Percival v Barok Industries Pty Ltd
[2005] FMCA 157
•22 February 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PERCIVAL v BAROK INDUSTRIES PTY LTD | [2005] FMCA 157 |
| BANKRUPTCY – Setting aside a bankruptcy notice – standing of third party in matters other than in relation to a specific costs order sought against them – whether issue of bankruptcy notice an abuse of process or outside the instructions given to solicitors by the judgment creditor. Bankruptcy Act1966, ss.30 (1), 46(6A), 303 Re Howarth; Ex parte Mortgage Acceptance Nominees Ltd [1993] 43 FCR 587 |
| Applicant: | BARRIE ARCHIBALD ROBERT PERCIVAL |
| Respondent: | BAROK INDUSTRIES PTY LTD |
| File No: | BRG597 of 2001 |
| Delivered on: | 22 February 2005 |
| Delivered at: | Brisbane |
| Hearing dates: | 14, 15 & 17 December 2002 |
| Judgment of: | Rimmer FM |
REPRESENTATION
| Applicant: | Applicant appeared in person |
| Respondent | No Appearance |
| Counsel for the Third Party: | Mr McQuade |
| Solicitors for the Third Party: | Baker Johnson |
ORDERS
That the bankruptcy notice numbered QN 1060 be set aside.
That the application by the applicant that the third party Baker Johnson pay his costs be dismissed.
That any other applications for costs be dealt with by way of written submissions to be filed by each party within 21 days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BZ 597 of 2001
| BARRIE ARCHIBALD ROBERT PERCIVAL |
Applicant
And
| BAROK INDUSTRIES PTY LTD |
Respondent
And
BAKER JOHNSON
Third party
REASONS FOR JUDGMENT
Proceedings
This application is brought by the applicant to set aside a bankruptcy notice number QN 1061 of 2001. The time for payment has been further extended by orders made both by Registrar of this court and subsequently at the conclusion of the hearing until the hearing and determination of the applicants' proceeding to set it aside.
The applicant who appeared on his own behalf seeks to set aside the bankruptcy notice number QN 1061 of 2001 and seeks costs of the proceedings not only against the respondent company, Barok Industries Pty Ltd (“Barok”) but also against Messrs Baker Johnson Solicitors.
The respondent is a company that is now in liquidation. The liquidator did not appear nor seek to oppose the application. The bankruptcy notice was issued in the name of the respondent but by the third party who is the firm of solicitors who prepared and lodged the bankruptcy notice. The third party only became party to these proceedings because the applicant seeks an order for costs against the third party claiming that they acted without instruction in issuing the bankruptcy notice. The third party opposes the application and additionally opposes the setting aside of the bankruptcy notice.
The issues
Whist the applicant’s affidavit filed on the 23 November 2001 in support of his application does not clearly or with particularity set out and identify the grounds on which he relies in order that the bankruptcy notice be set aside, and as he appeared on his own behalf his presentation of the case and his written submissions have left the court in a position whereby his case is not well articulated, it appears from reviewing all of the material and evidence that the applicant has put before the Court that the issues for determination in this matter are:
a)What role does the third party have to oppose the application for setting aside the bankruptcy notice in the absence of any opposition by the creditor (the respondent) in that they are not a party to the debt and are solicitors who no longer have instructions from the creditor, who is a company in liquidation to act in this matter on behalf of the respondent and have not in these proceedings purported to act on behalf of the respondent only on their own behalf;
b)Whether the issue of the bankruptcy notice was an abuse of process in that it was issued by the third party outside the ambit of the instructions that they held from the respondent as that company’s solicitor at the time of issue of the bankruptcy notice and if that is the court’s finding, as a consequence of that should costs be ordered against the third party;
c)Whether the court should make an order setting aside of the bankruptcy notice on other grounds.
Background and evidence
The evidence in this matter was far from clearly presented by the applicant and many matters that were transversed by him in his affidavit evidence, oral evidence and submission was not relevant for me to consider in my determination of the issues at the hearing.
The facts that lead to this application are set out in summary. The applicant was involved in proceedings in the Supreme Court of Queensland which resulted in an order made on 30 April by Justice Helman against the applicant in favour of the respondent Barok Industries Pty Ltd for the production of records by the applicant and a resulting order for costs was made. On the 7 September 2001 those costs were assessed by a Registrar of the Supreme Court of Queensland. The solicitors who acted for Barok Industries in those proceedings and the assessment of costs were the third party Baker Johnson Solicitors.
In relation to the assessment of costs by the Registrar the applicant was represented by a firm of solicitors Reardon & Associates. The applicant was aware of the order made by Justice Helman and he was represented in the costs assessment and had involvement in that assessment process through his solicitors. Baker Johnson then sent a letter to the applicant’s solicitors Reardon & Associates confirming that the assessment of costs had been completed and setting out the amount assessed for those costs that had been ordered. Clearly the applicant was fully aware that an order for costs had been validly made, the amount that those costs had been assessed and the fact that the respondent was seeking payment of those costs.
One of the central issues in this matter was whether the solicitors Baker Johnson held instructions from Barok Industries to issue the bankruptcy notice. The applicant has filed an affidavit from the sole director of Barok Industries Mr Michael Theo wherein he deposes to the fact that “neither he nor Barok Industries Pty Ltd, the respondent herein, gave instructions to Baker Johnson to issue the Bankruptcy Notice QN 1061 of 2001 against Barrie Archibald Robert Percival.”
The evidence from the records of the file held by Baker Johnson solicitors for Barok Industries reveals the following matters:
·On 14 September 2001 a letter was sent to Michael Theo informing him of the assessment of costs and the ability to enforce the costs as if it was a judgment and the entitlement to commence bankruptcy proceedings. This letter also requested his instruction in relation to commencing bankruptcy proceedings against the applicant.
·On 2 October 2001 a conference took place with Patrick Earl from Baker Johnson and Michael Theo and Brian Irving from Barok Industries and in that conference confirmation was given that Michael Theo wanted to pursue execution of the debt in some form.
·On 3 October Warren Seeto of Baker Johnson prepared the Bankruptcy Notice.
·On 3 October 2001 a letter was forwarded by Baker Johnson to Michael Theo advising that the costs order had been obtained; that Baker Johnson were attending to the lodgement of a bankruptcy notice against the applicant for the costs order; that this bankruptcy notice would be served upon lodgement and a request that Michael Theo diarise the matter for a further review on 23 October 2001.
·
On 12 October 2001 a letter was sent to Michael Theo by Baker Johnson informing him that the bankruptcy notice had been received from the Official Receiver and had been issued against the applicant and that a process server was being engaged to serve the bankruptcy notice. Again a request was made in this letter for Michael Theo to diarise the matter for a further review on
12 November 2001.
·On 17 October 2001 a letter was sent from Baker Johnson to Michael Theo advising him of the difficulties experienced in serving the applicant and requesting any information that he had to assist with service. Michael Theo acknowledged under cross-examination that he had received and read the letter on or about 17 October 2001 and that he had discussed the contents of that letter with Brian Irving and that he did not contact Baker Johnson to ask them why the bankruptcy notice had been issued and advise them that he had not ever given instructions to issue the bankruptcy notice.
·On 29 October Baker Johnson received a facsimile from Brian Irving of Barok Industries inquiring whether certain avenues had been pursued by them to ascertain the applicant current address and to consider obtaining an electoral roll search for the address.
·On 13 December 2001 a meeting was held between Michael Theo and Brian Irving of Barok Industries and Stephen Johnson, Darin Edwards, Warren Seeto and Patrick Earl of Baker Johnson wherein Michael Theo raised what was happening with the bankruptcy notice and an overview of the matter including the fact that the bankruptcy notice had issued and had been served was advised to him by Darin Edwards. Michael Theo did not raise the fact that he did not know that the bankruptcy notice had been issued or state to the members and employees of Baker Johnson present at that meeting that he had not wanted the bankruptcy notice lodged or served.
While some of these matters were subject to challenge by Michael Theo in his evidence, he conceded that the file notes which were exhibited to the affidavit of Patrick Earl reflected the content of discussions that had taken place between he and Baker Johnson. He said that Brian Irving of Barok Industries would have handled the letters and that he relied upon Brian Irving to keep him informed of matters that were handled by Baker Johnson. He said that while he could not remember seeing all of the correspondence from Baker Johnson (except the letter of 17 October 2001) he was busy with other pressing matters and left these issues to Brian Irving to handle. Also while in his affidavit of 13 March 2002 Michael Theo denied the versions of the events at the meeting held with member and employees of Baker Johnson under cross-examination he changed his evidence and admitted giving the instructions set out in the diary note of this meeting of Patrick Earl.
There was no doubt from the evidence of Michael Theo that Brian Irving was employed by Barok Industries and that part of his duties included handling these matters with Baker Johnson. Implicit in those duties was an obligation for Brian Irving to keep Michael Theo informed of all matters that were relevant to him as the sole director of Barok Industries.
The law
Section 41(6A) of the Bankruptcy Act provides the circumstances in which the court can extend the time for compliance with a bankruptcy notice. Section 41(6A) provides:
"Where before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:
(a) proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b) an application has been made to the court to set aside the bankruptcy notice;
(c) the court may subject to subsection (6C) extend the time for compliance with the bankruptcy notice."
The express power in s.41(6A) of the Act to extend time for compliance with the requirements of a bankruptcy notice has been said to carry with it the power to set aside the notice itself (see Re Stirling ex parte Esanda Ltd (1980) 30 ALR 77 at 83 referred to in Re Briggs ex parte Briggs v Deputy Commissioner (WA) (1986) 12 FCR 310 at 311-312).
Although the Act does not expressly confer power on the court to set aside a bankruptcy notice, the court derives the power from at least two sources. Section 30(1) of the Act provides the court:
a) has full power to decide all questions, whether of law or fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognisance of the court; and
(b) may make such orders, including declaratory orders and orders granting injunctions or other equitable remedies, as the court considers necessary for the purposes of carrying out or giving effect to this act in any such case or matter.
Under section 303 of the Act where the Act provides that the court may exercise a power and does not specify the person on whose application the power may be exercised, the application may be made by, or the power may be exercised on, the application of any person aggrieved by or interested in the matter.
The court's power is thus derived from section 30(1) and section 303 of the Act and from the principle that a power conferred by parliament carries with it the power necessary for its performance or execution so that the express power to extend time for the compliance with the requirements of the bankruptcy notice when an application to set aside has been filed carries with it the power to set aside the bankruptcy notice itself (Re Sterling ex parte Esanda (1980) 30 ALR 77).
Although the section does not specify third parties applying to set aside a bankruptcy notice, provided that they can show that they are interested or aggrieved, they have standing to apply to set aside the bankruptcy notice or to extend the time for compliance, (see Re Howarth; Ex parte Mortgage Acceptance Nominees Ltd [1993] 43 FCR 587, per Einfeld J at 589).
In this matter the third parties are not applying to set aside the bankruptcy notice, they are opposing the application by the applicant to do this. I am satisfied that the same principles apply whether the third party is seeking to bring the application or to oppose the application brought by an applicant. In view of the above I am satisfied that they must show that they are interested or aggrieved in any determination in relation to this bankruptcy notice in order for the court to find that they have standing to oppose the setting aside of the bankruptcy notice.
The bankruptcy notice is founded on an order for costs made against the applicant in favour of the respondent issued on 7 September 2001. The costs order does not specify that the beneficiary of the costs order is the third party and clearly they have no right to insist on obtaining the benefit of the order directly from the applicant. I do not accept that there is any lien held by solicitors over the benefit of an order for costs that arises simply because those solicitors acted for the beneficiary of the costs order in the proceedings in which the costs order arose. A lien is by it’s nature a possessory right, that is it arises in relation to money or goods in the possession of a party. The right to enforce the costs is a completely different matter and such right exists only in the person who obtains the benefit of the order for costs.
Given that the respondent is now a company in liquidation the costs under the order are payable by the applicant to the liquidator of the respondent. If legal costs are owing by Barok Industries to Baker Johnson solicitors then they are only a creditor of Barok Industries in the liquidation. As the company is in liquidation the benefits of such payment by the applicant must flow to all creditors of the company in accordance with the requirements for priority for payments to creditors in that liquidation.
There is no suggestion that the solicitors Baker Johnson currently hold instructions from the liquidator to act in these proceedings on their behalf to oppose the bankruptcy notice. The company was placed into voluntary administration on 14 December 2001 and was placed into liquidation on 17 January 2002. From that date instructions for the solicitors to act in any capacity for the respondent could only come from the liquidator and not a director of the company or any employee of the company.
The liquidator on behalf of Barok Pty Ltd has not appeared in this matter or filed any notice of appearance or any other evidence. Therefore the position of the respondent can only be that they do not oppose the application which effects their interests, that is the settling aside of the bankruptcy notice by the applicant.
I accept that the third party did have an interest in ensuring that this court does not make a finding to the effect that they as a firm of solicitors acted outside the ambit of the express or implied instructions of their client, respondent at the time of issue of the bankruptcy notice and to defend any suggestion made by the applicant that that their intention in issuing the bankruptcy notice without instructions was to use the process against the applicant for some improper purpose. If such a finding is made by this court it would be the only basis upon which this court could make the costs order sought by the applicant against the third party as they are not a party to the proceedings in any other sense and this court could not order costs against them in the ordinary course of proceedings such as these.
Therefore I am satisfied that to the extent that the third party has been required to in effect “defend themselves” against the claims made by the applicant in relation to their professional conduct in the issuing of the bankruptcy notice and in opposing the order that is sought against them as to costs they have standing as a person or entity interested in or aggrieved by the application. In so far as the question as to whether the bankruptcy notice should be set aside per se is concerned they clearly do not have any interest and are not aggrieved and do not have any standing to oppose that application.
When one has regard to the orders made by Registrar Ramsay at the commencement of these proceedings at a directions hearing held on 30 January 2002, the position of the third party in these proceedings was clearly identified. Order 1 provided that in relation to the application for costs against Baker Johnson, Baker Johnson file and serve affidavits intended to be relied upon within the next 21 days. That makes it clear that the limit to which the third party needed to provide evidence was in relation to the issue of costs.
Further there has never been any order of the Court granting leave for Baker Johnson to be joined as a party to these proceedings. In so far as that is necessary for them to respond to the application made against them by the applicant for costs, I do intend to grant such leave as a part of any orders made by the Court in this determination.
Abuse of process
The onus of proving the abuse of process is upon the person alleging the abuse. That onus is a heavy one. The person alleging an abuse of process must show that the predominant purpose of using the process was one other than for which it was designed. Further, a person is entitled to take advantage of an entitlement or benefit the law gives. If the immediate purpose is within the scope of a legislative purpose, then the ultimate purpose cannot constitute an abuse of process when the purpose is to bring about a result which the law provides in that person’s favour (Williams v Spautz (1992) 174 CLR 509 @ pp. 529; 526-527).
I am not satisfied that the applicant has discharged the onus of proof that the solicitors of Barok Industries at the time of the issuing of the bankruptcy notice were without express and implied instructions from Barok Industries to issue that bankruptcy notice.
I found the evidence of Michael Theo to be most unreliable in relation to his involvement in giving such instructions to Baker Johnson solicitors. I am more than satisfied that as far as Baker Johnson were concerned they were left in no doubt either from the conversations that they had with Michael Theo himself or from conversations and written information that they received from Brian Irving on behalf of Barok Industries that they held instructions to issue the bankruptcy notice against the applicant.
I find that Baker Johnson solicitors and employees gave clear evidence in relation to all matters touching on this issue and that Michael Theo gave unsatisfactory evidence. I accept the evidence of the witnesses relied upon by Baker Johnson where there is any dispute between their evidence and that of Michael Theo. There is no question in my mind that Baker Johnson solicitors and it’s employees properly performed their instructions and their duty to Barok Industries in the issue of the bankruptcy notice against the applicant.
Should the Bankruptcy Notice be set aside
This part of the application is not opposed by the respondent Barok Industries or it’s liquidators. They have not filed a notice of appearance in the proceedings and they did not appear through the liquidators or any legal representative for the liquidators.
Essentially a bankruptcy notice is issued on the “application of a creditor” as provided for under section 41(1) of the Bankruptcy Act. It is now quite clear from the evidence before me that there is considerable doubt as to whether the “creditor” now has any present interest in pursuing this matter any further with the applicant. Certainly Michael Theo who was the sole director of the company has given evidence in support of the applicant’s case to set aside the bankruptcy notice and the liquidator of the company has not in any formal sense played any role in these proceedings in opposing the order that is sought by the applicant now before the court to set aside the bankruptcy notice.
The application is in effect unopposed by anyone with standing in the proceedings.
There is considerable prejudice to the applicant which flows from the bankruptcy notice. If he fails to comply with it he commits an act of bankruptcy and very serious consequences flow to him from that fact. The applicant should not continue to be subject to a bankruptcy notice where the creditor is not actively pursuing his recovery of the benefit of the judgment debt.
On the other hand there is no great prejudice to the creditor (in reality the liquidator of Barok Industries). If they wish to pursue this remedy and the debt remains unpaid by the applicant they are always able to issue a further bankruptcy notice putting beyond doubt the intention that they presently have to follow the bankruptcy procedures to their logical conclusion.
I propose therefore to set aside the bankruptcy notice.
Application for costs against Baker Johnson
The applicant has not identified in his written submissions the provisions which give rise to the jurisdiction of the court to make an order for costs in these proceedings between he and the creditor against the solicitors Baker Johnson.
In any event given my findings that those solicitors were at all times acting properly within the instructions given by Barok Industries in issuing the bankruptcy notice there is nothing which would persuade me that the court should exercise it’s discretion to make such an order even in the event that the power to do so properly exists. The warding of costs against a non party should only be made by the court in special or exceptional circumstances. [Re Ayre; Ex parte Deputy Commissioner of Taxation (1995) 130 ALR 648]. In this matter I am satisfied that no such circumstances exist and the application for costs against Baker Johnson should be dismissed.
Conclusion
For the reasons set out above I will order that the bankruptcy notice numbered QN 1060 be set aside and that the application by the applicant that the third party Baker Johnson pay his costs be dismissed.
Submissions as to applications for costs arising from this decision can be dealt with by the filing of written submission by the parties within 21 days of this date.
I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Rimmer FM
Associate: Alexandra Adsett
Date: 22 February 2005
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