Penglis v Michael

[2001] FMCA 79

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PENGLIS v MICHAEL & ANOR [2001] FMCA 79

BANKRUPTCY – Opposed creditor’s petition – challenge to judgment debt – two bankruptcy notices – one only proceeded upon.

Applicant: STEVEN PENGLIS

Respondents: SHAWKY SHAFEEK MICHAEL and JOYCE MARY MICHAEL

File No: WZ 12 of 2000

Delivered on: 14 February 2001

Delivered at: Perth

Hearing Date: 13 February 2001

Judgment of: Phipps FM

REPRESENTATION

Counsel for the Applicant: Mr P D Evans

Solicitors for the Applicant: Freehill Hollingdale and Page

Dr S S Michael and Mrs Michael in person.

ORDERS

1. A sequestration order be made against the estates of SHAWKY SHAFEEK MICHAEL and JOYCE MARY MICHAEL.

2. The applicant’s creditors’ costs be taxed and paid from the estate of the respondent debtors in accordance with the Bankruptcy Act 1966.

The Court notes that the act of bankruptcy is 21 August 2000.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

WZ 12 of 2000

STEVEN PENGLIS

Applicant

And

SHAWKY SHAFEEK MICHAEL and JOYCE MARY MICHAEL

Respondents

REASONS FOR JUDGMENT

1. This is an application by creditors’ petition dated 19 October 2000 seeking order sequestration against the estates of the respondents, Dr SHAWKY SHAFEEK MICHAEL and Dr JOYCE MARY MICHAEL. A bankruptcy notice was issued based upon an order of the Legal Practitioners Disciplinary Tribunal made pursuant to section 31 subsection (2) of the Legal Practitioners Act 1893.  That came about as a result of a complaint by the respondent against the applicant, the applicant being a legal practitioner.  That complaint was dismissed and pursuant to section 21(2) the respondents were ordered to pay the applicant’s costs.

2. Section 31(2) of the Legal Practitioners Act provides for taxation in the Supreme Court of Western Australia and also provides that once the taxing officer has given an allocatur, the costs may then be recovered as though the order of the tribunal or the allocatur were a judgment of the Supreme Court for the payment of the sum which was specified in that allocatur. The consequence is that the order for costs and perhaps the allocatur becomes a judgment for the purpose of section 41(3) of the Bankruptcy Act because it’s a final judgment or order within the meaning of section 40(1)(g).

3. The bankruptcy notice on which this petition is founded is dated

   
   

   27 April 2000. It was served by means of an order for substituted service which means that it is deemed served on 31 July as the order provides. Consequently, if the bankruptcy notice was not complied with or otherwise set aside, there was an act of bankruptcy pursuant to section 40(1)(g) of the Bankruptcy Act on 21 August 2000. I am satisfied that the bankruptcy notice was duly issued. I am satisfied that there was a judgment debt of $17,560.49 at the date of issue of the bankruptcy notice and at the date of service of the bankruptcy notice.

4. I am satisfied by the affidavit in support that the amount remains due and payable, (subject to what I have to say later), that it is a debt of over $2000, that it gives an address for payment in Australia and gives the correct address of a Federal Court registry.  I am also satisfied that it has not been secured.  The bankruptcy petition was served on both of the respondents on 6 November 2000.  It came on for hearing before me on 13 February 2001 and there were filed the necessary affidavits stating that the debt was still owing and that the necessary search of the bankruptcy register had been conducted.  All those formal matters are satisfied.  It is necessary to deal with the real matters in dispute.

5. It is an opposed bankruptcy application.  Dr Michael and Mrs Michael appeared for themselves.  A great deal of material was filed and a great deal of argument was put in relation to that material.  What I have done is attempt to distil as far as I can the essence of what it is that is complained about.  The hearing before the Legal Practitioners Disciplinary Tribunal which resulted in the order for costs came about as a result of a complaint by Dr Michael and Mrs Michael about the conduct of the applicant, Mr Penglis.  Mr Penglis is a solicitor.  I do not know that the material actually discloses that he is a partner of Freehills, but that would seem to be the case.  He certainly has acted as a principal of Freehills.

6. A brief background to what occurred is this.  A company Monitronix Ltd was listed on the stock exchange for the purpose of exploiting, amongst other things, various devices for searching for minerals, and in particular one which had been invented by Dr Michael.  Both Dr Michael and Mrs Michael claimed whatever intellectual property there was in this device.  They entered into a contract of sale or deed of sale for this device (called a differential temperature monitor or a universal fault detector) to Monitronix.

7. Monitronix then sought a patent.  Monitronix also set out to raise capital by way of the issue of shares and placement of options.  It also, it seems, purported to appoint some directors.  As a consequence of all of this, there followed years and years of litigation.  The cause of the start of the litigation was that the placement of shares, the appointment of directors, the issuing of options, or at least some of them were either irregular or perhaps not even done.  That resulted in two applications before the Supreme Court of West Australia back in the 1980s.  The first one resulted in a determination of the invalidity or non-existence of the issuing of shares, placement of options and appointment of directors, and the second one was an application which brought about a regularisation of the situation.

8. The petitioner, Mr Penglis, was the solicitor in those applications.  There was the need for an application for a patent for the device.  It then became apparent that there could not be a patent because the device – I am summarising and probably not stating it in its complete complexity – was not novel.  In particular, there had been a previous application made by Dr Michael and perhaps Mrs Michael in the United States of America which had not been pursued or which had lapsed.  It was alleged that, as a consequence of that, any novelty in the device went into the public domain and it lost its ability to be patented.

9. There was obviously a falling out amongst those who were promoting Monitronix who included Dr Michael and a Mr Ridgeway.  Dr Michael lost his position with the company.  That resulted in litigation in the Industrial Relations Commission.  Because of what was said to have happened to the ability to patent the differential temperature monitor and the universal fault detector, Monitronix Ltd commenced proceedings against Dr Michael and Mrs Michael for damages claiming that there was breach of contract, that there had been a misrepresentation about the patentability or the ability to patent the device and of most significance so far as this application is concerned in the submissions of Dr Michael and Mrs Michael, an allegation of fraudulent misrepresentation.

10. As I have said, there was other litigation as well.  One other piece of litigation was that Dr Michael and Mrs Michael had each been issued with one and a quarter million options in Monitronix Ltd.  They came into the hands of Mr Ridgeway, one of the other promoters, directors or people behind Monitronix.  Mr Ridgeway alleged that that had been done pursuant to a binding contract.  Dr Michael and Mrs Michael said it had not, so that led to another piece of litigation with Dr Michael and Mrs Michael as plaintiffs and with the applicant, Mr Penglis, acting for the defendant in that proceeding.  Except for the proceedings in the Industrial Relations Commission, I think I am right in saying that all of this litigation was in the Supreme Court of Western Australia.

11. Dr Michael and Mrs Michael took exception to the way in which they saw Mr Penglis acting in his capacity as the solicitor or legal practitioner for Monitronix and other parties.  That resulted in them making a complaint to the Legal Practitioners Disciplinary Tribunal.  The tribunal heard the complaint and, as I have already said, dismissed it and ordered costs against Dr Michael and Mrs Michael.

12. The first thing that needs to be dealt with is the respondents’ allegation that in some way this court can go behind the order of the Legal Disciplinary Tribunal.  In order to do that, there must be what the cases call special circumstances.  It will not be done as a matter of course; for instance,

    “Examples of when courts have considered it appropriate are when the judgment was obtained by fraud, collusion or a miscarriage of justice without serving the debtor with the originating process or by an unfair compromise.” 

    [Wren v Mahony (1972) 126 CLR 212.]

13. I think I need only take one aspect of Dr Michael and Mrs Michael’s first complaint about the tribunal as an illustration of why I cannot go behind the judgment.  As I have said, in the proceedings concerning the sale of the device to Monitronix, Monitronix alleged fraud.  The complaint of Dr Michael and Mrs Michael before the tribunal was that it is well-known and well-established, that a legal practitioner must not be a party to alleging fraud in a pleading unless they have the instructions which justify them to do so and, if necessary, those instructions will involve independent inquiries by the legal practitioner.  They alleged Mr Penglis breached that rule of practice.

14. The tribunal dismissed that complaint.

15. Dr Michael and Mrs Michael argued this way.  The action against them concerning the device was dismissed.  That came about by order of Master Bredmeyer in the Supreme Court of Western Australia on 10 September 1993.  Dr Michael and Mrs Michael say that the tribunal must have ignored the submissions they put, that a legal practitioner must not allege fraud without having a proper basis for doing so, because it is obvious Mr Penglis must have breached the rule because the case was dismissed.  I think that is the way they put it.  That is not a basis for me going behind the judgment.  All that says is that Dr Michael and Mrs Michael say that the tribunal was wrong.

16. In the various disputes that have to be resolved by tribunals and courts across Australia, each court and each tribunal is allotted it task. My jurisdiction and my power is to determine matters under the Bankruptcy Act. The submissions that Dr Michael and Mrs Michael put would seem not to understand that. I do not have power, indeed to not have the ability, to determine matters under the Legal Practitioners Act 1893, specifically the matters which relate to complaints. That power, that job, is given to the Legal Practitioners Disciplinary Tribunal. Nor do I, as a Federal Magistrate with jurisdiction under the Bankruptcy Act, have any power to review or hear an appeal from the Legal Practitioners Disciplinary Tribunal. Any powers which do exist lie with the courts of Western Australia, and probably only with the Supreme Court of Western Australia I cannot decide whether or not the tribunal is wrong.

17. Each of the other matters of complaint which were put to the tribunal by Dr Michael and Mrs Michael were similarly dismissed.  Again they complain they are wrong.  Again it is not within my power to say otherwise.  It may be that amongst the complaints in all the material that Dr Michael and Mrs Michael have filed in this court, that there is a complaint which was not dealt with by the tribunal.  Again that does not affect what I am doing.  Indeed it cannot affect in any way the order for costs the tribunal made.  The tribunal dealt with what was put before it.  It made an order for costs based on dealing with what was put before it.  If there are other matters of complaint, perhaps they can be dealt with by a fresh application to the tribunal.  I doubt it, I must say, but they have nothing to do with the order that that tribunal made.

18. The next matter, as far as I can discern, of complaint about the tribunal is that it is alleged that there were communications between the applicant and the tribunal or members of the tribunal which Dr Michael and Mrs Michael did not know about.  This is put in their affidavit material and they say they discovered this in the course of inspecting documents when taxation of costs pursuant to the order was being carried out.

19. The documents are not exhibited but as far as I can see what is relied upon as containing information about documents passing between the tribunal and the applicant or those representing the applicant is the imprint placed by facsimile machines on documents which are being transmitted and specifically the abbreviations which show the source and the destination of those documents and time and date.

20. The mere fact that in the process of a contested hearing before a tribunal, documents passed between a party or those representing the party and the tribunal is no basis for saying that there was something underhand happening.  Inevitably documents must be passed backwards and forwards.  Dr Michael and Mrs Michael say they didn’t receive them.  They may be, for all I know, simply covering letters.  The files of this court contain within them covering letters saying such as, “We enclose affidavit for filing.”  It doesn’t go to the other party and there’s no need for it to go to the other party.

21. Even if I was wrong about that, even if there were more in those documents, I think there is one compelling reason why it’s possible to say that the existence of these documents could not lead to any challenge to the tribunal’s order.  Any challenge now would seem to have to be by way of prerogative writ or its statutory equivalent.  If there were any appeal rights, time has well and truly passed and if there was any basis for extending time, it would have to be discretionary.

22. In an application for a prerogative writ or its administrative equivalent, an extension of time to appeal, a court always has a discretion.  In this case it would be the Supreme Court of Western Australia.  My view is that it is virtually certain in this case that if any application was made, whatever the material was, the court as a matter of discretion would refuse the remedy because Dr and Mrs Michael have known about these documents for years.

23. Knowing of the documents, they then went on with the taxation of costs.  They went on with a review of the taxation.  They make no complaint until they reach the stage of bankruptcy proceedings.  Whatever else might be said, my view is that any court as a matter of discretion would refuse any relief.  I don’t have to go anywhere near that far to decide that this is not a basis, in the jurisdiction I am exercising, to look behind the tribunal order.  In my process of reasoning I can get to the point where I can say that a court would not set them aside and that is far enough.  Consequently my conclusion is that on the material before me there is no basis for looking behind the order of the tribunal.

24. There would seem to be in amongst all the material from Dr Michael and Mrs Michael allegations of counterclaim or set-off.  Once a bankruptcy notice is served, the person who receives the document has 21 days to either pay the money, secure it to the satisfaction of the creditor or apply to have the bankruptcy notice set aside.

25. One of the grounds for setting aside a bankruptcy notice is that there is a counterclaim, set-off or cross-demand which could not have been set up in the proceedings in which the debt was incurred, s 40(1)(g) Bankruptcy Act 1966.  An application to set aside on those grounds has to be made within 21 days.  It has not been.

26. There is in the affidavits of Dr Michael an Mrs Michael evidence of statements that they attempted to file a notice of motion in the Federal Court on the 21^st day; that is, on 21 August 2000, but that the registry could not find the file or could not find the number or there was some other matter wrong.  The motion which they have exhibited refers to section 41 subsection (5).  That says that a bankruptcy notice is not invalidated if the sum stated exceeds the amount due unless the debtor gives notice.  It is not a matter of issuing a motion, it is a matter of giving notice.

27. There has been no need to conduct any investigation to see whether or not there was an attempt to file a notice of motion pursuant to section 41 subsection (7) because there was in fact no such attempt.  The document refers to section 41 subsection (5).  It may well be that what happened at the registry was that the filing staff looked at the document and said that this is not a motion we can receive because it refers to section 41 subsection (5) and you cannot make an application by a motion under section 41 subsection (5).  The document exhibited as the motion refers to a previous costs order already paid.  I refer to this below.  The document cannot be interpreted as a motion under s 41(7).

28. The counterclaim Dr Michael and Mrs Michael allege is that they have incurred great expense and been caused great distress by the way in which the litigation was conducted.  In the Supreme Court and in the Industrial Relations Commission all the matters have been dealt with, including applications by Dr Michael and Mrs Michael for costs orders against Freehills as the solicitors acting the Monitronix or the other parties.  As far as I can see, there has been an exhaustive examination of all the various costs orders and all the various issues involved in all the cases.

29. Nothing has emerged from that litigation which has established a counterclaim.  Nothing has emerged from the material I have read which suggests that there was anything wrong with the way in which that litigation was conducted, and in particular anything which approaches the circumstances which permit a court exercising bankruptcy jurisdiction to look behind what has happened in another court.  The complaints against Mr Penglis about the way in which he conducted the litigation have been dismissed.

30. There is one specific aspect of the counterclaim which I should mention.  That is in relation to the options that I have referred.  Each of Dr Michael and Mrs Michael had one and a quarter million options.  They went into the hands of Mr Ridgeway.  There was litigation over that.  Dr Michael and Mrs Michael’s material gives it as proceeding number CIV 2756 of 1992, in the Supreme Court of Western Australia.  It was settled at mediation.

31. What the claim seems to be is that affidavits by Mr Ridgeway were false and that that in some way influenced the amount for which they settled.  In some way, because the affidavits were prepared by the applicant, the respondents have a counter-claim against him.  I have to say that I cannot discern at all how it is that a counter-claim arises against the applicant in those circumstances.

32. One other specific matter which I glean from the argument and the material was that in a proceeding described as appeal number 73 of 1991, again in the Supreme Court of Western Australia, there was an application by Dr Michael and Mrs Michael against Mr Penglis which was dismissed with costs.  Those costs were taxed in December 1991 in an amount of about $3800 and an amount of $3948.34 was paid by Dr Michael and Mrs Michael.

33. A chamber summons was issued at the end of December 1991 for a review of those costs.  It was never brought on for hearing.  The submission is that it is still possible to bring it on for hearing.  The submission is that in some way it is the applicant's fault that it was not brought on for hearing because he did not give dates on which he was available or, rather, dates on which he was not available.  It is said that that review will succeed because of a subsequent decision by the Supreme Court of Western Australia that a legal practitioner acting in his or her own litigation cannot recover profit costs.  [Dobree v Hoffman (1996) 18 WAR 36.] It is said in that that money was not owing and should be paid back. There is a set-off and the amount of the bankruptcy notice was wrong because it should have been reduced by that $3948.34.

1. I think the answer to that is that the certificate or allocatur which issued upon the taxation of the costs has not been set aside, has not been dealt with on appeal, has not been reviewed.  It stands in accordance with ordinary principles that a judgment of a court stands until it is set aside upon appeal or other means of review.  The fact that a subsequent decision in another case shows that if there had been an appeal against that decision at the time, that appeal would have succeeded, does not affect it.  That is a well-established principle, so there is no substance at all in the claim that the bankruptcy notice was for too much because it should have been reduced by that amount of $3948.34.

2. One other matter.  Two bankruptcy notices were served; the one on which this petition is based is number 95 of 2000.  Again the submission seems to be that the court should not make an order of sequestration because of the confusion caused by the two bankruptcy notices.  But on the material I have the other bankruptcy notice, 94 of 2000, was a regular bankruptcy notice; it was for a separate debt.  It was a debt that was owing.  It was a judgment debt, and the applicant, as it is entitled to do, has elected to proceed on one only of the bankruptcy notices.  I cannot see that there can have been any confusion.

3. Bankruptcy notice 95 of 2000 complies with all of the requirements.  It claims an amount of $17,560.49 which is set out in the schedule as the rules require.  It consists of three amounts described in this way:  practitioner’s costs of proceedings in action LP78 of 1996 pursuant to the Legal Practitioners Disciplinary Tribunal Order dated 31 March 1995, $13,017.50 plus interest accrued from 31 March 1995, the date of the decision, to 31 March 2000.  There is an annexure A, $4542.99 making the total of $17,560.49.  Annexure A contains the calculation.  It refers to section 142(1) of the Supreme Court Act 1935.  It refers to the rates per annum, 8 per cent as prescribed at page 3743 of the Government Gazette 31 July 1992 applicable from 31 July 1992; 6 per cent prescribed in page 5159 of the Government Gazette

   
   

   12 September 1997 applicable from 12 September 1997.  The calculation is set out.

4. There is attached to the bankruptcy notice the certificate from the registrar of the Legal Practitioners Disciplinary Tribunal certifying the order.  There is a certificate of taxation for the amount of $13,017.50 signed by the registrar of the Supreme Court of Western Australia.  The bankruptcy notice is clear.  The other bankruptcy notice could not have caused any confusion.

5. Section 52(2) of the Bankruptcy Act sets out the matters which require proof on the hearing of a creditors petition. It is first of all the matters stated in the petition. I have already said that I am satisfied about those matters. They are stated in the affidavit verifying the petition. I am satisfied about service of the petition and that the debt is still owing.

6. Subsection 54(2) has further requirements.

   “If the court is not satisfied with the proof of any of those matters or is satisfied by the debtor:

   (a)that he or she is able to pay his or her debts;

   (b)or that for any other sufficient reason of sufficient cause a sequestration order ought not be made;

   it may dismiss the petition.”

7. I have already dealt with the matters under subparagraph (b); that is, other sufficient cause, a sequestration order ought not to be made.  None of the matters that are set out in the material and none of the matters put by way of argument from Dr Michael and Mrs Michael satisfy me that there is sufficient cause.  The other matter is:  is the debtor able to pay his or her debts?  The judgment debt which is proved in these proceedings has not been paid.  There is no other material before me about the ability of the respondents to pay their debts.  It is for the debtor to satisfy the court that he or she or them are able to pay their debts.  The consequence therefore is inevitable.  I have material that there is a judgment debt which has not been paid.  I have no other material.  I, therefore, cannot be satisfied by the debtor or either of them, that they are able to pay their debts.

8. One final matter:  Mr Evans, who appeared to the applicants, submitted that the various affidavits which were filed by the respondents should not be read and should be uplifted because of irrelevant and scandalous material.  I do not need to deal with that application.

9. The court orders:

   (1)A sequestration order be made against the estates of SHAWKY SHAFEEK MICHAEL and JOYCE MARY MICHAEL.

   (2)The applicant’s creditors’ costs be taxed and paid from the estate of the respondent debtors in accordance with the Bankruptcy Act 1966.

   The court notes that the act of bankruptcy is 21 August 2000.

I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Phipps FM

Associate:

Date: