Obrart v Grego
[2017] FCCA 929
•9 May 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| OBRART v GREGO | [2017] FCCA 929 |
| Catchwords: COURTS AND JUDICIAL SYSTEM – Collateral attack – whether in an application for a sequestration order pursuant to the Bankruptcy Act 1966 (Cth) based on a debt recorded in a costs certificate purportedly issued under the Legal Profession Act 2004 (NSW) it is open to the respondent to challenge the validity of the costs certificate on the ground that it was issued on the basis of a determination of an assessment of costs that was affected by jurisdictional error – whether discretionary considerations that may be available if the certificate of costs was challenged by judicial review are available to prevent bankruptcy court from permitting a collateral challenge – whether such discretionary considerations should prevent collateral attack in the circumstances of this case – collateral challenge available. JUDICIAL REVIEW – Collateral attack – determination of application for assessment of legal costs by costs assessor purportedly pursuant to Legal Profession Act 2004 (NSW) – whether determination affected by fraud – whether determination made on the basis of a void costs agreement – whether a void costs agreement nevertheless permitted costs assessor to assess costs because the costs assessor was not under a duty to initiate inquiry into validity of costs agreement which costs respondents did not raise as an issue – whether the costs assessor considered the matters he was required to consider when determining the assessment of legal costs. COSTS – Assessment of costs – nature of duty of costs assessor to consider whether or not it was reasonable to carry out the work to which the legal costs relate – nature duty of costs assessor to consider whether or not the work was carried out in a reasonable manner. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.52(1), 52(1)(c), 56(2)(a) Evidence Act 1995 (Cth), ss.58, 136 |
| Cases cited: Ahern v Deputy Commissioner of Taxation [1987] FCA 312 Al-Mehdawi v Secretary of State for the Home Department [1990] 1 AC 876 Anisminic Ltd Foreign Compensation Commission [1969] AC 147 Bobb v Wombat Securities [2013] NSWSC 757 Bondelmonte v Bondelmonte [2017] HCA 8 Bridges v Norling Trading as Itravel Forster [2016] FCCA 212 Cheung v Burness [2016] FCA 1381 Community Housing Ltd v Clarence Valley Council (2015) 90 NSWLR 292 Corney v Brien [1951] HCA 31; (1951) 84 CLR 343 Craig v South Australia [1995] HCA 58; (2002) 209 CLR 597 | ||
| Applicant: | NATALIE OBRART | |
| Respondent: | TONY GREGO |
| File Number: | SYG 2268 of 2016 |
| Judgment of: | Judge Manousaridis |
| Hearing dates: | 6 December 2016, 15 February 2017 |
| Date of Last Submission: | 19 April 2017 |
| Delivered at: | Sydney |
| Delivered on: | 9 May 2017 |
REPRESENTATION
| Solicitors for the Applicant: Kent Attorneys (Mr T. Orlizki) |
| Respondent appeared in person |
ORDERS
The applicant has leave to reopen her case by adducing what the applicant asserts is a complete copy of the affidavit of Naomi Cherie Boyce sworn on 17 June 2014.
Pursuant to s.136 of the Evidence Act 1995 (Cth) the use of the affidavit referred to in order 1 is limited to evidence of the costs agreements the applicant claims were attached to the two applications for costs assessment the applicant lodged on 10 September 2013.
The creditor’s petition is dismissed.
The applicant pay to the respondent such costs to which the respondent may be entitled as an unrepresented litigant.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2268 of 2016
| NATALIE OBRART |
Applicant
And
| TONY GREGO |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant, Ms Obrart, is a barrister. She applies for a sequestration order against the estate of the respondent, Mr Grego, who was a director of Ms Obrart’s former client, Rosebridge Nominees Pty Limited (Rosebridge Nominees). The act of bankruptcy on which Ms Obrart relies is Mr Grego’s failure to comply with the requirements of a bankruptcy notice that was served on him on 11 March 2016.[1]
[1] Affidavit of N Iannetta, 09.08.2016
The bankruptcy notice demanded payment of two judgment debts totalling $341,347.95 (Judgment) that were entered against Mr Grego in the District Court of New South Wales on 9 November 2015. The amount of the Judgment is the sum of two costs determinations that were purportedly made under s.367(1) of the Legal Profession Act 2004 (NSW) (LP Act),[2] and which are recorded in two certificates of determination of costs dated 21 January 2015 (Costs Certificates) that were purportedly issued under s.368(1) of the LP Act. The first Costs Certificate is for $198,026.29,[3] and the second Costs Certificate is for $143,321.66.[4] The Costs Certificates were issued in response to two applications for assessment of costs Ms Obrart made on 10 September 2013 pursuant to s.352 of the LP Act.[5] The applications related to legal services Ms Obrart provided to Rosebridge Nominees, and disbursements Ms Obrart incurred, in connection with proceedings Rosebridge Nominees had commenced in the Supreme Court of Western Australia. The legal services Ms Obrart provided are described in four invoices.
[2] The LP Act has been repealed.
[3] Affidavit of T Grego 05.10.2016, annexure TG-25 (pages 103 -104)
[4] Affidavit of T Grego 05.10.2016, annexure TG-38 (pages 131 -132)
[5] Affidavit of T Grego 05.10.2016, annexure TG-21 (pages 90-93) and annexure TG-33 (pages 118-121)
Mr Grego, who is not legally represented, does not dispute Ms Obrart is in a position to prove the matters specified in s.52(1) of the Bankruptcy Act 1966 (Cth) (Act). He claims, however, that a sequestration order ought not to be made because the debts the Judgment purports to evidence are not true debts. Mr Grego relies on three grounds for claiming there are, in truth, no debts behind the Judgment:
a)First, the costs agreement purportedly pursuant to which Ms Obrart issued three of the four invoices that were assessed, and which resulted in the issue of the first Costs Certificate, is void.
b)Second, the costs assessor purported to assess the costs described in the last of Ms Obrart’s four invoices, which resulted in the issue of the second Costs Certificate, on the basis of a costs agreement by reference to which the invoice was stated not to have been issued.
c)Third, Ms Obrart supported her applications for assessment of costs with a fabricated costs disclosure letter.
After the hearing I invited Mr Orlizki, the solicitor for Ms Obrart, to provide submissions about whether the costs assessor assessed Ms Obrart’s costs on the assumption that, in the absence of any objection from Mr Grego and the other costs respondents, the costs assessor was entitled to assume that the work identified in Ms Obrart’s invoices was reasonably performed and that, if the costs assessor did so assume, whether he fell into jurisdictional error. I also invited Ms Obrart to apply for leave to reopen her case by providing evidence of the costs agreements that were attached to each of the applications for assessment of costs. Mr Orlizki responded to my invitation by providing submissions, and by applying for leave to reopen Ms Obrart’s case by tendering a complete copy of an affidavit only part of which, Mr Orlizki said, was tendered at the hearing. Mr Grego filed submissions in response.
In these reasons for judgment, therefore, I consider whether there are substantial reasons for questioning the validity of the Costs Certificates and, for that reason, whether I should go behind the Judgment; and, if I decide I should go behind the Judgment, consider whether I am satisfied the Costs Certificates are valid such that I may be satisfied that the Judgment is based on true debts. Before I consider these matters, it will be necessary to lay some groundwork.
a)First, I will consider whether the LP Act, a New South Wales statute, applied to the work described in Ms Obrart’s invoices, given that the work related to a proceeding in the Supreme Court of Western Australia; and the mechanism provided by the LP Act for the assessment and recovery of legal costs based on a costs agreement.
b)Second, I will set out the facts and evidence that are relevant to assessing Mr Grego’s claims. Unless I say otherwise, any statement of fact I there set out should be taken to reflect a finding of the fact I state.
c)Third, I will describe the principles that are relevant to determining the circumstances in which a bankruptcy court may go behind a judgment on the basis of which a bankruptcy notice has been issued, and how those principles apply to a judgment based on a costs certificate that has been issued purportedly pursuant to the LP Act, and lodged with a court as permitted by the LP Act.
Assessment and recovery of legal costs under the LP Act
The purposes of the LP Act were “to provide for the regulation of legal practice in this jurisdiction in the interests of the administration of justice and for the protection of clients of law practices and the public generally” and to “facilitate the regulation of legal practice on a national basis across State and Territory borders”.[6] Consistently with these purposes, the LP Act contained detailed provisions that regulated the provision of legal services in New South Wales by “local lawyers” and “interstate lawyers”. One of the matters the LP Act regulated was the charging, assessment, and recovery of legal costs; and the relevant provisions were contained in Part 3.2 of the LP Act.
[6] LP Act, s.3
Application of Part 3.2 of the LP Act
The provisions of Part 3.2 of the LP Act applied to matters, and only to matters that had a connection with “this jurisdiction”, that is, New South Wales.[7] There are two relevant connections. The first is that specified by s.303 of the LP Act:
This Part applies to a matter if the client first instructs the law practice in relation to the matter in this jurisdiction.
[7] “This jurisdiction” was defined in s.4 of the LP Act to mean “this State”
“Client” was defined to include “a person to whom or for whom legal services are provided”,[8] and “law practice” was defined to mean, among other things, “an Australian legal practitioner who is a sole practitioner”.[9] An “Australian legal practitioner” was defined to mean an “Australian lawyer who holds a current local practising certificate or a current interstate practising certificate”.[10] Under s.306 of the LP Act, a client was taken to first instruct a law practice “in relation to a matter in a particular jurisdiction if the law practice first receives instructions from or on behalf of the client in relation to the matter in that jurisdiction, whether in person or by post, telephone, fax, e-mail or other form of communication”.
[8] LP Act, s.4
[9] LP Act, s.4
[10] LP Act, s.4
The second connection with New South Wales was that stated in s.304(1) of the LP Act:
This Part applies to a matter if:
(a) either:
(i) this Part does not currently apply to the matter, or
(ii) it is not possible to determine the jurisdiction in which the client first instructs the law practice in relation to the matter, and
(b) either:
(i) the legal services are or will be provided wholly or primarily in this jurisdiction, or
(ii) the matter has a substantial connection with this jurisdiction,
or both, and
(c) either:
(i) the client accepts, in writing or by other conduct, a written offer to enter into an agreement under subsection (2)(a) in respect of the matter, or
(ii) the client gives a notification under subsection (2) (b) in respect of the matter.
Subsection 304(2) of the LP Act provided:
For the purposes of subsection (1)(c), the client may:
(a) accept, in writing or by other conduct, a written offer that complies with subsection (2A) to enter into an agreement with the law practice that this Part is to apply to the matter, or
(b) notify the law practice in writing that the client requires this Part to apply to the matter.
Subsection 304(2A) of the LP Act provided:
An offer referred to in subsection (2) (a) must clearly state:
(a) that it is an offer to enter into an agreement that this Part is to apply to the matter, and
(b) that the client may accept it in writing or by other conduct, and
(c) the type of conduct that will constitute acceptance.
Also relevant is s.304(3) of the LP Act, which provided:
A notification has no effect for the purposes of subsection (2) (b) if it is given after the period of 28 days after the law practice discloses to the client (under a corresponding law) information about the client’s right to make a notification of that kind, but nothing in this subsection prevents an agreement referred to in subsection (2) (a) from coming into effect at any time.
The effect of s.303 and s.304 of the LP Act is that Part 3.2 of the LP Act applied where the client first instructed a law practice in New South Wales in relation to a matter. The second is where Part 3.2 did not apply to the matter or it is not possible to determine the jurisdiction in which the client first instructed the law practice in relation to the matter. Here, Part 3.2 of the LP Act applied if:
a)the legal services in relation to the matter were to be provided wholly or primarily in New South Wales or if the matter in relation to which legal services were to be provided had a substantial connection with New South Wales; and
b)the client either accepted a written offer made by the law practice in the manner prescribed by s.304(2A) of the LP Act that Part 3.2 would apply to the matter, or the client notified the law practice that the client required Part 3.2 of the LP Act to apply to the matter.
As will be apparent later in these reasons, there no direct evidence about where Ms Obrart first received instructions to provide the legal services for which she issued her invoices. Given Ms Obrart practised in New South Wales, I am satisfied Ms Obrart first received instructions in New South Wales to provide legal services to Rosebridge Nominees. That is so, even though, as I will show later, on the evidence before me, the first conversation relating to Ms Obrart’s providing legal services to Rosebridge Nominees occurred in Western Australia. An available inference is that Ms Obrart travelled to Western Australia only after she had received instructions in New South Wales to provide legal services to Rosebridge Nominees. I am satisfied, therefore, that the LP Act applied to the legal services Ms Obrart provided to Rosebridge Nominees, and to Ms Obrart’s charging for those services.
Assessment and recovery of legal costs
Subsection 319(1) of the LP Act provided that legal costs were recoverable on three bases, one of which was “under a costs agreement made in accordance with Division 5” of Part 3.2 of the LP Act. A “costs agreement” was defined to mean “an agreement about the payment of legal costs”.[11] Such agreement could have been made between, among others, a “client and a law practice retained by the client”,[12] or between “a law practice and an associated third party payer”,[13] and had to be in writing.[14] The expression “associated third party payer” was defined in s.302A(1)(b) of the LP Act to mean a “third party payer” referred to in s.302A(1)(a) who owed to a law practice an obligation of the sort referred to in that paragraph, whether or not that obligation was owed to the client or another person. The expression “third party payer” was defined in s.302A(1)(a) of the LP Act as, among other things, a person who was not the client of a law practice who was under an obligation to pay all or any part of the legal costs for legal services provided to the client.
[11] LP Act, 302(1)
[12] LP Act, s.322(1)(a)
[13] LP Act, s.322(1)(d)
[14] LP Act, s.322(2)
Section 326 of the LP Act provided that a costs agreement “may be enforced in the same way as any other contract”. That, however, was subject to Division 5 (which dealt with costs agreements) and Division 11 (which dealt with costs assessments). Of relevance to the case before me are the provisions of Division 11 of Part 3.2. Subsection 352(1) of the LP Act provided that a law practice that has given a bill to a client may apply to the Manager, Costs Assessment for an assessment of the whole or any part of the legal costs to which the bill relates. The Manager, Costs Assessment was required to refer each application for costs assessment to a costs assessor to be dealt with under Division 11 of Part 3.2.[15]
[15] LP Act, s.357(1)
A costs assessor was required to assess the amount of any disputed costs that are subject to a costs agreement by reference to the provisions of the costs agreement if a relevant provision of the costs agreement specified the amount, or the rate or other means for calculating the amount of the costs.[16] Subsection 363(1) of the LP Act provided that:
[16] LP Act, s.361(1)
In conducting an assessment of legal costs, the costs assessor must consider:
(a)whether or not it was reasonable to carry out the work to which the legal costs relate, and
(b)whether or not the work was carried out in a reasonable manner, and
(c) the fairness and reasonableness of the amount of legal costs in relation to the work, except to the extent that section 361 or 362 applies to any disputed costs.
Subsection 363(2) of the LP Act identified matters the costs assessor was entitled, but not required, to take into account when conducting a costs assessment. These included the retainer and whether the work done was within the scope of the retainer,[17] the complexity, novelty, or difficulty of the matter,[18] the quality of the work done,[19] and the time within which the work was required to be done.[20] The end result of a costs assessment of a bill was stated in s.367(1) of the LP Act:
A costs assessor is to determine an application for a costs assessment relating to a bill by confirming the bill or, if the assessor is satisfied that the disputed costs are unfair or unreasonable, by substituting for the amount of the costs an amount that, in the assessor’s opinion, is a fair and reasonable amount.
[17] PL Act, s.362(2)(f)
[18] LP Act, s.363(2)(g)
[19] LP Act, s.363(2)(h)
[20] LP Act, s.363(2)(j)
On making a determination, the costs assessor was required “to issue a certificate that sets out the determination”.[21] Subsection 368(5) of the LP Act provided:
In the case of an amount of costs that has not been paid, the certificate is, on the filing of the certificate in the office or registry of a court having jurisdiction to order the payment of that amount of money, and with no further action, taken to be a judgment of that court for the amount of unpaid costs, and the rate of any interest payable in respect of that amount of costs is the rate of interest in the court in which the certificate is filed.
[21] LP Act, s.368(1)
Section 372 of the LP Act provided that a costs assessor’s determination of an application is “binding on all parties to the application and no appeal or other assessment” was available “in respect of the determination, except as provided by” Subdivision 5 of Division 11. That Subdivision allowed the making of an application for review by a panel of two costs assessors.[22] It also provided for an appeal to the District Court of New South Wales from a costs assessor’s or a panel’s determination “as to a matter of law”.[23]
[22] LP Act, s.373(1)
[23] LP Act, s.384(1); s.382(1), s.384(1)
Factual background
The relevant events begin with a conversation Mr Grego had with Ms Obrart on or about 5 September 2012. On that day Mr Grego discussed with Ms Obrart “her total legal fees”.[24] Ms Obrart advised that her “rate was normally $360.00 per hour however in the matter between Rosebridge Nominees & CBA Bank” she would agree to a “Set Fee” in the amount of $150,000.
[24] Affidavit of T Grego 05.10.2016, [7]
The “matter between Rosebridge Nominees & CBA Bank” appears to be a reference to the proceeding that was the subject of the judgment of Le Miere J in Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia [No.4].[25] Ms Obrart appeared as counsel for Rosebridge Nominees. That she was retained to represent Rosebridge Nominees in a proceeding before the Supreme Court of Western Australia is confirmed by an affidavit her solicitor, Mr Kent, made and filed in the District Court of New South Wales in opposition to Mr Grego’s application to set aside the Judgment. Mr Kent deposed Ms Obrart “was retained to appear in proceedings in the Supreme Court of Western Australia in which Rosebridge Nominees Pty Ltd . . . was the plaintiff”.[26]
[25] [2013] WASC 353.
[26] Exhibit A, being affidavit of R J Kent 13.10.2016, [4(a)]
On 7 September 2012 Mr Grego received an email form Ms Obrart’s assistant attaching “your Costs Agreement and Disclosure in the matter of Rosebridge”.[27] Attached to the email was a letter dated 5 September 2012 addressed to Rosebridge Nominees, Mr Grego, and two others (first 5 September costs agreement offer).[28] Under each name there was typed in brackets the word “Client”. (When I intend to refer to all four addressees as a group, I will refer to them as the “Clients”). The letter begins by stating “[t]hank you for the brief to advise, appear and draft documents”. It then states “[t]his document is an offer to enter into a costs agreement with you”, and that the “disclosure requirements which I am required to provide you under the” LP Act “are annexed to this document”. The letter further states that the offer may be accepted orally, or by signing and returning a copy of the document, or “by giving me instructions after receiving this document”. Under the heading “[w]ork to be performed”, the letter states:
I am briefed to draft documents, advise and appear in this matter and do all things necessary for the purpose of drafting documents, providing advice and appearing.
[27] Affidavit of T Grego 05.10.2016, [8], annexure TG-01 (page 10)
[28] Affidavit of T Grego 05.10.2016, [8], annexure TG-02 (pages 11-12)
Attached to the first 5 September costs agreement offer was a further letter, also dated 5 September 2012, and also addressed to the Clients (first 5 September costs disclosure letter).[29] The letter states:
This document discloses information about the costs of my legal services, and your rights, pursuant to the Legal Profession Act 2004 (NSW). I also enclose a standard costs agreement.
[29] Affidavit of T Grego 05.10.2016, [8], annexure TG-03 (pages 13-16)
The first 5 September costs disclosure letter stated Ms Obrart proposed to charge at the hourly rate of $400 (plus GST), and $3,900 (plus GST) for every full day’s appearance in court. The letter also gave an estimate of $150,150 (inclusive of GST).
According to Ms Obrart’s invoice dated 28 November 2012,[30] she travelled to Perth on 8 September 2012 where she remained until 13 September 2012. When Ms Obrart was in Perth, Mr Grego, Mr Ravlich (one of the Clients), and Ms Obrart agreed that Ms Obrart’s disbursements would be paid within 30 days from date of invoice, and the professional fees of $150,000 would be paid by three instalments of $50,000.[31]
[30] Affidavit of T Grego 05.10.2016 annexure TG-11 (pages 48-50)
[31] Affidavit of T Grego 05.10.2016, [9].
Ms Obrart again travelled from Sydney to Perth on 23 September 2012 where she remained until 14 October 2012.[32] On 26 September 2012 Mr Obrart’s assistant sent an email to Mr Grego in which she stated: “As per your conversation with Ms Obrart today attached are the revised Costs Agreement and Costs Disclosure”.[33] Attached to the email was a letter dated 5 September 2012 addressed to the Clients (second 5 September costs agreement offer).[34] It is signed by Ms Obrart’s assistant on behalf of Ms Obrart, but its contents are identical to the first 5 September costs agreement offer. Attached to the second 5 September costs agreement offer is a letter dated 26 September 2012 addressed to the Clients (26 September costs disclosure letter).[35] This document provided for an hourly rate of $440 (plus GST) and an estimate of $165,176. It also included the following:
[32] Affidavit of T Grego 05.10.2016 annexure TG-11 (pages 49-50)
[33] Affidavit of T Grego 05.10.2016, [10] annexure TG-04 (page 17)
[34] Affidavit of T Grego 05.10.2016, [10] annexure TG-05 (pages 18, 19)
[35] Affidavit of T Grego 05.10.2016, [10] annexure TG-05 (pages 20-25)
2 Uplift fees
I will charge you on the successful outcome of the matter a premium of 25% of my usual professional fees and charges as uplift.
By email sent on 21 November 2012 Mr Grego received a letter dated 21 November 2012 (21 November costs disclosure letter).[36] The contents of this letter are identical to the contents of the 26 September costs disclosure letter. It provided for an hourly rate of $440 (plus GST) and an estimate of costs of $165,176.
[36] Affidavit of T Grego 05.10.2016, [14] annexure TG-07 (pages 30-34)
There is in evidence another costs disclosure letter dated 26 September 2012 (questioned 26 September costs disclosure letter).[37] It is unsigned. It is, however, identical to the 26 September costs disclosure letter, except in one respect: it contains a different estimate of costs. The questioned 26 September costs disclosure letter estimates Mr Obrart’s costs to be $319,088, whereas the 26 September costs disclosure letter estimates Ms Obrart’s costs to be $165,176. Mr Grego has said the following about the questioned 26 September costs disclosure letter:[38]
During the costs assessment in October-December 2014 a [sic] unsigned Fee Disclosure was provided to the costs assessor by Ms Obrart dated 26th September 2012 in the amount of $319,088. The Fee Disclosure document is purported to have be [sic] sent to me on behalf of all the parties. I was never sent the document it is a complete fabrication. The unsigned Fee disclosure is misleading and deceptive.
[37] Affidavit of T Grego 05.10.2016, [13] annexure TG-06 (pages 25-29)
[38] Affidavit of T Grego 05.10.2016, [12]
The only part of this passage from Mr Grego’s evidence I am entitled to treat as evidence is Mr Grego’s identifying the questioned 26 September costs disclosure letter, and his saying he was not provided with that letter. The rest of the passage I will treat as a claim.
Ms Obrart has given, and has called, no evidence about whether the questioned 26 September costs disclosure letter was prepared by her or on her instructions, or of what knowledge, if any, she has or had of that letter. At the hearing on 6 December 2016 Mr Orlizki, who appeared for Ms Obrart, initially appeared to have assumed that the questioned 26 September costs disclosure letter was produced by or on behalf of Ms Obrart.[39] Later, however, Mr Orlizki submitted there is no evidence the document is authentic;[40] and he also submitted there is no evidence the questioned 26 September costs disclosure letter was provided to the costs assessor.[41] In any event, Mr Orlizki submitted that whether or not the questioned 26 September costs disclosure letter was a fabrication is not relevant to any issue I have to determine.
[39] 06.12.2016 T70.1, where, in response to my question of “what accounts for the document”, Mr Orlizki said: “The only thing I can imagine is that it’s simply an aberration. It’s simply a document that was prepared by Ms Obrart and perhaps she thought better of it. I don’t know.”
[40] 06.12.2016 T72.5
[41] 06.12.2016 T70.25
There is in evidence a letter dated 22 April 2013 (22 April costs agreement offer). This is addressed to the Clients, but also to John Park of Parkinfoot Legal Solutions.[42] The letter refers to a further costs disclosure document (22 April costs disclosure letter). That document provides an hourly charge of $440 (plus GST), and contains a costs estimate of $198,000.[43] Mr Grego asserts these documents were provided to the costs assessor, but also claims the letter was not sent to him.[44] There is in evidence, however, an email dated 22 April 2013 sent from Ms Obrart’s assistant to Mr Grego attaching the 22 April costs disclosure letter.[45] I therefore find that the 22 April costs agreement offer and 22 April costs disclosure letter were sent to Mr Grego.
[42] Affidavit of T Grego 05.10.2016, [17]; annexure TG-09 (pages 38-39)
[43] Affidavit of T Grego 05.10.2016, [17]; annexure TG-09 (pages 40-43)
[44] Affidavit of T Grego 05.10.2016, [16]
[45] Affidavit of J Williams, [5] annexure “C”
On 28 November 2012, 17 December 2012, 22 April 2013, and 24 July 2013, Ms Obrart sent to Mr Grego invoices for $112,288, $103,737, $77,197.96, and $139,210.88 respectively.[46] Each invoice stated that “[t]this invoice is pursuant to our fee agreement dated 5 September 2012”. As I have already noted, Mr Grego received two identical letters dated 5 September 2012 (namely, the first and second 5 September costs offer letters) but two different costs disclosure letters that differed in the hourly rate Ms Obrart proposed to charge, and in the inclusion of a 25% uplift in the 26 September costs disclosure letter.
[46] Affidavit of T Grego 05.10.2016, [20], [21], [22], [26] annexures TG-12, TG-13, TG-14, TG-18 (pages 48-57, 72-78)
There are a number of matters to note about the four invoices Ms Obrart issued. First, the amounts were charged at the hourly rate of $440 (exclusive of GST). It appears, therefore, Ms Obrart purported to charge on the assumption Mr Grego and the other Clients accepted the offer contained in the second 5 September costs offer letter. Second, the invoices dated 28 November 2012 and 17 December 2012 are addressed to the Clients and to two additional persons, Mr Fazio and Mr Ravlich, who were not identified as Clients in the first or second 5 September costs agreement offer letters. Third, the invoices dated 22 April 2013 and 24 July 2013 are addressed to seven people, these being the Clients, Mr Fazio, Mr Ravlich, and Mr John Park of Parkinfoot Legal Solutions.
In addition to these invoices, Ms Obrart issued disbursement invoices, one dated 10 October 2012 for $13,764.73,[47] one dated 16 November 2012 for $9,385.13,[48] one dated 19 June 2013 for $8,865.07,[49] one dated 26 June 2013 for $3,694.16,[50] and one dated 1 July 2013 for $208.71.[51] The invoices claiming payment of these disbursements were included in Ms Obrart’s second application for assessment of costs.
[47] Affidavit of T Grego 04.10.2016, [18]; annexure TG-10 (pages 44-45)
[48] Affidavit of T Grego 04.10.2016, [19]; annexure TG-11 (pages 46-47)
[49] Affidavit of T Grego 04.10.2016, [23]; annexure TG-15 (pages 63-65)
[50] Affidavit of T Grego 04.10.2016, [24]; annexure TG-16 (pages 66-69)
[51] Affidavit of T Grego 04.10.2016, [25]; annexure TG-17 (pages 70-71)
On 10 September 2013 Ms Obrart filed an “Application by Legal Practice For Assessment of Costs” (first application for costs assessment).[52] It names the Clients, including Mr Grego, as the costs respondents. It also names Mr Fazio and Mr Ravlich as costs respondents, even though, as I have already noted, these two gentlemen are not identified as Clients or otherwise in any of the costs agreement offers. Paragraph 2 of the application states:
[52] Affidavit of T Grego 04.10.2016, [30]; annexure TG-21 (pages 90-93)
COSTS OF RETAINED LAW PRACTICE WHERE APPLICATION FOR ASSESSMENT MADE BY INSTRUCTING LAW PRACTICE
(a)The costs which are the subject of this application were included in the retained law practice’s bill of costs dated 28/11/2012, 17/12/2012 and 22/04/2012 copies of which are attached. The bills were given to the clients on the above dates.
(b)There is a costs agreement between the client and the retained law firm practice (copy attached).
Also on 10 September 2013 Ms Obrart filed a second “Application by Legal Practice For Assessment of Costs” (second application for costs assessment).[53] It names the Clients, including Mr Grego, as costs respondents as well as Mr Fazio and Mr Ravlich. It also includes “Parkinfoot Legal Solutions” as a costs respondent. Paragraph 2 of the application states:
[53] Affidavit of T Grego 05.10.2016, [41]; annexure TG-33 (pages 118-121)
COSTS OF RETAINED LAW PRACTICE WHERE APPLICATION FOR ASSESSMENT MADE BY INSTRUCTING LAW PRACTICE
(a)The costs which are the subject of this application were included in the retained law practice’s bill of costs dated 26/06/2013, 1/07/2013 and 24/07/2013 a [sic] copies of which are attached. The bill was [sic] given to the clients on the above dates.
(b)There is a costs agreement between the client and the retained law firm practice (copy attached).
Mr Orlizki, who appeared at the hearing for Ms Obrart, tendered a bundle of documents that included the first and second applications for assessment of costs.[54] The bundle included an affidavit of service made by Ms Boyce who deposed, among other things, to having served on Mr Grego the first and second applications for assessment of costs. The affidavit annexed the applications, but not the “costs agreement between the client and the retained law firm practice” which each application stated was attached to the application, or the invoices.
[54] Exhibit C, pages 36-41
As I noted at the beginning of these reasons, after I reserved my decision, and at my request, an email was sent to the parties in which I invited Mr Orlizki to make submissions about a number of matters. Also by that email, I invited Ms Obrart to apply for leave to reopen her case to tender the costs agreements that were stated in each of the applications for costs assessment to be attached to those applications. I made that invitation because Mr Grego claimed the questioned 26 September costs disclosure letter[55] was a fabrication, and, given the seriousness of Mr Grego’s allegation, I wished to give Ms Obrart a further opportunity to provide such evidence as was available to her to deny the charge of fabrication.
[55] Affidavit of T Grego 05.10.2016, [12]
Ms Obrart filed written submissions prepared by Mr Orlizki (Applicant’s Supplementary Submissions) in which he said that only an incomplete copy of Ms Boyce’s affidavit had been tendered at the hearing “to try to keep the paperwork to manageable levels and without an appreciation of the importance of the complete Affidavit”.[56] Mr Orlizki then stated he intended to apply for leave to reopen Ms Obrart’s case to read the affidavit of Ms Boyce in full, and he provided what Mr Orlizki said was a complete paginated copy of Ms Boyce’s affidavit (Boyce paginated affidavit).[57] The Boyce paginated affidavit has annexed to it the following documents which appear behind a copy of the first application for costs assessment, which is also annexed to that affidavit:
a)A letter dated 5 September 2012 from Ms Obrart to the Clients.[58] This appears to be the same as the first 5 September costs agreement offer.[59]
b)A letter dated 5 September 2012 to the Clients.[60] This appears to be the same as the first 5 September costs disclosure letter.[61]
c)A letter dated 26 September 2012 to the Clients.[62] This appears to be the same as the 26 September costs disclosure letter.[63]
d)A letter dated 21 November 2012 to the Clients (New 21 November Letter).[64] This appears to be the same document as the questioned 26 September costs disclosure letter[65] except that it is dated 21 November 2012 rather than 26 September 2012. No party at the hearing sought to tender a letter in this form. The New 21 November Letter also appears to be the same as the 21 November costs disclosure letter,[66] except the costs estimate is different. The New 21 November Letter gives a costs estimate of $319,088, whereas the 21 November costs disclosure letter gives a costs estimate of $165,176.
[56] Applicant’s Supplementary Submissions, [48(b)]
[57] Applicant’s Supplementary Submissions, [48], [50]
[58] Boyce paginated affidavit, pages 9, 10
[59] Affidavit of T Grego 05.10.2016, [8], annexure TG-02 (pages 13-16)
[60] Boyce paginated affidavit pages 11-14
[61] Affidavit of T Grego 05.10.2016, [8], annexure TG-03 (pages 13-16)
[62] Boyce paginated affidavit, pages 15-19
[63] Affidavit of T Grego 05.10.2016, [10] annexure TG-05 (pages 20-25)
[64] Boyce paginated affidavit, pages 20-24
[65] Affidavit of T Grego 05.10.2016, [14] annexure TG-06 (pages 25-29)
[66] Affidavit of T Grego 05.10.2016, [14] annexure TG-07 (pages 30-34)
As to the second application for assessment of costs, the Boyce paginated affidavit annexes the 22 April costs agreement offer,[67] and the 22 April costs disclosure letter.[68]
[67] Boyce paginated affidavit, pages 47-548. The 22 April costs agreement offer is annexure TG-09 (pages 38-39) to the affidavit of T Grego 05.10.2016
[68] Boyce paginated affidavit, pages 49-52. The 22 April costs disclosure letter is annexure TG-09 (pages 40-43) to the affidavit of T Grego 05.10.2016
In the Applicant’s Supplementary Submissions, Mr Orlizki said that, if leave to reopen were to be granted, Ms Obrart intended to submit as follows:
52.To the Application for Assessment in Case 274226 of 2013 [that is, the first application for assessment of costs] there are three costs agreements dated 5 September 2012 (page 9), 26 September 2012 (page 15) and 21 November 2012 (page 20). As disclosed in the Reasons for the Certificate, the Costs Assessor determined that the costs agreement dated 26 September 2012 (page 15) was the operative agreement. As that costs agreement formed part of the relevant Application, it was open to the Costs Assessor to so determine.
53.To the Application for Assessment in Case Number 274256 of 2013 is a costs agreement dated 22 April 2013 (page 47). As disclosed in the Reasons for the Certificate, the Costs Assessor determined that the costs agreement dated 22 April 2013 applied.
54.The Applicant did not submit any costs agreement in relation to either assessment other than those referred to in the above paragraphs and which the Costs Assessor referred to. In any event, the Reasons disclose the costs agreements that were accepted and those costs agreements were attached to the Applications.
55.Now that the Applications for Assessment of Costs and the documents to those applications are in evidence, the contention that a fabricated document was submitted to the Costs Assessor is unsustainable.
The submission made in paragraph 55 of the Applicant’s Supplementary Submissions appears to have been made in ignorance of the 21 November costs disclosure letter.[69] As I have already noted, the New 21 November Letter contains a costs estimate of $319,088, whereas the 21 November costs disclosure letter contains a costs estimate of $165,176. There is no suggestion in the evidence that Mr Grego had been provided with the New November Letter before 10 September 2013 when Ms Obrart applied for the assessment of her costs. Contrary to the submission made in paragraph 55 of the Applicant’s Supplementary Submissions, therefore, and assuming, as Ms Obrart now submits, she attached to her application for assessment of costs the New 21 November letter, and assuming I were to grant her leave to read the Boyce paginated affidavit, there would be evidence on the basis of which, if unexplained, it could reasonably be inferred that Ms Obrart submitted to the costs assessor a fabricated document. The fabricated document would be the New 21 November Letter, and the fabrication would be the alteration of the costs estimate made in the 21 November costs disclosure letter from $165,176 to $319,088.
[69] Affidavit of T Grego 05.10.2016, [14] annexure TG-07 (pages 30-34)
By letters dated 2 June 2014 addressed to Mr Grego, the Manager, Costs Assessment, in each of the first and second applications for costs assessment, stated that an application for assessment of costs was filed on 10 September 2013, and that “any objection to the application must be lodged” by 14 July 2014.[70] In his affidavit of 4 October 2016 Mr Grego appears to accept he received these letters; and in cross-examination he admitted he received them.[71] That is so, even though he claimed the affidavit of service was a fabrication.[72] At any rate, Mr Grego does not rely as a ground for resisting the creditor’s petition that he was not given notice of Ms Obrart’s applications for assessment of costs. I therefore do not make any finding Mr Grego had been provided with a copy of the applications for costs assessment.
[70] Affidavit of T Grego 05.10.2016, [32], [43]; annexures TG-22 and TG-35 (pages 95 and 123)
[71] 06.12.2016 T48.40-49.5
[72] Affidavit of T Grego 24.01.2017, [13.2]
By letters dated 21 October 2014 the costs assessor provided to the parties to each of the two applications for costs assessment a notice of the costs assessor’s requirements.[73] In each of the notices the costs assessor stated the “Client” should within twenty one days forward to the costs assessor:
a)a “short summary of the dispute regarding costs”;
b)a “schedule of specific items of the Respondents costs which are disputed and why”,
c)“any document supporting or in relation to the dispute”, and
d)“any submissions you wish to make in relation to the application (see Section 359(1)(a) of the Act)”.
[73] Affidavit of T Grego 04.10.2016, [32], [43]; annexures TG-24 and TG-36 (pages 96-102 and 124-128)
The notices also stated that the “Practitioner” should provide:
a)“particulars of the identity of the persons who did the work”,
b)“correspondence with the Applicant regarding costs”,
c)all “time records in relation to the file”; and
d)“any submissions you wish to make in relation to the application (see Section 359(1)(a) of the Act)”.
On 21 January 2015 the costs assessor issued a certificate for each of the first and second applications for costs assessment. In his reasons in relation to the first application, the costs assessor said the “Costs Applicant”, that is, Ms Obrart, represented “the Clients” (which are said to have consisted of the Clients and Mr Fazio and Mr Ravlich) in relation “to the Proceedings prior to 22 April 2013”, and that another application for costs assessment “relates to fees for the Proceedings after this date”. The costs assessor said:[74]
On 26 September 2012 the Costs Applicant sent to the Clients a Costs Agreement and Fee Disclosure Document. The Costs Agreement sets out the basis on which the Costs Applicant was to be paid for the work she performed in the proceedings.
[74] Affidavit of T Grego 04.10.2016, [35]; Annexure TG-26 (pages 105-106) ([5])
The costs assessor also said (emphasis added):[75]
[6] I have not received any submissions or Objections from the Costs Respondents. I am satisfied that the Application for Assessment of Costs was given to the Costs Respondents. I wrote to them enclosing Notices setting out the requirements for the Assessment on 21 October 2014 and 23 December 2014. I am satisfied that all parties have had an opportunity to make submissions or provide me with documents or particulars of their position in relation to this assessment.
[7] I assume that the Clients have no Objections to the costs of the Costs Applicant. They are calculated in accordance with the Costs Agreement and are otherwise fair and reasonable. There being no Objection to the work performed by either the Clients or the Solicitors I assume that all of the work was reasonably performed.
[8] I also assume that the disbursements were reasonably incurred and appear to be fair and reasonable as to amount.
[9] I affirm the fees and disbursements of the Costs Applicant in the sum of $198,026.29 and issue a certificate accordingly.
[75] Affidavit of T Grego 04.10.2016, [35]; Annexure TG-26 (pages 105-106)
In his reasons in relation to the second application for assessment of costs, the costs assessor noted that on “23 April 2013 the Costs Applicant sent to the Clients and the Solicitor a Costs Agreement and Fee Disclosure Document”, and that the “Costs Agreement sets out the basis upon which the Costs Applicant was to be paid for the work she performed in the proceedings”.[76] The costs assessor referred to “Objections and submissions of the solicitors filed on 3 October 2014 together with annexures”. The “solicitors” are “Parkinfoot Legal Solutions” who were named as first costs respondents. The costs assessor said (emphasis added):
[76] Affidavit of T Grego 04.10.2016, [44]; Annexure TG-39 (pages 133-136)
[8] I assume that the Clients [all of the costs respondents except Parkinfoot Legal Solutions] have no objection to the costs of the Costs Applicant. They are calculated in accordance with the Costs Agreement and are otherwise fair and reasonable. There being no Objection to the work performed by either the Clients or the Solicitors I assume that all of the work was reasonably performed.
[9] I also assume that the disbursements were reasonably incurred and appear to be fair and reasonable as to amount.
. . . .
[17] I affirm the costs claimed in the Application for Assessment of Costs by the Clients (the Second to Sixth Costs Respondents) as $143,321.66.
[18] I issue a Certificate of Assessment of Costs accordingly.
The costs assessor found the first costs assessment respondents were not liable because they did not accept the 22 April costs agreement offer.
Leave to reopen case
It is appropriate that I consider here whether I should grant Ms Obrart leave to reopen her case by permitting her to introduce into evidence the Boyce paginated affidavit. I propose to grant Ms Obrart leave to reopen her case by permitting her to read the Boyce paginated affidavit. I will do so, however, only to the extent Ms Obrart relies on the Boyce paginated affidavit as evidence of the costs agreements she claims were attached to the applications for costs assessment. For reasons that should become apparent, my granting leave for this limited purpose will not prejudice Mr Grego. Accordingly, I will admit the Boyce paginated affidavit into evidence, mark it as “Exhibit D”, and order, pursuant to s.136 of the Evidence Act 1995 (Cth), that its use be limited to evidence of the costs agreements Ms Obrart claims were attached to the two applications for costs assessment.
Legal principles – going behind judgments
In most cases courts of bankruptcy accept judgment debts as recording a true debt, and accept a judgment debtor’s failure to pay the judgment debt demanded in a bankruptcy notice as an act of bankruptcy.[77] A judgment debt, however, “is never conclusive in bankruptcy”; it “does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment”.[78] Courts of bankruptcy, therefore, hold in reserve the power to inquire into whether the judgment debt is in fact based on a true debt. And a bankruptcy court’s determining whether a debt recorded in a judgment is a true debt is known as “going behind the judgment”.
[77] In the following paragraphs I repeat what I said in Kuhadas v Gomez [2014] FCCA 1130 at [22]-[26]
[78] Wren v Mahony (1972) 126 CLR 212 at page 224 (Barwick CJ).
The nature of the power of going behind a judgment, and the reasons for its exercise, were described in the following passage from the judgment of the plurality in Corney v Brien:[79]
Section 56 (2) (a) of the Bankruptcy Act 1924-1950 provides that the court at the hearing shall require proof of the debt of the petitioning creditor. Under this provision the Court of Bankruptcy has undoubted jurisdiction to go behind a judgment obtained by default or compromise or where fraud or collusion is alleged and inquire whether the judgment is founded on a real debt. In Ex parte Kibble . . . Sir W.M. James L.J. said: “It is the settled rule of the Court of Bankruptcy, on which we have always acted, that the Court of Bankruptcy can inquire into the consideration for a judgment debt”. Sir G. Mellish L.J. said: “It is quite clear that in the Court of Bankruptcy the consideration for a judgment may be investigated, particularly when the judgment has gone by default” . . . . This case was discussed and followed in Ex parte Lennox . . . where the reasons why the Court of Bankruptcy will go behind a judgment debt are fully discussed. Lindley L.J. said that “the Court of Bankruptcy will not allow itself to be put in motion at the instance of a person who is not a real creditor” . . . In In re Fraser . . . Kay L.J. said: “It is old law in bankruptcy that, neither upon an attempt to prove a debt, nor upon a petition for an adjudication of bankruptcy or a receiving order against a debtor, is a judgment against him for the debt conclusive. In Ex parte Bryant . . . Lord Eldon said: ‘Proof upon a Judgment will not stand merely upon that, if there is not a Debt due in Truth and Reality, for which the Consideration must be looked to’.” In In re Gooch . . . Scrutton L.J. said: “The county court registrar held quite correctly that he was at liberty to go behind the judgment, and see whether there was a good debt to support it”. In In re a Debtor . . . Astbury J. said “True it is that the Bankruptcy Court may, upon a prima-facie case being shown, go behind a judgment for the purpose of satisfying itself that the debt enforceable thereunder was a real debt.” In Petrie v. Redmond, a case in this Court . . . Latham C.J. said: “The court (that is, the Court of Bankruptcy) is entitled to go behind the judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice. . . . Also the court looks with suspicion on consent judgments and default judgments.”
[79] (1951) 84 CLR 343 at pages 347-348 (Dixon, Williams, Webb, and Kitto JJ)
A court of bankruptcy will not, however, go behind a judgment as a matter of course. The circumstances in which it will do so have been described in different ways. In Corney v Brien the plurality said that s.56(2)(a) of the Bankruptcy Act 1924-1950 (Cth), which in substance was the same as s.52(1)(c) of the Act, conferred “undoubted jurisdiction to go behind a judgment obtained by default or compromise or where fraud or collusion is alleged and inquire whether the judgment is founded on a real debt”.[80] In Wren v Mahony Barwick CJ (with whose reasons Windeyer and Owen JJ agreed) said:[81]
Circumstances tending to show fraud or collusion or miscarriage of justice or that a compromise was not a fair and reasonable one, in the sense that even if not fraudulent it was foolish, absurd and improper, or resulted from an unequal position of the parties . . . offer occasions for the exercise by the Court of Bankruptcy of its power to inquire into the consideration for the judgment.
[80] Corney v Brien (1951) 84 CLR 343 at page 347
[81] Wren v Mahony (1972) 126 CLR 212 at page 223
In the same case, Barwick CJ stated in broader terms the circumstances in which a court of bankruptcy may go behind a judgment:[82]
The judgment is never conclusive in bankruptcy. . . . But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, 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. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment. . . . The Court’s discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that 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.
[82] Wren v Mahony (1972) 126 CLR 212 at pages 224-225
The cases that recognise the power of a bankruptcy court to go behind a judgment:[83]
. . . rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences.
[83] Ahern v Deputy Commissioner of Taxation [1987] FCA 312 at [40] (Davies, Lockhart, and Neaves JJ)
There is one final matter to note; and this relates to the onus of proof. In Cheung v Burness (Trustee) Moshinsky J noted that in “circumstances where the bankruptcy court decides to ‘go behind’ a judgment, the onus of proof in relation to the underlying issue falls on the party claiming to be a creditor”.[84] His Honour referred[85] to the following passage from the judgment of Fullagar J in Corney v Brien:[86]
The question whether the judgment is to be reopened or “gone behind” at all will, of course, often involve some preliminary investigation of the merits of the attack on the judgment. But, when once the court decides that it will “go behind” the judgment, the cases which I have cited show, in my opinion, that the whole matter is open. When once it is considered proper to “reopen”, the only question will be whether there was, in fact and in law, a debt which could legally found the judgment—whether there was in “Truth and Reality” an obligation not of record before there was an obligation of record. If the case should be one of those rare cases (I have not actually found one in the Reports since 1888, when Fry L.J. said that he knew of none) where it is legitimate to “go behind” a judgment entered after trial in court, there would be, I think, no alternative but to re-try the whole case. The matter to be decided is the existence or non-existence of a debt antecedent to the judgment. It has been said on several occasions that the judgment is prima-facie evidence of the antecedent debt. But, when once the inquiry is undertaken, I think that the ultimate burden of proof rests on the person claiming to be a creditor. As Lord Esher M.R. said in In re Fraser; Ex parte Central Bank of London: “The existence of the judgment is no doubt prima-facie evidence of the existence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor”.
(Footnotes omitted; emphasis added.)[84] [2016] FCA 1381 at [79]
[85] [2016] FCA 1381 at [79].
[86] Corney v Brien (1951) 84 CLR 343 at page 358
Moshinsky J also referred[87] to Re Bernard Simon Wolff v Donald Donova where Lee and Hill JJ (with whom Davies J agreed) said:[88]
The joint judgment of Dixon, Williams, Webb and Kitto JJ [in Corney v Brien] contains no discussion of onus of proof at all. No doubt, however, the true position is that there is a shifting onus. Once the judgment is proved, and it is prima facie evidence of the existence of the underlying debt there is a tactical onus on the debtor to show that there are circumstances which make it appropriate to go behind the debt to see whether the judgment was in truth and reality a true debt. The overall onus of proof of the existence of a real debt underlying a judgment, however, remains always with the petitioning creditor.
[87] ([2016] FCA 1381 at [79]
[88] [1991] FCA 222 at [20]
This discussion raises the following issues:
a)Do the principles on which courts of bankruptcy act to go behind judgment debts in general apply to judgments based on costs certificates issued under the LP Act?
b)If so, are there substantial reasons for questioning whether the Judgment ought to have been entered?
Going behind judgments based on costs certificates
The nature of a judgment (costs judgment) that is entered on the basis of a costs assessor’s certificate (costs certificate) issued under an equivalent provision to s.368 of the LP Act[89] was considered in Doyle v. Hall Chadwick.[90] Hodgson JA (with whose reasons on this aspect of his Honour’s judgment Mason P and Campbell JA agreed) said:
[49] It is well recognised that there are judgments that are not based on any decision of the Court of which they are taken to be judgments, but have some other basis; and such judgments may be set aside or varied if that basis is defeated or varied. . . . [52] A judgment arising from a certificate pursuant to s.208J(3) of the 1987 Act is this kind of judgment; and is liable to be set aside or varied if the certificate on which it is based is set aside or varied . . . .
[89] Legal Profession Act 1987 (NSW), s.208J(3)
[90] [2007] NSWCA 159
The nature of a costs judgment was also considered in Frumar v The Owners of Strata Plan 36957. [91] Speaking of a certificate issued by a panel under s.208KF of the Legal Profession Act 1987 (Cth) (which is the equivalent of s.378 of the LP Act and which, in turn, repeats the substance of s.368 of the LP Act), Handley JA said:[92]
Once entered the certificate may be enforced, but entry does not otherwise alter its legal effect and the section does not make it a judgment of the Court.
[91] [2010] NSWCA 172
[92] [2010] NSWCA 172 at [40]
Giles JA said:[93]
First, as Handley AJA has explained, under s 208KF(2) of the Legal Profession Act 1987 (since repealed, see now s 368(5) of the Legal Profession Act 2004) on the filing of the review panel’s certificate it was taken to be a judgment of the District Court. In truth, there was no District Court judgment. So-called judgments under s 208J(3) of the 1987 Act, which is relevantly replicated in s208KF(2), have been considered in Doyle v Hall Chadwick [2007] NSWCA 159 at [47]–[54] and cases there mentioned, with recognition of their distinct nature, and while reference to them as judgments is convenient . . . they take their force from the statute and are not judgments of the court.
[93] [2010] NSWCA 172 at [8]
Finally, in Zepinic v Chateau Constructions (Australia) Ltd (No.2)McColl JA said:[94]
The entry of judgment on a filed certificate of a costs assessor or a review panel is a ministerial act, which makes the certificate enforceable as a judgment but otherwise does not alter its legal effect and does not make it a judgment of the Court . . .
[94] [2013] NSWCA 227 at [76]
There are three matters to note about a costs judgment. First, a costs judgment is not an ordinary judgment because it does not create “an obligation of its own force”.[95] The obligation a costs judgment records, or purports to record, is a debt that has been created as a consequence of a determination a costs assessor has made in the exercise or purported exercise of a power conferred by the LP Act; and the judgment that is entered on the basis of the costs certificate does not alter the character of that debt.
[95] Corney v Brien (1951) 84 CLR 343 at page 353 (Fullagar J)
Second, as with an ordinary judgment, a costs judgment is entered for a consideration; but it differs from the consideration for an ordinary judgment. The consideration for an ordinary judgment is the cause or causes of action in response to which the judgment has been entered, and into which the cause or causes of action merge, while the consideration for a costs judgment is the costs certificate. Further, unlike the cause of action that merges into a judgment, a costs certificate does not merge into a costs judgment. The debt recorded by the costs certificate retains its character after it is registered as a judgment.
Third, just as there may be circumstances that might cause a bankruptcy court to inquire into whether the consideration for an ordinary judgment gives rise to a true debt, so too may there be circumstances that might cause a bankruptcy court to consider whether the consideration of a costs judgment – a costs certificate – reflects a true debt. The circumstances that may cause a court to inquire into whether there is in truth a debt differ, however, according to whether the judgment is an ordinary judgment or a costs judgment; and the difference is due to the costs judgment’s being based on a “binding determination” made by a costs assessor “as to what is a fair and reasonable amount for which the client should be liable”[96] pursuant, or purportedly pursuant, to the exercise of a power conferred by statute, namely, the LP Act.
[96] Burrell Solicitors Pty Ltd & Anor v Reavill Farm Pty Ltd & Ors [2016] NSWSC 303 at [149] (White J)
The question that arises is: are there circumstances in which a costs certificate purportedly issued under s.368(1) of the LP Act can be said to be invalid, and hence not represent a true debt, with the consequence that a costs judgment that purports to be based on such an invalid costs certificate cannot be said to represent or be based on any true debt? The answer to that question is: “yes”. And the circumstances in which a costs certificate can be held to be invalid is if the determination purportedly made under s.367(1) of the LP Act on the basis of which such costs certificate has been issued is affected by jurisdictional error.
Jurisdictional error in the context of costs determinations
The powers of a costs assessor were specified by the LP Act. Those powers, and, in particular, the making of a determination under s.367(1) of the LP Act and the issuing of a certificate under s.368(1) of the LP Act, when exercised, self-evidently are capable of affecting the rights and interests of persons, namely, the law practice whose costs are being assessed and the client or clients from whom the lawyer claims payment of the costs that are to be assessed. This implies that the exercise by costs assessors of the powers conferred on them by the LP Act is subject to the supervisory jurisdiction of the Supreme Court of New South Wales “for the determination and the enforcement of the limits on the exercise of State executive and judicial power by persons and bodies other than the Supreme Court”.[97] The Supreme Court exercises this supervisory jurisdiction by making orders that include orders under s.69 of the Supreme Court Act 1970 (NSW) in the nature of certiorari, prohibition, and mandamus.
[97] Kirk v Industrial Court of New South Wales (2009) 239 CLR 531 at page 580 ([98])
At the very least, the Supreme Court’s supervisory jurisdiction extends to reviewing decisions made by State inferior courts and other persons or bodies (power repositories) that are affected by jurisdictional error. That follows from Kirk v Industrial Court of New South Wales,[98] where the High Court held it is beyond the power of a State Legislature to remove the jurisdiction of a State Supreme Court to review for jurisdictional error decisions made by inferior courts and by other persons or bodies.[99] Thus, the exercise of power by costs assessors under the LP Act – and in particular the exercise of the power conferred by s.367(1) of the LP Act to determine an application for an assessment of costs - is liable to review by the Supreme Court of New South Wales for any jurisdictional error the costs assessor may make when exercising or purporting to exercise such power.
[98] (2009) 239 CLR 531.
[99] See also Public Service Association of South Australia Incorporated v Industrial Relations Commission of South Australia [2012] HCA 25 at [60]: “State legislative power does not extend to depriving a State Supreme Court of its supervisory jurisdiction in respect of jurisdictional error by the Executive Government of the State, its Ministers or authorities.”
“Jurisdictional error” is an expression that is applied to an attempted exercise of power by a power repository, or to a power repository’s not exercising power. When applied to an attempted exercise of power, “jurisdictional error” signifies that the power repository’s attempt to exercise the power has failed in some way so that the act constituting the attempted exercise of the power has no legal effect or, at least, is liable to be held by a court not to have any legal effect. As was said by Gummow and Gaudron JJ in Minister for Immigration and Multicultural Affairs v Bhardwaj, a “decision that involves jurisdictional error is a decision that lacks legal foundation and is properly regarded, in law, as no decision at all”. [100] And as was said by Hayne J in the same case, once it is recognised that a court could set aside a decision for jurisdictional error “the decision can be said to have no relevant legal consequence”.[101]
[100] (2002) 209 CLR 597 at pages 614-614 ([51])
[101] (2002) 209 CLR 597 at page 647 ([153])
It has been said that “jurisdictional error” is a “statement of conclusion” that “some essential or indispensable requirement for jurisdiction has not been met”;[102] that “jurisdictional error” is “a label, not a test”; and that it is “a conclusion reached after applying other tests”.[103] These observations particularly allude to the High Court’s explanation of the notion of jurisdictional error. That explanation is often taken to have begun with Craig v South Australia[104] where the High Court explained how an inferior court may fall into jurisdictional error by identifying particular categories of case, and where the High Court set out with apparent approval a passage from the speech of Lord Reid in Anisminic Ltd v Foreign Compensation Commission[105] which lists categories of case where an administrative body (as opposed to an inferior court) may be taken to fall into jurisdictional error. The High Court’s most recent considered explanation of jurisdictional error is in Kirk where the High Court referred to eight categories of case that constitute jurisdictional error that Professor Aronson identified in an essay, noting, however, that it is “neither necessary, nor possible, to attempt to mark the metes and bounds of jurisdictional error”.[106]
[102] SDAV v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FAFC 129 at [27] (emphasis in original)
[103] Aronson M., Groves M., & Weeks G., Judicial Review of Administrative Action and Government Liability Sixth edition, Thomson Reuters, page 20, [1.110]
[104] [1995] HCA 58; (1995) 184 CLR 163
[105] [1969] 2 AC 147 at page 171.
[106] (2009) 239 CLR 531 at page. 573 ([71]), The essay is “Jurisdictional Error without the Tears”, in Groves and Lee (eds), Australian Administrative Law: Fundamentals, Principles and Doctrines, (2007) 330 at 335-336
Given that the exercise by a costs assessor of the power to determine applications for the assessment of costs are liable to be reviewed for jurisdictional error, and given that a decision that is made as a consequence of jurisdictional error has no legal effect or, at least, may be liable to be held by a court to have no legal effect, it is open to bankruptcy court to go behind a judgment based on a costs certificate issued pursuant to s.368(1) of the LP Act in relation to a determination made under s.367(1) of the LP Act if there is a substantial reason for questioning whether the determination was affected by jurisdictional error. If the court is satisfied there is such substantial reason, the court may consider whether the determination was in fact affected by jurisdictional error. If the court is not satisfied the determination was not affected by jurisdictional error, the court will not be satisfied that the judgment entered on the basis of a costs certificate that records the determination of the costs assessment is based on a true debt.
Are there substantial reasons for questioning the validity of the Costs Certificates on the grounds relied by Mr Grego?
As I have noted at the beginning of these reasons, Mr Grego relies on three grounds for claiming the Judgment does not record a true debt owing by him.
Mr Grego’s challenge to first Costs Certificate
Mr Grego claims the first Costs Certificate – which relates to costs claimed in the invoices Ms Obrart issued on and before 22 April 2013 – was issued in relation to the assessment of costs based on a void costs agreement. Mr Grego relies on the following matters:
a)The costs assessor assessed Ms Obrart’s costs for in the exact amounts she claimed in her invoices.
b)Those amounts were calculated by reference to an hourly rate of $440 (plus GST).
c)Each of the invoices was stated to be “pursuant to our fee agreement dated 5 September 2012”.
d)Because of (a), (b), and (c), the costs agreement on the basis of which the costs assessor purported to assess Ms Obrart’s costs is that which accompanied the second costs agreement offer,[107] namely, the second costs disclosure letter.[108]
e)The second costs disclosure letter contained a term that provided for the payment of an uplift fee in the event of a “successful outcome” (uplift clause).
f)The uplift clause was a “conditional costs agreement” within the meaning of s.323(1) of the LP Act.
g)Paragraph 323(3)(c) of the LP Act required that it be in writing and signed by the client; but Mr Grego did not sign the second costs agreement offer or the second costs disclosure letter.
h)Paragraph 323(3)(d) of the LP Act required that the conditional costs agreement contain a statement that the client had been informed of the client’s right to seek independent advice before entering into the agreement, but neither the costs agreement offer nor the second costs disclosure letter contained any such statement.
i)Paragraph 323(3)(d) of the LP Act required that the conditional costs agreement contain a cooling-off period of not less than 5 clear business days during which the client, by written notice, may terminate the agreement, but neither the second costs agreement offer nor the second costs disclosure letter contained any such statement.
j)Any agreement that Mr Grego entered by accepting the second costs agreement offer (Purported Costs Agreement), therefore, was entered into in contravention of s.323(3) of the LP Act and, hence, under s.327 of the LP Act, is void.
[107] Affidavit of T Grego 04.10.2016, [10] annexure TG-05 (pages 18, 19)
[108] Affidavit of T Grego 04.10.2016, [10] annexure TG-05 (pages 20-25)
Assuming, as Mr Grego submits, the Purported Costs Agreement is void under s.327 of the LP Act because Mr Grego did not, as provided by s.323(3)(c) of the LP Act, sign any agreement to the effect of the Purported Costs Agreement, does that necessarily mean that the first Costs Certificate is invalid? The answer to that question turns on whether a costs agreement’s not being void under s.327 of the LP Act is a jurisdictional fact, so that a costs assessor’s assessment of costs by reference to a costs agreement that is void under s.327 of the LP Act will necessarily have no legal effect.
In my opinion, a costs assessment made by reference to a purported costs agreement that is void because of s.327 of the LP Act does not necessarily mean a costs assessment made by reference to such agreement is of no effect. That follows from s.361 of the LP Act which relevantly provides as follows:
(1)A costs assessor must assess the amount of any disputed costs that are subject to a costs agreement by reference to the provisions of the costs agreement if:
(a)a relevant provision of the costs agreement specifies the amount, or a rate or other means for calculating the amount, of the costs . . .
unless the assessor is satisfied:
.. . .
(d)that Division 5 (Costs agreements) precludes the law practice concerned from recovering the amount of the costs . . .
. . . .
(2)The costs assessor is not required to initiate an examination of the matters referred to in subsection (1)(c) and (d).
The requirement contained in s.323 of the Act that a conditional costs agreement be signed by the client, and the consequence provided for by s.327 of the LP Act that a conditional costs agreement is void unless, among other things, it is signed by the client, are provisions contained in Division 5 of Part 3.2 of the LP Act which preclude the law practice from recovering the amount of the costs within the meaning of s.361(1)(d) of the LP Act. Subsection 361(2) of the LP Act, however, has the effect that the costs assessor is not required to initiate an examination of the matters referred to in s.361(1)(d) of the LP Act. What this means is that, unless a party to the costs assessment brings to the costs assessor’s attention any matter provided for by Division 5 of Part 3.2, the costs assessor, at least where he or she is not aware of the matter provided for in Division 5 of Part 3.2 of the LP Act, may nevertheless assess the applicant’s costs by reference to the costs agreement, as required by s.361(1) of the Act.
Mr Grego did not participate in the costs assessment; and there is nothing to suggest the costs assessor was aware that the costs agreement against which he assessed Ms Obrart’s costs claimed in the first three of Ms Obrart’s four invoices, was a conditional costs agreement, or was a conditional costs agreement that had not been signed by Mr Grego. It follows, therefore, that there is no substantial reason for questioning the validity of the first Costs Certificate on the ground that it was issued by the costs assessor as a result of any jurisdictional error based on the costs agreement being void under s.327 of the LP Act.
Mr Grego’s challenge to second Costs Certificate
Mr Grego submits the costs assessor purported to assess the costs that led to the issue of the second Costs Certificate on the assumption that the relevant costs agreement was that based on the 22 April costs agreement offer[109] and the 22 April costs disclosure letter. [110] Mr Grego submits that that assumption was incorrect because each of the invoices issued after 22 April 2013 states it is “pursuant to our fee agreement dated 5 September 2012”. Mr Grego is correct. Each of the invoices that recorded work Ms Obrart performed that was the subject of the costs assessment stated “[t]his invoice is issued pursuant to our fee agreement dated 5 September 2012”.
[109] Affidavit of T Grego 04.10.2016, [17]; annexure TG-09 (pages 38-39)
[110] Affidavit of T Grego 04.10.2016, [17]; annexure TG-09 (pages 40-43)
There is no evidence before me about whether the costs assessor directed his mind to the fact that the invoice stated it was issued pursuant to a fee agreement dated 5 September 2012. Nor, if he did direct his mind to that fact, is there evidence of what process of reasoning the costs assessor employed in deciding that the invoice was to be assessed by reference to a costs agreement that appears to be different from the costs agreement referred to in the invoice. The absence of evidence on this question raises a substantial question about whether the costs assessor assessed the costs that resulted in the issue of the second Costs Certificate by reference to the correct costs agreement between Ms Obrart and Mr Grego. That, in turn, raises a substantial question about whether the costs assessor assessed the costs that resulted in the issue of the second Costs Certificate in the manner required by s.361 of the LP Act and, hence, whether it was issued as a result of a jurisdictional error.
As I have already set out, where there is a costs agreement, s.361(1) of the LP Act requires the costs assessor to assess any disputed costs by reference to the costs agreement to the extent it contains a provision that specifies the amount, or a rate or other means for calculating the amount of the costs. In my opinion, that is a mandatory requirement of the LP Act. That is, a costs assessor will make a jurisdictional error if he or she assesses costs on the basis of an incorrect costs agreement. Thus, I am of the opinion there are substantial reasons for questioning whether the costs assessor made a jurisdictional error in making the determination that led to the issue of the second Costs Certificate on the ground that the costs assessor did not assess costs by reference to the correct costs agreement.
Substantial reason for finding fabricated document submitted to costs assessor?
I have already noted that Mr Grego filed submissions in response to the Boyce paginated affidavit.[111] He submitted, among other things, that the Boyce paginated affidavit revealed “blatant fraud”, and he referred to a “[d]ocument that’s had a page switched”. What Mr Grego means by this appears in paragraph 8 of his submissions (errors in original):
The Fabricated Fee Disclosure of $319,088 dated 26/9/2012 had to be switched the 21/11/2016 because it stood out like ?? Your Honour asked the Applicants councel to explain how do you get a Fee Disclosure in September 2012 for $165,176, September 2012 $319,088 then in November 2012 back to $165,176. Counsel came up with some Mumble Jumble. The switch makes it like the fee progresiely increased, however where they have come unstuck again is that the costs assessor in his reason refers to the fee agreement of $319,088 dated 26 September 2012 to supports the applicant billing of $298,026.19.
[111] Supplementary Submissions Dated 19th April In Opposition to Creditors Petition
Mr Grego requested that the matter be relisted because “there are many issues that need to be raised regarding these documents”. For reasons that will become apparent, it is unnecessary to relist the matter.
In my opinion, there are substantial reasons for finding Ms Obrart submitted to the costs assessor a fabricated document in support of her application for assessment of costs.
a)First, as I have already noted, Ms Obrart herself submits there was attached to the first application for assessment of costs the New 21 November Letter which is the same as the 21 November costs disclosure letter except that it contains a costs estimate of $319,088 rather than the costs estimate of $165,176 contained in the 21 November costs disclosure letter. As I have also already noted, unexplained, these circumstances may reasonably ground an inference that the New 21 November Letter is fabricated.
b)Second, Ms Obrart has given no evidence that explains the existence of two documents – the 21 November costs disclosure letter and the New 21 November Letter - which are identical in all respects except that one contains a costs estimate of $165,176 while the other contains a costs estimate of $319,088.
c)Third, it was not suggested to Mr Grego in cross-examination that he fabricated the questioned 26 September costs disclosure letter,[112] or that he obtained the questioned letter from any person who might have had the opportunity to fabricate the document. Nor was it suggested to Mr Grego, or in submissions to me, that Mr Grego did not receive the 21 November costs disclosure letter as he deposed he did.
d)Fourth, Ms Obrart has given no evidence either to deny the questioned 26 September costs disclosure letter emanated from her or from her assistant or, if she does not deny it emanated from her or from her assistant, to explain why it was created and what, if any, use Ms Obrart made or intended to make of the questioned letter. No explanation has been given for Ms Obrart’s not giving such evidence. It is true that during the hearing on 6 December 2016 Mr Orlizki submitted there was no evidence the questioned 26 September costs disclosure letter emanated from Ms Obrart. In my opinion, however, the letter itself affords some basis from which it is open to me to draw any reasonable inference from it,[113] including the identity of its creator, particularly in the light of all other evidence.
e)Fifth, Ms Obrart herself has given no evidence of the costs agreement or agreements that were attached to the applications for assessment of costs she lodged on 10 September 2013. Ms Obrart has sought to prove these matters indirectly by relying on the Boyce paginated affidavit. The best evidence, however, of what costs agreement or agreements was or were attached to the applications for the assessment of costs Ms Obrart lodged is the applications themselves authenticated by the person who signed them, namely, Ms Obrart. Ms Obrart, however, has given no evidence of the documents she says she attached to the applications for assessment of costs; and no explanation has been given why Ms Obrart has given no such evidence. Further, although Mr Orlizki has asserted the Boyce paginated affidavit constitutes a complete copy of that affidavit, and has also asserted an explanation why what is said to be a complete copy of that affidavit was not tendered at the hearing before me on 6 December 2016, these matters were not the subject of any evidence from Ms Obrart or from any other person who had knowledge of the matters to which the assertions relate. Thus, I am not prepared to find only on the basis of the Boyce paginated affidavit that the only documents that were attached to the application for costs assessments are those that form part of the Boyce paginated affidavit.
f)Sixth, there is other evidence it is reasonable to suppose exists that might reasonably be supposed is capable of shedding light on the costs agreement or agreements that were attached to the applications for the assessment of costs. That evidence is the “[s]ubmissions of the Costs Applicant dated 14th November 2014” referred to in each of the costs assessor’s reasons for decision. It is reasonable to suppose these submissions identified the costs agreements and costs disclosures on which Ms Obrart relied before the costs assessor. Ms Obrart, however, has not sought to tender the written submissions she provided to the costs assessor.
g)Seventh, there are objective circumstances that are available to explain why a person in Ms Obrart’s position might have considered submitting to the costs assessor either or both the questioned 26 September costs disclosure letter or the New 21 November Letter. Both these documents contained a costs estimate of $319,088 whereas the documents Mr Grego says he received, namely the 26 September costs disclosure letter,[114] and the 21 November costs disclosure letter,[115] both contained a costs estimate of $165,176. The sum of the costs claimed in Ms Obrart’s three invoices that were the subject of the first application for costs assessment, however, was $303,222, which substantially exceeds the $165,176 estimate contained in the 21 November costs disclosure letter. Section 316 of the LP Act imposed on a law practice an ongoing obligation of disclosure. Section 317 of the LP Act provided for a number of consequences if a law practice failed to disclose as required by the LP Act. One of those consequences was the right of a client to apply to set aside the costs agreement.[116]Another potential consequence was the costs assessor’s reducing the amount of costs to which the law practice might be entitled “by an amount considered by the costs assessor to be proportionate to the seriousness of the failure to disclose”.[117] Thus, in the absence of evidence that Ms Obrart had updated her estimate of costs from the estimate of $165,176 contained in the 21 November costs disclosure letter, Ms Obrart was liable to the costs assessor reducing costs she could recover by an amount considered by the costs assessor to be proportionate to the seriousness of the failure to disclose as required by the LP Act.
[112] Affidavit of T Grego 04.10.2016, [14] annexure TG-06 (pages 25-29)
[113] Evidence Act 1995 (Cth), s.58: “If a question arises as to the relevance of a document or thing, the court may examine it and may draw any reasonable inference from it, including an inference as to its authenticity or identity.”
[114] Affidavit of T Grego 04.10.2016, [10] annexure TG-05 (pages 20-25)
[115] Affidavit of T Grego 04.10.2016, [14] annexure TG-07 (pages 30-34)
[116] LP Act, s.317(3)
[117] LP Act, s.317(4)
Other matters – “costs in dispute”
There is one matter concerning the construction of the LP Act that I should address; and this concerns the expression “any disputed costs” that appeared in s.361 and s.367 of the LP Act. The question that arises is whether that expression can reasonably be taken to suggest that, where a law practice applies for a costs assessment, there is an onus on the client to notify the costs assessor of the items in the relevant bill which the client disputes, so that the costs assessor is required only to assess the reasonableness of those items.
In my opinion, that is not a construction that is reasonably open on the text of Division 11 of Part 3.2 of the LP Act.
a)First, s.352(1) of the LP Act provides that a law practice that has given a bill may apply “for an assessment of the whole or any part of the legal costs to which the bill relates”. In relation to such application for assessment, the reference in s.361 and 367 of the LP Act to “disputed costs”, therefore, is either a reference to the whole of a bill, if the law practice applies for an assessment of the whole bill, or to part of a bill, if the law practice applies for an assessment of any part of the bill.
b)Second, the LP Act does not require a respondent to a costs application to participate in the costs assessment or to submit objections to particular items in a bill; the LP Act only provides that a costs respondent is entitled to participate in the costs assessment and, if notified, will be taken to be a party to the assessment.[136] That implies that the costs assessor nevertheless remains bound to determine the application for assessment of costs, whether or not a costs respondent participates in the costs assessment, and whether or not the costs respondent objects to any particular items in the bill. Stated another way, the LP Act presumes that in the absence of a client’s participation in the costs assessment, the entire bill or part of the bill for which the law practice applied to be assessed is to be treated as “disputed costs”.
c)Third, s.367(4) of the LP Act provided that a costs assessor may determine that the amount of fair and reasonable costs is the amount agreed to by the parties if during the course of assessment the parties notify the costs assessor they have agreed on the amount of those costs. That suggests there is no room for the costs assessor to imply an agreement by the parties concerning the fairness and reasonableness for the costs. More particularly, it suggests it is not open to a costs assessor to infer an agreement that costs are fair and reasonable only on the basis of a cost respondent’s not raising objections to the bill that is the subject of the costs assessment.
d)Fourth, it is open to a law practice to seek to recover the amount claimed in a bill without having the bill assessed. [137] That a law practice elects not to sue on the bill, but instead applies to have the bill assessed, may ground the inference that there is a dispute about the bill as a whole. At the very least, it should prevent the costs assessor from inferring or assuming there is no dispute about any aspect of the costs which are sought to be assessed only because the client did not participate in the application for costs assessment.
[136] LP Act, s.356
[137] LP Act, s.331
Ms Obrart’s submissions against going behind Judgment
In the Applicant’s Supplementary Submissions, Mr Orlizki advances a number of reasons why the Court should not go behind the Judgement.
a)First, it is submitted the Judgment was entered regularly and there is no matter that vitiates the Judgement.[138] It may be true that the Judgment was entered regularly; but whether or not there is any matter that vitiates the Judgment is not the relevant question when considering whether I should go behind the Judgement. The relevant question is whether “substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner”. [139] I have already concluded there are substantial reasons for questioning the validity of the Costs Certificates and, therefore, whether the Judgement records a true debt.
b)Second, it is submitted the Judgment is not a default judgment, but the result of a statutory process in which Mr Grego had an opportunity to participate.[140] That may be true, but it is irrelevant. That Mr Grego had an opportunity to participate in the costs assessment does not alter the fact I have found there are substantial reasons for questioning the validity of the Costs Certificates. Further, the validity of the statutory process - by which I understand Mr Orlizki meant the assessment of costs - has not been the subject of any judicial determination.
c)Third, it is submitted Mr Grego’s allegation of fraud is not made out on the evidence.[141] I have concluded there are substantial reasons for concluding that Ms Obrart submitted a manufactured document to the costs assessor.
d)Fourth, it is submitted there is no allegation of fraud that may vitiate the second Costs Certificate.[142] That may be true, but I have found there are other substantial reasons for questioning the validity of the second Costs Certificate.
e)Fifth, it is submitted the allegation that the costs agreement on the basis of which the first Costs Certificate was issued is void does not provide a circumstance for going behind the Judgement.[143] I have so concluded; but I have found there are other reasons that are substantial reasons for questioning the validity of the first Costs Certificate.
f)Sixth, it is submitted no allegation is made that the costs agreement on the basis of which the second Costs Certificate was issued was void.[144] That is true; but I have found there are other reasons that are substantial reasons for questioning the validity of the second Costs Certificate.
g)Seventh, it is submitted Mr Grego has not availed himself of his statutory appeal rights to seek a merits review or to appeal to the District Court on a question of law or seek leave to apply to appeal to the District Court not on a matter of law.[145] Nor has he sought to challenge the Costs Certificates on the ground of jurisdictional error.[146] That a respondent to a creditor’s petition who seeks to go behind a judgment has not sought to challenge the judgment by appeal or by certiorari is a matter that may be relevant to whether a bankruptcy court should go behind a judgment. That is likely to be an important consideration, however, where the judgment has been entered after a contested hearing, and the respondent has not exercised his or her appeal rights, or where the respondent has attempted but, after a contested hearing, failed to set aside the judgment on judicial review (such as by certiorari). That, however, is not the case here. I have found there are substantial reasons for questioning the validity of Costs Certificates because there is a substantial reason for concluding the costs assessor made jurisdictional errors in his determination of the applications for assessment of costs that resulted in the issue of the Costs Certificates. A court has not determined whether the costs assessor made any jurisdictional error. Further, there may well be other explanations why Mr Grego may not have availed himself of his rights. Mr Grego is not legally represented. An inference that may be available to be drawn from that fact might be that Mr Grego has not retained legal representation because he cannot afford to do so. I do not, however, draw any such inference.
h)Eighth, it is submitted Mr Grego filed an application in the District Court to set aside the Judgment, and that application was heard and determined “on the merits”.[147] It is true Mr Grego applied, but failed, to set aside the Judgment. The reasons for which the District Court did not set aside the Judgment are not before me. It is doubtful, however, that in his application to set aside the Judgment Mr Grego claimed the costs assessor made jurisdictional errors, or jurisdictional errors of the kind I have found there are substantial reasons for finding the costs assessor made, in determining the applications for assessment of Ms Obrart’s costs.
i)Ninth, it is submitted that at no stage, either in the course of the costs assessment, or in his application in the District Court to set aside the Judgment, or in these proceedings, has Mr Grego “sought to challenge the debt underlying the Costs Certificates or the judgments”.[148] It is not clear to what the “debt underlying the Costs Certificates of judgments” is intended to refer. The relevant debt is the amounts recorded in the Costs Certificates. It is these debts that Mr Grego challenges. If successful, there would in law be no debt on the basis of which the Judgment was entered. What may remain is a right in Ms Obrart to recover the amounts subject to her invoice in the manner permitted by, and subject to, the LP Act.
j)Tenth, it is submitted that on the material available, the Court cannot be satisfied that the matters raised by Mr Grego are sufficient to warrant the Court going behind the Judgment.[149] I have found that the matters raised by Mr Grego, and the matter I raised after the hearing, raise substantial reasons for questioning whether the Costs Certificates are valid.
[138] Applicant’s Supplementary Submissions, [42(a)]
[139] Wren v Mahony (1972) 126 CLR 212 at pages 224-225
[140] Applicant’s Supplementary Submissions, [42(b)]
[141] Applicant’s Supplementary Submissions, [42(c)]
[142] Applicant’s Supplementary Submissions, [42(d)]
[143] Applicant’s Supplementary Submissions, [42(e)]
[144] Applicant’s Supplementary Submissions, [42(f)]
[145] Applicant’s Supplementary Submissions, [42(g)]
[146] Applicant’s Supplementary Submissions, [42(j)]
[147] Applicant’s Supplementary Submissions, [42(h)]
[148] Applicant’s Supplementary Submissions, [42(i)]
[149] Applicant’s Supplementary Submissions, [42(k)
There are two other submissions Mr Orlizki makes that demand particular attention. One is that even if the Costs Certificates were to be set aside, Mr Obrart’s rights to recover her reasonable fees would remain, and it is fanciful to imagine the costs she would be entitled to recover would not exceed $5,000.[150] It appears Mr Orlizki relies on the following passage from the judgment of Wigney J in Katter v Melhem (No 2):[151]
Fourth, the Court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced and would not support a finding that there was, in truth, no debt at all: Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 589; Olivieri v Stafford (1989) 24 FCR 413 (Olivieri v Stafford) at 431-432 (Gummow J); Re Cosimo Longo Ex parte: Cosimo Longo [1995] FCA 1324 at [23]-[25]; Cumins v Deputy Commissioner of Taxation (2008) 172 FCR 425 at [7]-[10]; Re Riviere; Ex parte Original Mont de Piete Ltd (1919) 20 SR (NSW) 77 (Re Riviere) at 83-84.
[150] Applicant’s Supplementary Submissions, [42(l), (m), (n)]
[151] [2014] FCA 1176 at [77
The principle stated by Wigney J relates to the amount of the judgment on which the creditor’s petition is based. This part of Mr Orlizki’s submission, therefore, assumes that the effect of the Costs Certificates being held to be invalid will at most result in the reduction of the debt Mr Grego owes Ms Obrart. That, however, is not correct.
The act of bankruptcy on which Ms Obrart relies is Mr Grego’s failure to comply with a bankruptcy notice founded on the Judgment. The Judgment, in turn, is based on, and only on, the Costs Certificates. If the Costs Certificates are invalid, the Judgement would not reflect any true debt; there would be no “debt antecedent to the Judgment”. [152] It may well be that, if the Costs Certificates are invalid, Ms Obrart will retain the right to recover the costs stated in the invoices which were the subject of her applications for the assessment of costs. But that right cannot properly be characterised as a “debt”. Although Ms Obrart may be entitled to commence proceedings against Mr Grego without applying to have her costs assessed,[153] she will be unable to maintain such proceeding if Mr Grego were to apply for her costs to be assessed until the costs assessment has been completed.[154] Even if Ms Obrart’s retained right to recover her costs can properly be characterised as a “debt”, it would be a different debt from the debt recorded in the Certificates of Costs on the basis of which the Judgment was entered. It would not be a “debt antecedent to the Judgment”. [155]
[152] Corney v Brien (1951) 84 CLR 343 at page 583 (Fullagar J)
[153] LP Act, s.331
[154] LP Act, s.355(b)
[155] Corney v Brien (1951) 84 CLR 343 at page 583 (Fullagar J)
Finally, it is submitted Mr Grego has not demonstrated any miscarriage of justice.[156] I have found there are substantial reasons for questioning the validity of the Costs Certificates for reasons which include there being substantial reasons for finding the costs assessor acted on a fabricated document, and there being substantial reasons for finding the costs assessor did not do what he was required to do when assessing Ms Obrart’s costs. If these matters are established, it could not be said Mr Grego has not suffered any miscarriage of justice.
[156] Applicant’s Supplementary Submissions, [42(p)]
Conclusion
There are substantial reasons for questioning the validity of the Costs Certificates and, therefore, for questioning whether the Judgment rests on true debts. I conclude, therefore, that it is appropriate for me to go behind the Judgment and determine whether I am satisfied the Costs Certificates are valid. The next question is whether I am satisfied the Costs Certificates are valid and whether, therefore, they record true debts.
Are the Costs Certificates Valid?
As I have already noted, once a bankruptcy court has decided to go behind a judgment on which the petitioning creditor relies, the onus rests on the petitioning creditor to prove the judgment is based on a true debt. In the context of the case before me, the onus is on Ms Obrart to prove that the Costs Certificates are valid. The Costs Certificates, considered alone, would afford proof of their validity. There are, however, the three matters I have identified which raise substantial questions about whether the Costs Certificates are valid. Each of these are matters discharge any evidentiary burden Mr Grego otherwise had to raise as an issue the validity of one or both of the Costs Certificates. Ms Obrart, therefore, bears the legal onus of persuading me that, notwithstanding those matters, the Costs Certificates are valid.
The first matter concerns the second Costs Certificate. For reasons I have already given, I have concluded there is a substantial reason for questioning whether the costs assessor assessed the costs by reference to the correct costs agreement. There is no evidence that persuades me on a balance of probabilities that the costs assessor assessed the costs that resulted in the issue of the second Costs Certificate by reference to the correct costs agreement. For that reason, I am not satisfied the second Costs Certificate is valid.
The second matter concerns the first Costs Certificate. I have concluded there are substantial reasons for finding Ms Obrart provided the costs assessor a fabricated document in support of her application for assessment of costs. I am not prepared, however, to find that Ms Obrart did so, even though there has been an unexplained failure by Ms Obrart to provide evidence to dispel the inference that is reasonably available to be drawn that she did provide to the costs assessor a fabricated document. I am not prepared to do so because it is unnecessary that I make such a finding; and because I am not sure Ms Obrart and Mr Orlizki have appreciated the potentially adverse consequences of Ms Obrart’s electing not to give evidence, despite my bringing to Mr Orlizki’s attention those potential consequences. In any event, the matters on which I have relied for concluding there are substantial reasons for finding Ms Obrart submitted a fabricated document to the costs assessor raise an issue about whether a fabricated document had been provided to the costs assessor. That casts an onus on Ms Obrart to prove she did not provide a fabricated document. Ms Obrart has not discharged that onus. For that reason, I am not satisfied the first Costs Certificate is valid because I am not satisfied the first Costs Certificate was not procured by fraud.
The third matter I have identified relates to both Costs Certificates; and that is the manner in which the costs assessor purported to assess Ms Obrart’s costs. For the reasons I have given, I am satisfied the costs assessor did not assess Ms Obrart’s costs in the manner he was required by the LP Act to assess those costs. In particular, I am satisfied the costs assessor did not consider the matters referred to in s.363(1)(a) and (b) of the LP Act. What the costs assessor did “amounts in law to no performance because he has misconceived his duty”.[157] For this reason, I am satisfied the Costs Certificates are not valid.
[157] R v War Pensions Entitlement Appeal Tribunal; Ex parte Bott (1933) 50 CLR 228 at page 242
Consequence of invalidity of Costs Certificates
Having concluded for two reasons that I am not satisfied that the Costs Certificates are valid (because I am not satisfied the Costs Certificates were not issued on the basis of a costs determination under s.367(1) of the LP Act that is affected by jurisdictional error), the consequence is I am not satisfied there are true debts behind the Judgment. The consequence of my being satisfied both Costs Certificates are invalid because, in making the costs determinations on the basis of which the Costs Certificates were issued, the costs assessor did not do that which he was required to do by the LP Act, and thus made a jurisdictional error, is that I am positively satisfied there are in truth no debts behind the Judgment.
Mr Orlizki, however, submits that finding the costs assessor issued the Costs Certificates as a result of jurisdictional error does not automatically render the Costs Certificates void or a nullity,[158] that an order of the court is necessary to nullify the legal effect they otherwise might have,[159] and that, given Mr Grego had appeal rights in relation to the costs assessments under the LP Act, the relief that would be available for jurisdictional error is discretionary.[160]
[158] Applicant’s Supplementary Submissions, [26]
[159] Applicant’s Supplementary Submissions, [26]
[160] Applicant’s Supplementary Submissions, [28]
In support of his submission that a decision made as a result of jurisdictional error is not automatically invalid or a nullity, but requires an order of the court to render the decision invalid, Mr Orlizki relies on paragraphs 151-154 of the judgment of Hayne J in Minister for Immigration and Multicultural Affairs v Bhardwaj.[161] That, however, is not a correct statement of the effect of this part of Hayne J’s judgment. In the paragraphs of Hayne J’s judgment on which Mr Orlizki relies, his Honour explained what is entailed in a court’s concluding that a decision of an administrative tribunal should be set aside for jurisdictional error. His Honour said (emphasis in original):[162]
Once it is recognised that a court could set it aside for jurisdictional error, the decision can be seen to have no relevant legal consequence.
[161] (2002) 209 CLR 597
[162] (2002) 209 CLR 597 at page 647, [153]
Hayne J noted, however, that whether or not a decision made as a consequence of jurisdictional error can be seen to have or not to have any relevant legal consequence depends on whether there is any relevant statutory provision that requires or permits the conclusion that, despite the jurisdictional error, some relevant legal consequence should be attributed to the decision.[163] The question, therefore, is whether there is anything in the LP Act that can be taken to require or permit the conclusion that, despite a costs determination under s.367 of the LP Act being made as a consequence of jurisdictional error, some relevant legal consequence should be attributed to the determination. Mr Orlizki has pointed to no such provision. In my opinion there is no such provision, or at least there is no such provision that attaches a legal significance to such determination that prevents a bankruptcy court from treating a costs determination affected by jurisdictional error as having no legal effect.
[163] (2002) 209 CLR 597 at page 647, [154]
Although not specifically submitted by Mr Orlizki, there is an issue that could be considered to arise out of Mr Orlizki’s reliance on the existence of appeal rights to persons who are parties to a costs assessment; and that issue is whether it can be said that because the LP Act provides appeal rights, it should be taken that the New South Wales Parliament intended to have impliedly excluded judicial review of the determinations made by costs assessors under s.367(1) of the LP Act. In my opinion, no such implication is available. It “is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words”.[164]
[164] Owners of “Shin Kobe Maru” v Empire Shipping Company Inc (1994) 181 CLR 404 at page 421
It is true, however, that, typically, “the existence of a right of appeal will give rise to discretionary considerations attending judicial review”.[165] And Mr Orlizki relies on the judgments of Beech-Jones J in Bobb v Wombat Securities[166] and in Griffith v Australian Broadcasting Corporation.[167] These cases, however, concerned applications for public law remedies – a declaration in the case of Bobb, and an order in the nature of mandamus in the case of Griffith. No application for a public law remedy is before me in this case. What is before me is a collateral challenge to the validity of the Costs Certificates.
[165] Community Housing Ltd v Clarence Valley Council (2015) 90 NSWLR 292 at page 300 ([32]) (Leeming JA)
[166] [2013] NSWSC 757 at [23]
[167] [2013] NSWSC 750 at [25]
I have considered elsewhere the principles that relate to collateral challenge of administrative decisions that have been made as a result of jurisdictional error,[168] where I particularly referred to the judgment of Besanko J in Jacobs v OneSteel Manufacturing Pty Ltd.[169] In broad terms, his Honour was of the view that whether or not collateral attack should be permitted depends on a number of discretionary matters. One is whether “the allowing of a collateral challenge by-pass[es] the protective mechanisms associated with judicial review proceedings such as the rules as to standing, delay and other discretionary considerations”.[170]
[168] Bridges v Norling Trading as Itravel Forster [2016] FCCA 212
[169] (2006) 93 SASR 568
[170] (2006) 93 SASR 568 at [93]
In my opinion, discretionary considerations that might apply to collateral challenges in general ought not apply to collateral challenges made in the context of an application for a sequestration order where the effect of the collateral challenge is to demonstrate there is no debt behind the judgment on which the petitioning creditor relies. It would be a surprising exercise of bankruptcy jurisdiction to make a sequestration order on the basis of a judgment that purported to be based on a debt which in truth and reality is not a debt due to the petitioner. In any event, if it were a matter of discretion, I would not exercise my discretion against allowing a collateral attack on the Costs Certificates. If the collateral challenge is not allowed, Mr Grego will suffer bankruptcy, a serious consequence. On the other hand, Ms Obrart does not claim she will suffer any prejudice if I were to permit the collateral challenge. Further, the validity of the Costs Certificates has not been examined by a court.
Conclusions and disposition
My conclusions are as follows:
a)It is open to a bankruptcy court to go behind a judgment (costs judgment) that has been entered on the basis of a costs certificate issued pursuant to s.368(1) of the LP Act that records a costs determination made pursuant to s.367(1) of the LP Act.
b)A bankruptcy court will go behind a costs judgment if there is a substantial reason for questioning the validity of the costs certificate on the basis of which the costs judgment has been entered.
c)There will be a substantial reason for questioning the validity of a costs certificate if there is a substantial reason for questioning whether the costs certificate records a determination purportedly made under s.367(1) of the LP Act that is affected by jurisdictional error.
d)There are substantial reasons for questioning whether the Costs Certificates on the basis of which the Judgment has been entered were issued in relation to determinations purportedly made under s.367(1) of the LP Act that are affected by jurisdictional error. It is open to me, therefore, to go behind the Judgment and examine for myself whether the costs determinations that have resulted in the issue of the Costs Certificates are affected by jurisdictional error.
e)Because of the second and third grounds on which Mr Grego relies for claiming that the Second and First Costs Certificates respectively are invalid, I am not satisfied the Costs Certificates were not issued on the basis of costs determinations that are affected by jurisdictional error. For those reasons, I am not satisfied the Costs Certificates are valid and, therefore, I am not satisfied there are real debts behind the Judgment.
f)I am satisfied that, in purporting to conduct the assessments for legal costs, the costs assessor did not consider the matters s.363(1) of the LP Act required the costs assessor to consider and, for that reason, the costs assessor made a jurisdictional error when making each of the determinations of costs on the basis of which the Costs Certificates were issued. I am satisfied, therefore, that the Costs Certificates are invalid and, for that reason, there are no real debts behind the Judgment.
My conclusions provide a sufficient cause for my being satisfied that a sequestration order ought not to be made against the estate of Mr Grego, assuming Ms Obrart has proved the matters Ms Obrart is required by s.52(1) of the Act to prove. For that reason, the creditor’s petition should be dismissed.
I propose, therefore, to order that:
a)Ms Obrart be granted leave to reopen her case by adducing the Boyce paginated affidavit;
b)pursuant to s.136 of the Evidence Act 1995 (Cth), the use of the Boyce paginated affidavit be limited to evidence of the costs agreements she claims were attached to the applications for costs assessments; and
c)the creditor’s petition be dismissed.
I also propose to order that Ms Obrart pay to Mr Grego such costs to which he may be entitled as an unrepresented litigant.
I certify that the preceding one hundred and thirty-two (132) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 9 May 2017
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