Prentice v Warren McKeon Dickson Pty Ltd
[2016] FCCA 108
•22 January 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| PRENTICE v WARREN MCKEON DICKSON PTY LTD & ANOR | [2016] FCCA 108 |
| Catchwords: BANKRUPTCY – Application by trustee for directions under s.134(4) Bankruptcy Act – distribution of net sale proceeds of sale of bankrupt’s property – where surplus estate – how to treat debt owed to a discrete creditor – whether secured or unsecured – where s.44 Act not complied with – where retainer agreement unsigned – whether security created. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5, 30 ,44, 58, 82, 116, 134, 153A, 306 Conveyancing Act 1919 (NSW) ss.23C, 25E, 54A |
| Fleming v Beevers [1994] 1 NZLR 385 |
| Applicant: | MAXWELL WILLIAM PRENTICE |
| First Respondent: | WARREN MCKEON DICKSON PTY LTD |
| Second Respondent: | GARY ALLAN MAYTOM |
| File Number: | SYG 3314 of 2014 |
| Judgment of: | Judge Altobelli |
| Hearing date: | 24 July 2015 |
| Date of Last Submission: | 9 September 2015 |
| Delivered at: | Wollongong |
| Delivered on: | 22 January 2016 |
REPRESENTATION
| Solicitors for the Applicant: Solicitors for the First Respondent | Sally Nash & Co Warren McKeon Dickson Pty Ltd |
| Counsel for the First Respondent: | Ms Castle and Mr Bailey |
| The Second Respondent appeared by telephone |
ORDERS
The Court declares that, pursuant to s.306 of the Bankruptcy Act 1966 (Cth) (“the Act”), the Creditor’s non-compliance with s.44 of the Act does not invalidate any proceedings under the Act.
The Court further declares that, pursuant to s.58(5) of the Act, Warren McKeon Dickson Pty Ltd is a secured creditor (“the Creditor”).
The sale proceeds of the Bankrupt’s property should be distributed as follows:
(a)the costs, charges and expenses of the administration of the Bankrupt (including the cost of the present Application, and the remuneration and expenses of the Trustee);
(b)the amount owing to the Creditor, but ignoring any orders for costs made in favour of the Creditor but unpaid, and otherwise deducting any orders for costs made in favour of the Creditor which are already paid;
(c)the balance to the Bankrupt, but if the Bankrupt has not within 14 days of written request either:
(i)provided details of a bank account into which payment can be made; or
(ii)provided an address to which a cheque or payment may be forwarded, then
(iii)to the Official Receiver as if it were a payment under s.153A(4) of the Act.
DIRECTIONS TO TRUSTEE
Paragraph 2 of the Creditors Petitions does not comply with s.44 of the Act. Section 306 of the Act applies so that this non-compliance is not to be treated as in any way invalidating any proceedings under the Act, including, without limiting the generality of the foregoing, the sequestration order made.
Warren McKeon Dickson Pty Ltd is a secured creditor for the purpose of s.58(5) of the Act in the sum secured by an unsigned retainer agreement dated 4 June 2010 entitled ‘Terms of Appointment’ but taking into account (3)(b) above.
Warren McKeon Dickson Pty Ltd should be treated as a secured creditor in accordance with (5) above.
The 2 storage contracts entered into by the trustee in respect of the Bankrupt’s personal property should be terminated at the end of 3 months from today’s date. If the Bankrupt has not collected the personal property stored within 2 months and 2 weeks of today’s date, the Trustee may remove by whatever means the personal property held in storage and sell or otherwise dispose of the same in whatever manner the Trustee deems fit for the benefit of the Bankrupt, and the sale proceeds be payable in accordance with order (3)(c) above.
The Bankrupt’s personal property stored in the 2 storage facilities are not vested in the Trustee. The Trustee is justified after 3 months from the date of these directions to cease paying storage fees and to recover the expense of disposal of the personal property as an estate expense in accordance with order (3)(a) above.
The Trustee is at liberty to release to the Bankrupt such sum as he considers appropriate, subject to these directions, prior to the finalisation of the bankrupt estate, with such sum to be payable in accordance with order (3)(c) above.
The Trustee is at liberty to make such interim payment to the Bankrupt as he considers appropriate, in accordance with order 9 above, notwithstanding that an annulment under s.153A has not yet occurred.
The Trustee and the Creditor have liberty to re-list this matter before Judge Altobelli on 14 days notice in relation to the interpretation, implementation or enforcement of these directions.
The Trustee’s remuneration and costs of making this Application be a cost and expense in the bankruptcy administration.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3314 of 2014
| MAXWELL WILLIAM PRENTICE |
Applicant
And
| WARREN MCKEON DICKSON PTY LTD |
First Respondent
| GARY ALLAN MAYTOM |
Second Respondent
REASONS FOR JUDGMENT
Introduction
By way of an Application filed 27 November 2014 the Applicant, Maxwell William Prentice as trustee of the bankrupt estate of Gary Allan Maytom sought a number of orders. By the time of the final hearing on 24 July 2015 the orders sought were as follows:
1. That the Court give directions to the Applicant as to how to distribute the surplus proceeds of sale of the property of bankrupt estate of Gary Allan Maytom (“the bankrupt”) being the property at 484 – 486 Hunter Street, Newcastle (“the property”).
2. The Court gives directions as to whether or not paragraph 2 of the Creditors Petition by Warren McKeon Dickson Pty Ltd complies with s44 of the Bankruptcy Act and the requirements thereto to preserve the security claimed by it.
3. The Court gives directions as to whether Warren McKeon Dickson Pty Ltd are secured creditors under s58(5) of the Bankruptcy Act and if so in what sum.
4. That the Court give directions to the Applicant to how to treat the debts of Warren McKeon Dickson Pty Limited ACN 126 081 445 (“the petitioning creditor”) with respect to:-
a) Debts the subject of the security in its Retainer and the petitioning creditors Caveat and lien over the Certificate of Title to the property;
b) Costs incurred in relation to the bankruptcy but after the Sequestration Order dated 6 March 2012, but subject to its security.
c) Costs ordered by Justice Foster on 20 November 2012 and taxed on 28 March 2013
d) Costs set out in a letter from the petitioning creditor dated 20 October 2014, the subject of its security.
5. That the Court give directions to the Applicant as to when the 2 storage contracts should be terminated by him and what the Applicant should do with the contents.
6. That the bankrupt’s chattels formerly at the property stored in 2 storage facilities are not vested in the Applicant as Trustee in Bankruptcy and that the Court direct that the Applicant is justified after 2 months from these orders to cease paying storage fees and incur the expense of disposal of those chattels, as an estate expense.
7. That the Court gives directions to the Applicant as to what sum the Applicant can release to the bankrupt, prior to finalisation of his bankruptcy estate.
8. That the Court give directions to the Applicant as to whether he should make an interim payment to the bankrupt in circumstances where an annulment under s153A of the Bankruptcy Act has not yet occurred but there is likely to be a surplus to be paid to the bankrupt.
9. Such further other directions as the Court make think necessary for the expediency and for the finalisation of the administration of the bankrupt estate of Gary Allan Maytom.
10. That the Applicant’s remuneration and costs of making this Application be a cost and expense in the bankruptcy administration.
This Court has power to give directions pursuant to ss.134(4) and 30 of the Bankruptcy Act 1996 (Cth). These reasons for judgment explain the orders and directions made.
There were two other parties in this case. WMD Lawyers Pty Ltd (the Creditor) participated in the proceedings. It is a creditor in the bankruptcy. It was, in fact, the petitioning creditor. As may be observed from the orders sought by the trustee, a number of issues fall to be determined about its debt. The other party was the bankrupt himself, Gary Allan Maytom (the Bankrupt), who was represented by his litigation guardian and daughter, Rachel Taylor. Despite appearing on a number of occasions, the bankrupt filed no evidence or written submissions.
Short Chronology
The short chronology set out below is extracted from the Trustee’s chronology and submissions filed 1 May 2015.
| DATE | EVENT | ||||
| 19 August 2008 | Service agreement Jackson Lalic Pty Ltd | ||||
| 4 June 2010 | Retainer agreement Gary Matyom and Warren McKeon Dickson Pty Ltd | ||||
| 17 August 2010 | Caveat by Warren McKeon Dickson Pty Ltd (Stamped) | ||||
| 19 August 2010 | Stamp duty Warren McKeon Dickson fee retainer (up stamped 20 October 2014) | ||||
| 11 August 2011 | Judgment Warren McKeon Dickson Local Court $16,123.20 | ||||
| 25 October 2011 | Service of Bankruptcy Notice | ||||
| 26 October 2011 | Caveat Jackson Lalic Lawyers Pty Ltd | ||||
| 15 December 2011 | Act of bankruptcy | ||||
| 5 December 2011 | Presentation of Creditors Petition | ||||
| 6 March 2012 | Sequestration Order | ||||
| 28 March 2012 | Warren McKeon Dickson Proof of Debt $48,786 | ||||
| 7 June 2012 | Warren McKeon Dickson claim $58,578.89 | ||||
| 21 December 2012 | Jackson Lalic Lawyers Proof of Debt $10,931 | ||||
| 23 November 2013 | Contract for Sale of Land exchanged | ||||
| 29 January 2014 | Settlement of sale of real property | ||||
| 3 March 2014 | Statement of Affairs filed | ||||
| 20 October 2014 | Warren McKeon Dickson claim $125,464.82 | ||||
| 27 November 2014 | Application filed | ||||
| 15 December 2014 | First return date | ||||
Procedural History
A short history of the present Application is set out below:
·27 November 2014 – Present Bankruptcy Application and Affidavit of Maxwell William Prentice filed.
·15 December 2014 – first court date of this matter before Registrar Segal. Registrar Segal referred the matter to a Judge’s docket and reserved the Applicant’s costs.
·20 February 2015 – orders made in Chambers that listed the matter for Mention by telephone on 27 February 2015 at 9:30am, and required the Applicant to notify the bankrupt and any other interested person who may be affected by their Application.
·27 February 2015 – the matter was mentioned and Mr Maytom failed to appear. The following orders were made:
1. The matter be adjourned to 6 May 2015 at 10:00am for Final Hearing in court 3D of the Lionel Bowen Building, 97-99 Goulburn St, Sydney.
2. Any further evidence is to be filed and served by 22 April 2015.
3. Each party is to file and serve brief written submissions by 29 April 2015.
4. The Solicitor for the Applicant is to notify Mr Maytom of the making of these orders within 7 days.
5. The Mention for 4 May 2015 at 9:30am be vacated.
On this occasion, the Court also noted that should Mr Maytom failed to attend on 6 May 2015, the matter may be dealt with on an undefended basis on the adjourned date.
·6 May 2015 – the matter was listed for hearing on this day. Mr Maytom was unprepared and informed the Court that he wished to have his Daughter, Ms Taylor, represent him in these proceedings. Consequently, orders were made for Ms Taylor to be the litigation guardian of Mr Maytom, for Mr Maytom to file and serve his evidence, and for the hearing to be adjourned to 30 June 2015.
·30 June 2015 – Mr Maytom appeared with Ms Taylor, however the hearing did not eventuate due to the unpreparedness of Mr Maytom’s case. The following orders were made:
1. The matter be adjourned to 24 July 2015 at 10:00am for Final Hearing in court 3D of the Lionel Bowen Building, 97-99 Goulbourn Street, Sydney.
2. The Respondent through the Litigation Guardian file and serve any further affidavit evidence and submissions within 14 days.
3. The Trustee and Petitioning creditor file further or amended submissions by 7 July 2015.
·24 July 2015 – again, the matter was listed for hearing on this day. Mr Maytom did not appear. When telephoned by the Court, he explained that he believed the matter was listed on another day and that he was not ready to proceed. The Court was unable to reach Ms Taylor by phone. Consequently, the matter was heard in the absence of Mr Maytom and Ms Taylor. The following orders were made:
1. Within 7 days, the solicitor for the Trustee is to prepare a bundle of documents consisting of exhibit A1, the Trustee’s submissions and supplementary submissions, the Petitioning Creditor’s submissions, and cases referred to today, and provide said bundle to Mr Maytom’s litigation guardian.
2. Within 28 days thereafter, Mr Maytom, through his litigation guardian, is to file and serve any further evidence and written submissions.
3. Within 14 days thereafter, the trustee and Petitioning Creditor are to file and serve any further or amended written submissions.
4. Liberty is granted to the parties to re-list the matter on 7 day’s notice by application to the Court in Chambers in appropriate circumstances.
6. The costs of the Trustee be reserved.
·Despite Mr Maytom, through his litigation guardian, having been given the opportunity by the Orders made 24 July 2015 to file and serve further evidence and submissions, he did not utilise that opportunity and nothing was filed.
It is important to understand that the Trustee’s involvement in this bankrupt estate is a lengthy and complex one, preceding this present Application. There have been five previous judgments:
1. Maytom v Warren Mckeon Dickson Pty Ltd & Anor [2012] FMCA 1031
2. Warren Mckeon Dickson Pty Ltd v Maytom [2012] FMCA 160
3. Maytom v Prentice [2013] FCA 766
4. Maytom v Prentice (No 2) [2013] FCA 502
5. Maytom v Prentice [2013] FCA 387
The Evidence
In the Trustee’s case, reliance was placed on the Trustee’s Affidavit filed 12 December 2014, and an Affidavit of Megan Zhou filed 27 November 2014. Exhibit A1 consisted of a tender bundle of relevant copy documents. Neither the Bankrupt nor the Creditor filed Affidavits or relied on separate evidence.
Both the Trustee and the Creditor relied on written submissions.
Background
The Bankrupt appears to have retained the Creditor to undertake legal work on his behalf, pursuant to an unsigned retainer agreement entitled ‘Terms of Appointment’ dated 4 June 2010. This agreement contained provisions relating to security. When the Bankrupt did not pay legal fees said to be owing pursuant to the retainer agreement, the Creditor obtained judgment in the Local Court for $16,123.00. At no stage did the Bankrupt or the Trustee avail themselves of such rights as they may have had at law to have the legal costs assessed. Bankruptcy proceedings ensued. A sequestration order was made on 6 March 2012. A Proof of Debt was lodged. The Trustee sold property owned by the Bankrupt and holds substantial proceeds of sale in excess of debts duly payable.
Outline of Reasons for Judgment
These reasons for judgment will address the substantive issues raised in this case, and then specifically address the orders and directions sought by the Trustee.
The s.44 Issue
Section 44 of the Bankruptcy Act 1966 (the Act) states:
Conditions on which creditor may petition
(1) A creditor's petition shall not be presented against a debtor unless:
(a) there is owing by the debtor to the petitioning creditor a debt that amounts to $5,000 or 2 or more debts that amount in the aggregate to $5,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $5,000;
(b) that debt, or each of those debts, as the case may be:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii) is payable either immediately or at a certain future time; and
(c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.
(2) Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.
(3) A secured creditor may present, or join in presenting, a creditor's petition as if he or she were an unsecured creditor if he or she includes in the petition a statement that he or she is willing to surrender his or her security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.
(4) Where a petitioning creditor is a secured creditor, he or she shall set out in the petition particulars of his or her security.
(5) Where a secured creditor has presented, or joined in presenting, a creditor's petition as if he or she were an unsecured creditor, he or she shall, upon request in writing by the trustee within 3 months after the making of a sequestration order, surrender his or her security to the trustee for the benefit of the creditors generally.
(6) A secured creditor to whom subsection (5) applies who fails to surrender his or her security when requested to do so by the trustee in accordance with that subsection is guilty of contempt of court.
Paragraph 2 of the Creditor’s Petition filed 5 December 2011 states:
The applicant creditor does hold security over the property of the respondent debtor.
It is uncontroversial that:
·the Creditor contends that it is and was at all relevant times a “secured creditor” as defined in s.5(1) of the Act;
·no request was made by the Trustee pursuant to s.44(5);
·the Creditor did not set out particulars of its security for the purposes of s.44(4); and
·the Proof of Debt lodged by the Creditor was not accepted by the Trustee. Indeed, the position of the Creditor in its written submissions is that the Proof of Debt should be considered as withdrawn, and treated as if it merely identified the claim made. It maintains that it is a secured creditor.
Clearly, there has not been compliance with s.44 of the Act. Nonetheless, the sequestration order was made on 6 March 2012, over 4 years ago, it has not been challenged in any way, and for all practical purposes the administration of the bankrupt estate is almost complete, but for the directions sought.
The Court believes this is an appropriate case to apply s.306 of the Act which states:
Formal defect not to invalidate proceedings
(1) Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.
(2) A defect or irregularity in the appointment of any person exercising, or purporting to exercise, a power or function under this Act or under a personal insolvency agreement entered into under this Act does not invalidate an act done by him or her in good faith.
The Court finds that there is no substantial injustice to the Bankrupt. There was a supporting creditor, Jackson Lalic Pty Ltd, whose Proof of Debt was subsequently accepted by the Trustee. In other words, it could hardly be contended that the Bankrupt would not have become so, but for this non-compliance with s.44. Moreover, as the bankrupt estate is in surplus, no creditor, secured or unsecured, has been adversely affected in any way.
The long history (including litigation history) of this matter since the sequestration order was made, and the Bankrupt’s choice not to participate in the present Application, are reasons to invoke s.306(1).
On behalf of the Trustee it was submitted that an option available to the Court in the factual circumstances under consideration is to determine that the Petitioning Creditor in fact had forgone its security as a result of the non-compliance with s.44 of the Act. That is not the position adopted by the Petitioning Creditor, who proceeds on the basis that it is a secured creditor. The Court prefers to proceed under s.306 of the Act. In doing so, however, the Court is mindful of the decision of Rares J in Wright Designed Pty Ltd v McClymont [2006] FCA 999 (4 August 2006). The Court is satisfied, however, that the facts in this case are sufficiently different as to warrant departure from what, in other circumstances, might otherwise be a compelling interpretation of s.44 of the Act.
Is the Creditor a Secured Creditor?
The Creditor claims to be secured as a result of a retainer agreement it claims it had with the Bankrupt. The retainer agreement is, in fact, a document entitled “Terms of Appointment” containing 24 paragraphs and a section entitled “Acceptance of Terms of Appointment”. A number of observations are pertinent.
First, the document has been duly stamped as a security.
Second, the Bankrupt did not sign the document. This is not fatal. Paragraph 24 seems to contemplate alternatives.
Acceptance of Offer
If you accept this offer, you will be regarded as having entered into a costs agreement. This means that you will be bound by the terms and conditions set out in this agreement, including being billed in accordance with it.
This offer may be accepted by signing and returning a copy of this document, or at our election, in any of the following ways:
a) giving us instruction after receiving this Agreement;
b) sending us documents after receiving this Agreement;
c) seeking advice from us after receiving this Agreement;
d) oral acceptance; or
e) full or partial payment of a Retainer Fee.
Failure to accept our offer within 7 days of the date of this document can result in the immediate withdrawal of our offer to act on your behalf.
The Creditor contends that the Bankrupt in fact acted in accordance with the above, and so it has elected to treat that as acceptance of the terms of the retainer agreement. This was not put in contention by the bankrupt. The evidence before the Court confirms that, whether or not the bankrupt signed the document, he certainly engaged the services of the Creditor. Moreover, s.322(4)(b) of the Legal Profession Act 2004 (NSW) seems to contemplate acceptance in this manner.
A helpful case that raises a number of issues similar to the present matter is Moloney v Coppola [2012] NSWSC 728 Nicholas J (2 July 2012). Nicholas J had regard to ss.23C, 25E and 54A of the Conveyancing Act (NSW) 1919 and stated at [33] – [41]:
[33] A contract within s 23C(1)(a) or s 54A is enforceable only if part performance is established. This requires that there must be acts done under and by force of the contract that are unequivocally and in their own nature referable to some such agreement as that alleged (Regent v Millett [1976] HCA 40 ; (1976) 133 CLR 679, pp 682–683; Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7 ; (1988) 164 CLR 384, p 432; Khoury v Khouri [2006] NSWCA 184 ; (2006) 66 NSWLR 241, paras 16, 54, 83–86).
[34] The circumstances in which the acts were done are to be considered in order to consider whether the acts pass this test (Khoury para 17).
[35] Where there is a composite contract, in part disposing of land and in part having other effects, part performance of the latter aspects is capable of being part performance of the transaction as a whole and thus of the land aspect (Fleming v Beevers [1994] 1 NZLR 385, p 392).
[36] The plaintiff submitted that each of the agreements had been partly performed by the parties in that the plaintiff continued to provide legal services to the defendants, and the defendants continued to instruct him until the proceedings before Slattery J were concluded. Accordingly, it was contended that upon the application of s 23E(d) of the Act the agreements were enforceable although not signed by the defendant(s) as required by s 23C(1). In addition, without accepting that these proceedings were in respect of agreements for the disposition of any interest in land within s 54A(1), the plaintiff similarly submitted that part performance attracted the application of s 54A(2) so that the agreements were enforceable.
[37] In opposition, the defendants submitted that part performance was not established on the evidence and, hence, the charge was unenforceable. On my understanding, the defendants’ submission was that, to the extent that the parties acted under the agreements, their performance was referable to that component relating to the provision of, and payment for, legal services, and not to the discharge of obligations under cl E5 under which a charge was given. It was argued that for the application of s 23E(d) and/or s 54A(2) it was necessary that performance be referable to a transaction which created an interest in land, and did not apply in this case in which performance was referable to agreements for the provision of, and payment for, legal services.
[38] In evidence were eight tax invoices sent by the plaintiff to the defendants for legal services rendered between 30 October 2009 and 13 August 2010 in respect of the proceedings before Slattery J. Although the actual amount is unclear from the evidence, it appears that the defendants made some payment to the plaintiff for costs which was taken into account by the costs assessor in ruling that credit should be given to them for the amount of $136,262.97 paid on account. Furthermore, the defendants accepted (T p 35) that payments had been made by them from time to time towards their legal costs.
[39] As to the application of s 54A(1), the effect of the costs agreement is for a charge over the defendants’ land. They are agreements for the creation of a new, equitable interest in land and are agreements for the disposition of that interest. It is well established that an agreement for a mortgage or charge of land was within s 4 Statute of Frauds 1677 (UK) prior to the enactment of s 54A (Khoury para 5 per Handley JA; paras 44, 50, 60 per Bryson JA).
[40] The evidence establishes, and I find, part performance of the costs agreements by the parties, and each of them. Contrary to the defendants’ submission, the question of part performance must be considered with regard to each agreement taken as a whole. It is the composite transaction of which part performance must be demonstrated, not that aspect alone which relates to land. With reference to these agreements it is unrealistic for the purposes of the doctrine of part performance to sever the aspect which involves the creation of the interest in land from the other aspect (Fleming p 392). Clause E5 relates to the charge over property, and is addressed to the consequence where costs remain unpaid. The work done by the plaintiff was under an agreement which provided him with protection by way of a charge against the possibility that the defendants left his costs unpaid and outstanding.
[41] I find that the acts done by the parties being the continued rendering of legal services by the plaintiff, and the making of payments by the defendants, are acts unequivocally referable to their respective obligations under the costs agreements. In the circumstances, the provisions of ss 23E(d) and 54A(2) operate to enable the plaintiff to enforce the equitable charge given under the costs agreements notwithstanding the fact that the defendants had not signed them. Accordingly, I find the plaintiff is entitled to a declaration in terms of prayer 1 of the summons.
Whilst noting that the charging clause is different in this case, a matter to be discussed below, this Court nonetheless accepts the validity and applicability to the present facts, of the analysis of the law set out above. Moloney v Coppola was referred to, with apparent approval, by Windeyer J in M.J. Leonard Pty Ltd v Bristol Constructions Ltd (in Liq.) [2013] NSWSC 1734 (25 November 2013).
The Bankrupt’s decision not to participate in the present case means that no argument or claim was raised about the validity of the retainer agreement and the charge it created. Thus none of the matters commented on by Windeyer J in M.J. Leonard at [50] – [61] were raised. In any event, both the Bankrupt and the Trustee would have had opportunity before the present case to raise any other issues about the validity of the retainer agreement.
Third, the security provision in the agreement is found at clause 19 which states:
You hereby charge in our favour any real or personal property in which you have an interest with payment of any monies due to us for costs, charges or disbursements billed but unpaid and any unbilled work in progress, charges and disbursements, including Recovery Expenses in any matter. You irrevocably authorise us to lodge caveats to notify and protect that charge in relation to any real property in which you have an interest and any fees payable on the lodgement or withdrawal of such caveats to protect our interests will be payable by you.
The Creditor submits, and the Court accepts, that clause 19 indicates an intention to create a ‘mortgage’ for the purposes of s.205 of the Duties Act (NSW) 1997, and that thus the mortgage cannot be enforced if it is not stamped. As noted above, stamp duty has been paid.
The Creditor submits, and the Court accepts, that clause 19 of the agreement sufficiently identifies or specifies the land from which the debt is to be paid, or the asset over which it is to be secured, such that an equitable charge is created: see Maloney v Cappola at [27] – [31] and M.J. Leonard Pty Ltd generally.
Fourth, the amounts secured by the equitable charge are limited to that set out in clause 19 of the agreement. It includes Recovery Expenses which is a term defined in clause 17.3 in the following terms:
Recovery Expenses
You will be required to pay all our professional fees and charges for work done and all expenses and disbursements incurred on your instructions or on your behalf and for any work we are required to do in relation to the matter after termination of our retainer, including all costs and disbursements associated with the orderly transmission of your file and all costs, charges and disbursements associated with work undertaken by us in recovering payment of any unpaid bill of costs or exercising or enforcing our rights under this Agreement (Recovery expenses). Recovery Expenses will be calculated at our then current hourly rates and charges and disbursements at cost.
The termination of the retainer is a contingency that is contemplated in this provision.
An issue in this case is whether interest on unpaid costs is secured by the charge? Clause 11 reads:
Interest in unpaid costs
If our costs are not paid within 30 days of receipt by you of our bill of costs, we may charge you interest on the unpaid amount at a rate equal to the Cash Rate Target specified by the Reserve Bank of Australia as at the date of issuing our bill of costs, increased by 2 percentage points.
Whilst clause 11 of the agreement claims the right to charge interest, the issue is whether interest is secured by the charge created by clause 19? Interest is money payable pursuant to clause 11 of the agreement, and thus forms part of “any monies due to us for costs…” referred to in clause 19. Interest is, therefore, secured by the charge, as the costs contemplated at clause 11 can only be referrable back to the agreement itself, thus picking up clause 11.
Fifth, the Creditor’s security is the equitable charge created by the agreement, and not any caveat lodged and later withdrawn.
Sixth, to the extent that the Creditor may have had a possessory lien in respect of the Certificate of Title of the property itself later sold by the Trustee, such lien was lost at the time the Creditor delivered the said Certificate of Title for the purposes of settlement.
Seventh, The Creditor claims costs it incurred as recovery expenses after the sequestration order was made. In doing so, of course, it cannot also claim the benefits, if any, of costs orders made in its favour in this period. Any such costs orders, including petitioning creditor’s costs, must be brought into account in this regard.
Finally, does s.82(1) of the Act preclude recovery by the Creditor of post-sequestration order costs that otherwise fall within the definition of Recovery Expenses? Section 82(1) states:
Debts provable in bankruptcy
(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
The Trustee referred the Court to the High Court’s decision in Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56 (7 December 2007). The Trustee acknowledged, however, that on one view the Creditor was a secured creditor (indeed the Court has so found). The Creditor maintains that it is a secured creditor. The High Court’s decision in Foots would only be relevant if the Creditor sought to recover orders for costs made in its favour after the sequestration order was made. But the Court understands that the creditor in fact simply continues to rely on its equitable charge as costs incurred by it are secured as recovery expenses. No s.82 issues therefore arise. The situation is in fact covered by s.58(5) of the Act which states:
Vesting of property upon bankruptcy--general rule
(5) Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security.
The Creditor is fully secured. It has not ceased to be secured because it agreed to withdraw its caveat in order to enable the Trustee to settle on the sale of the Bankrupt’s property. There was a clear implication, conceded on behalf of the Trustee in submissions, that the Trustee would pay to the Creditor that to which they were entitled.
The trustee should treat the creditor as a secured creditor even though, in the unusual circumstances of this case, it was also the Petitioning Creditor. The only deduction that should be made from the amount claimed by the Creditor is any costs ordered in favour of the Creditor and paid.
The Storage Facility Issue
The Trustee has entered into two storage contracts to store personal property of the Bankrupt that had to be removed from the real estate property that was sold. The evidence creates the distinct impression, and the Court in fact finds, that the Bankrupt was uncooperative at the time the goods needed to be removed, and remained uncooperative at all relevant times thereafter. The Trustee acted entirely appropriately in entering into the storage contracts. The Bankrupt has failed to mitigate what, as it turns out, is his own loss given that the bankrupt estate is in surplus.
There is no doubt that on the evidence the goods stored constitute the Bankrupt’s personal property for the purposes of s.116(2)(b) and possibly (ba) of the Act. It is not property divisible amongst creditors. That appears to be the position by the Trustee consistently in this case. The Bankrupt’s intransigence about this issue is hard to understand.
The Court believes that the Trustee would be acting both appropriately and reasonably if it continues to maintain the storage contracts for another 3 months. If the Bankrupt has not removed his personal property by the end of 3 months from the date of the directions made in this judgment, the Trustee is at liberty to cease paying storage fees, and to recover the expense of disposal of the items in question, as an estate expense.
Interim Payment to the Bankrupt
The Trustee expects that the Bankruptcy will be annulled ppursuant to s.153A of the Act which states:
Annulment on payment of debts
(1) If the trustee is satisfied that all the bankrupt's debts have been paid in full, the bankruptcy is annulled, by force of this subsection, on the date on which the last such payment was made.
(1A) In determining whether there has been full payment of a debt that bears interest, the interest must be reckoned up to and including the date on which the debt (including interest) is paid.
(2) The trustee must, before the end of the period of 2 days beginning on that date, give to the Official Receiver a written certificate setting out the former bankrupt's name and bankruptcy number and the date of the annulment.
Penalty: 5 penalty units.
Note: See also section 277B (about infringement notices).
(3) Subsection (2) is an offence of strict liability.
Note: For strict liability, see section 6.1 of the Criminal Code .
(4) For the purposes of this section, if a debt has been proved by a creditor but the creditor cannot be found or cannot be identified, the debt may be paid to the Official Receiver and, if so paid, is taken for the purposes of this section to have been paid in full to the creditor.
(4A) Money received by the Official Receiver under subsection (4) is received on behalf of the Commonwealth.
(5) If money is paid to the Official Receiver under subsection (4), the provisions of subsections 254(3) and (4) apply in relation to that money as if it had been paid to the Commonwealth by a trustee under subsection 254(2).
(6) In this section:
“bankrupt's debts” means all debts that have been proved in the bankruptcy and includes interest payable on such of those debts as bear interest, and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee.
That has been the Trustee’s position consistently during the period of this litigation before me. The Trustee has consistently offered to pay to the Bankrupt an interim payment. The Bankrupt has, for reasons of his own not properly understood by the Court, declined to accept such payment.
In the circumstances of this case, if the Bankrupt, within fourteen days of receiving a request from the Trustee to provide bank account details to enable payment into the said account, or an address to which payment may be send by way of cheque, fails to do so, then s.153A(4) of the Act will be deemed to apply. Thus, payment can be made to the Official Receiver.
Directions
Referring to the orders sought by the Trustee and set out at paragraph 1 of these reasons:
1.The sale proceeds of the Bankrupt’s property should be distributed as follows:
1.1 the costs, charges and expenses of the administration of the Bankrupt (including the cost of the present application, and the remuneration and expenses of the Trustee);
1.2 the amount owing to the Creditor, but ignoring any orders for costs made in favour of the Creditor but unpaid, and otherwise deducting any orders for costs made in favour of the Creditor which are already paid;
1.3 the balance to the Bankrupt, but if the Bankrupt has not within 14 days of written request either:
1.3.1provided a bank account into which payment can be made; or
1.3.2provided an address to which a cheque or payment may be forwarded, then
1.3.3to the Official Receiver as if it were a payment under s.153A(4) of the Act.
2.Paragraph 2 of the Creditors Petitions does not comply with s.44 of the Act. Section 306 of the Act applies so that this non-compliance is not to be treated as in any way invalidating any proceedings under the Act including, without limiting the generality of the foregoing, the sequestration order made.
3.Warren McKeon Dickson Pty Ltd is a secured creditor for the purpose of s.58(5) of the Act in the sum secured by an unsigned retainer agreement dated 4 June 2010 entitled ‘Terms of Appointment’ but taking into account 1.2 above.
4.Warren McKeon Dickson Pty Ltd should be treated as a secured creditor in accordance with 3 above.
5.The 2 storage contracts entered into by the trustee in respect of the bankrupt’s personal property should be terminated at the end of 3 months from today’s date. If the Bankrupt has not collected the personal property stored within 2 months and 2 weeks of today’s date, the Trustee may remove by whatever means the personal property held in storage and sell or otherwise dispose of the same in whatever manner the Trustee deems fit for the benefit of the Bankrupt, and payable in accordance with order 1.3 above.
6.The Bankrupt’s personal property stored in the 2 storage facilities are not vested in the Trustee. The Trustee is justified after 3 months from the date of these directions to cease paying storage fees and to recover the expense of disposal of the personal property as an estate expense in accordance with order 1.1 above.
7.The Trustee is at liberty to release to the Bankrupt such sum as he considers appropriate, subject to these directions, prior to the finalisation of the Bankrupt estate, with such sum to be payable in accordance with order 1.3 above.
8.The Trustee is at liberty to make such interim payment to the Bankrupt as he considers appropriate, in accordance with order 7 above, notwithstanding that an annulment under s.153A has not yet occurred.
9.The Trustee and the Creditor have liberty to re-list this matter before Judge Altobelli on 14 days notice in relation to the interpretation, implementation or enforcement of these directions.
10.The Trustee’s remuneration and costs of making this Application be a cost and expense in the Bankruptcy administration.
I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of Judge Altobelli
Associate:
Date: 22 January 2016
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