Paligorov v Cohen

[2006] FCA 1473

FEDERAL COURT OF AUSTRALIA

Paligorov v Cohen [2006] FCA 1473

BANKRUPTCY – appeal from sequestration order of Federal Magistrate – construction and effect of undertaking given by appellant in form of consent orders – whether appellant’s undertaking to not take proceedings to set aside bankruptcy notice covers opposition to creditor’s petition - whether “sufficient cause” exists under s 52(2)(b) of the Bankruptcy Act 1966 (Cth) to warrant dismissal of creditor’s petition – whether there exists reasonable doubt as to the identity of creditor.

Anderson Rice v Bride (1995) 61 FCR 529
James v Federal Commissioner for Taxation (1955) 93 CLR 631
McWilliam v Jackson (2000) 96 FCR 561

Bankruptcy Act 1966 (Cth), ss 40, 52, 307
Bankruptcy Act, s 307
Federal Court (Bankruptcy) Rules, O 77 r 11

BILL PALIGOROV v LEONARD COHEN & CO
NSD 653 OF 2006

TAMBERLIN J
10 NOVEMBER 2006
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 653 OF 2006

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	BILL PALIGOROV Appellant
AND:	LEONARD COHEN & CO Respondent

JUDGE:	TAMBERLIN J
DATE OF ORDER:	10 NOVEMBER 20062006
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

The appeal is dismissed with costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 653 OF 2006

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	BILL PALIGOROV Appellant
AND:	LEONARD COHEN & CO Respondent

JUDGE:	TAMBERLIN J
DATE:	10 NOVEMBER 2006
PLACE:	SYDNEY

REASONS FOR DECISION

1. This appeal is from a judgment of Federal Magistrate Raphael of 8 March 2005 making a sequestration order against the appellant. There are four issues outlined in the Amended Notice of Appeal. The first two concern the construction and effect of an undertaking given by consent and an order made by his Honour on 10 August 2005. The third issue is whether his Honour erred in law in failing to dismiss the creditor’s petition on the basis that there was sufficient cause for so doing under s 52(2)(b) of the Bankruptcy Act 1966 (Cth) (“the Act”). Fourthly, the issue is whether the bankruptcy notice is a nullity because there was reasonable doubt as to the identity of the creditor.

   OVERVIEW

2. This appeal arises in the context of a long complex history of nationwide litigation concerning recovery of solicitors’ fees found to be due and owing to the respondent firm, Leonard Cohen & Co, based on costs taxed in the Western Australian District Court in an amount of $7,771.55.  The bankruptcy notice was issued by Leonard Cohen & Co on 13 January 2005 in relation to the above judgment debt.  The judgment debt was based on a judgment in the District Court of Western Australia in Matter No. 2520 of 2003.

3. On 30 June 2005, Registrar Tesoriero dismissed the appellant’s application to set aside the bankruptcy notice.  An application was then made to review that decision.  On 10 August 2005, Federal Magistrate Raphael made orders by consent extending time for compliance with the bankruptcy notice until three working days after the decision was made on a strike out application then pending in the District Court brought by the respondent in respect of the appellant’s cross-claim.

4. On 24 August 2005, the District Court Registrar made orders in Matter No. 2520 of 2003, dismissing the appellant’s application to strike out the writ of summons and statement of claim.

5. The orders of the consent orders and undertaking given and made on 10 August 2005 were in the following terms:

   ‘Upon hearing Mr Gracie for the applicant and Mr Forbes for the respondent and upon the applicant undertaking that in the event that his joint application to the District Court of Western Australia to strike out proceedings No 2520 of 2003 is unsuccessful he will forthwith pay the amount claimed in bankruptcy Notice No 22 of 2005 and will take no further proceedings seeking to set aside the said notice and by consent:

   THE COURT ORDERS THAT:

   1.Time for compliance with the Bankruptcy Notice 22 of 2005 extended until 3 working days after the decision of the Registrar District court in the strike out application is handed down or the strike out application is otherwise dismissed whichever is the earlier.

   2.In the event the strike out proceedings are decided in favour of the applicant and the proceedings 2520 of 2003 are struck out with costs the bankruptcy notice is set aside upon the making of such orders.

   3.Costs of these proceedings will be reserved for decision and the parties are required to file with my associate and serve submissions thereon on or before 1 December 2005.’

6. The relief sought in the proceedings before the District Court Registrar as outlined on the Chamber Summons for Summary Judgment and strike out of the respondent’s Writ of Summons and Statement Of Claim dated 14 April 2005 was stated as follows:

   ‘(1)     The time for bringing this application be extended.

   (2)      Summary judgment be entered against the Plaintiff.

   (3)      In the alternative to 2 the Plaintiff’s claim be struck out in its entirety as vexatious and/or an abuse of the process of the court.

   (4)      The Plaintiff’s claim be dismissed.

   (5)      Alternatively this matter be stayed.

   (6)      Such further alternative relief as the court deems fit.

   (7)      [An application for costs.]’

7. The orders made on that application by the Deputy Registrar on 24 August 2005 were as follows:

   (1)      ‘Paragraph 3 of the application be dismissed.

   (2)      The balance of the application be adjourned sine dine.

   (3)Costs be reserved.’

8. The respondent filed its creditor’s petition dated 15 December 2005 and the Federal Magistrate made the Sequestration Order on 8 March 2006 after hearing the parties.

   ISSUE 1 – TIME FOR COMPLIANCE

9. The appellant submits that on a proper construction of the Court Order of 24 August 2005 there was no decision on the strike out application because the expression “strike out application” was intended to refer to a decision which disposed of every prayer for relief in the summons and application to strike out heard by the District Court Deputy Registrar.  This application, it is said, sought additional orders to the strike out, including an application that there be summary judgment against Leonard Cohen & Co and that the proceedings be dismissed.

10. Order 16 of the District Court Rules gives the power to grant summary judgment.  The language of the Court Order is clear, and it refers specifically to the strike out application and not to the disposition of the application before the Deputy Registrar.  Separate relief was sought based on two different orders.  The strike out application was dismissed.   The strike out application was therefore the subject of “a decision”.  There is no reference in the Chamber Summons to the disposition of all relief sought in the summons, including summary judgment and other prayers in the summons.  On the contrary, the reference was, by consent, limited specifically to the application for a strike out.  One must assume that when orders of this nature are consented to, careful thought has been given to the precise wording.  Accordingly, for these reasons, the “three working days” as referred to in the Consent Orders, ran from the making of the Court Order dismissing the strike out application on 24 August 2005.  The fact that there is a reference to the balance of the application being adjourned and costs reserved does not affect this conclusion.

11. Accordingly, I do not accept the appellant’s submission on the first issue.

    ISSUE TWO – UNDERTAKING

12. The application to strike out was unsuccessful.  The undertaking given in terms committed the appellant to forthwith pay the amount claimed in the bankruptcy action and to take no further proceedings seeking to set aside the notice.  This undertaking was enlivened on and after dismissal of the strike out.

13. It must also be kept in mind that in the judgment under appeal, the learned Magistrate was construing the consent undertaking and not a statutory instrument. The undertaking is a consensual document and it is the common intent of the parties in giving and accepting the obligations therein, as reasonably construed in the light of the context, which determines its effect. The appellant submits that the undertaking does not cover an opposition to a creditor’s petition on the ground that the bankruptcy notice should be set aside. It is said that opposition to a sequestration order under s 52 of the Act raises some different considerations to those relevant to an application to set aside a bankruptcy notice under s 40. This can be accepted.

14. However, in the context of this litigation, the Consent Orders were intended to and in terms require the appellant to refrain from any further challenges to the bankruptcy notice in whatever form and at whatever stage such challenge is made.  The procedure to oppose the petition involves filing a Notice of Opposition and an Affidavit: see O 77 r 11 of the Federal Court (Bankruptcy) Rules. The purpose of the undertaking is that no steps will be taken to challenge the notice as a condition of the respondent’s agreement to extend the time for compliance until a decision is made on the strike out application. There is an inconsistency between an undertaking not to take proceedings to set aside the bankruptcy notice yet to reserve a right to achieve the same result under the discretionary power given in s 52(2). The undertaking does not limit the expression ‘proceedings’ to one under s 40 of the Act. It commits the appellant not to take any proceedings which produce the result of effectively setting aside the notice for this reason.  I do not accept the submission of the appellant on this second issue.

    ISSUE 3 – S 52 – SUFFICIENT CAUSE

15. Under s 52(2) of the Act, if the Court is not satisfied with proof of any of the matters specified in the creditor’s petition, or is satisfied by the debtor that for other sufficient cause a sequestration order ought not be made, the Court has a discretion to dismiss the petition. This discretionary power is broad.

16. The onus is on the appellant to establish “sufficient cause”.  The appellant relies on outstanding costs orders against the respondent which have been made but which have not been taxed.  The appellant relies on the evidence of a costs expert that the total amount will exceed the debt in the bankruptcy notice.

17. A similar argument was not successful on the application to set aside the bankruptcy notice before Registrar Tesoriero.  The respondent refers to judgments and orders for costs untaxed in other proceedings, which are said to exceed the costs referred to by the appellant.  The potential claim of the appellant for costs is said to be in the order of an amount less than $20,000.00, whereas there is an outstanding judgment in favour of the respondent for $240,512.51 exclusive of costs.

18. Having regard to the consent undertaking, the judgments referred to in submissions, and the relative costs awards together with the outstanding judgment sum of $240,512.51, the appellant has not satisfied me that there is “other sufficient cause” which would warrant dismissal of the petition.  It is not necessary for me to consider, as a matter of law, whether the undertaking precludes the appellant from raising this issue, but it clearly is an important matter for consideration when contemplating the exercise of the statutory discretion.

    ISSUE 4 – IDENTITY OF CREDITORS

19. The appellant submits that the bankruptcy notice should be set aside because there is uncertainty as to the identity of the judgment creditor.  Counsel does not submit that there is any direct evidence from the appellant that he was misled as to the creditor.  Nor is there any suggestion that the appellant made any attempt to pay the outstanding monies as required by the bankruptcy notice.  Nevertheless, it is contended by the appellant that the judgment debtor must not be left in any reasonable doubt as to the identity of the judgment creditor.

20. Counsel for the appellant submits that there was reasonable doubt in this case having regard to the following circumstances.  The respondent says that the agreements it sues on were on entered into on 21 September 1995 and 1 October 1995, at a time when Mr Leonard Cohen was a sole trader carrying on business under the name “Leonard Cohen & Co.”  On 1 November 2005, Messrs Georgiou and Vertannes joined the partnership. 

21. The evidence of Mr Georgiou in an affidavit signed on 17 May 2005 is that it was a term of the partnership agreement that the partnership assumed all rights and obligations of Mr Cohen’s existing practice as from 1 November 1995, excluding debtors to whom accounts had been rendered prior to 1 November 1995. Mr Georgiou notes that included in the rights and obligations were all the rights and obligations pursuant to the agreement entered into on 21 September 1995 between Leonard Cohen & Co and the appellant. He states that on 1 November 1995, the respondent further assumed all rights and obligations in relation to the written retainer agreement entered into on that day.  On 8 December 1995, a Statement of Change in Registered Particulars was registered reflecting the change as to owners of the business name. 

22. The work which is the subject of the relevant claim was carried out by the firm from September 1995 and ceased in February 1998, when instructions were withdrawn.  When the first writ was issued on 17 March 2000, the three above named persons traded as “Leonard Cohen & Co.”  The writ in respect of which the relevant costs order was made was issued when Messrs Georgiou and Vertannes owned the company name. 

23. On 30 June 2003, Mr Cohen ceased to be a co-proprietor of the business name, but there is evidence that the partnership with Messrs Georgiou and Vertannes was continued for limited purposes, presumably in order to wind up all the affairs of the partnership, including collection of all debts. 

24. The appellant says that there was reasonable doubt in his mind as to the identity of the creditor, and that therefore the notice is a nullity.  The question is whether a reasonable person in the position of the appellant would have been misled.

25. It is common ground that a firm can bring bankruptcy proceedings in the firm name under s 307 of the Act, and that a change in the composition of the firm does not invalidate the bankruptcy notice: Anderson Rice v Bride (1995) 61 FCR 529 and 542. The Full Court in Anderson Rice noted that it is the duty of the debtor to seek out and to pay the judgment creditor, if the creditor is in Australia: James v Federal Commissioner for Taxation (1955) 93 CLR 631 at 639. This reasoning is applicable in the present case.

26. I am not persuaded that there was any basis on which it could be established that the appellant had any reasonable ground to doubt that those parties constituting the firm under the name Leonard Cohen & Co obtained the rights to remuneration and obligations in respect of work during September 1995 through February 1998, or that they were the proprietors of the firm entitled to recover the fees.  At all relevant times in this period, the partnership was constituted by Mr Cohen and as from 1 November 2005, with retrospective effect, the firm included Messrs Cohen, Georgiou and Vertannes.

27. I note that the bankruptcy notice of 13 January 2005 referred to “Leonard Cohen & Co” and gave the address of that firm.  It also stated that payment could be made to Stewart Forbes, Barrister and Solicitor at 16 Irwin Street, Perth and the evidence indicates that no attempt was made to proffer any such payment.  The Notice also specifies that Mr Forbes, who issued the notice, was the agent of the creditors.

28. The evidence does not establish that the appellant was misled as to the persons to whom he should pay the debt, nor that he had any reasonable doubt as to when the work was done or that such work included work up to February 1998.  He could have made payment to Stewart Forbes and this would have satisfied the Notice.  Accounting between the parties as to the allocation of the payment was a matter for them.

29. This case is in no way comparable the facts in McWilliam v Jackson (2000) 96 FCR 561 where the creditor was identified in the notice as “Anthony Jackson & Others.” The reference to “others” in that case was open-ended and uncertain on its face.

30. I do not accept this final ground.  Furthermore, I consider that it is contrary to the undertaking given by the appellant.

31. For the above reasons this appeal is dismissed with costs.

I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Associate:

Dated:        10 November 2006

Counsel for the Appellant:	J C Giles
Solicitor for the Appellant:	George M Livaditis
Counsel for the Respondent:	B W Ashdown
Solicitor for the Respondent:	Stewart Forbes
Date of Hearing:	14 September 2006
Date of Judgment:	10 November