comments were appropriate and not apt to mislead. I do not make these findings lightly and do so in the knowledge that Mr Mitchell is an experienced legal practitioner and has practiced for many years.
In my view, the costs thrown away by reason of the application to set aside the orders of 21 February 2020 should be borne by Mr Mitchell personally in his capacity as the legal representative of the Respondent, pursuant to r21.07 of the Federal Circuit Court Rules 2001 (Cth). Those costs should not be visited upon his client, and I will fix costs in the sum of $2,500.
I will refer these reasons to the Victorian Legal Services Board.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Judge McNab
Associate:
Date: 13 November 2020
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