Re Devy; ex parte BBC Hardware Ltd

[1996] FCA 598

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION  )

BANKRUPTCY DISTRICT OF THE           )  No. QP619 of 1995
STATE OF QUEENSLAND                  )

RE:ANDREW LAURENCE DEVY

Debtor

EX PARTE:BBC HARDWARE LIMITED (formerly known as Burns Philp Hardware Ltd)

Creditor

CORAM:    HILL J
PLACE:    SYDNEY
DATED:    18 JUNE 1996

REASONS FOR JUDGMENT

Before the Court is a creditor's petition presented against Andrew Laurence Devy ("the debtor").  The petitioning creditor, BBC Hardware Limited, sought leave to withdraw.  An order was made that Ms S. Gurnsy be substituted as petitioning creditor.

Ms Gurnsy is a solicitor.  Indeed, she had acted for the debtor in respect of matters related to the petition.  She says that a solicitor in her employ was instructed by the debtor to act for him on 14 September 1995 to set aside the judgment which had been obtained by BBC Hardware Limited, and to seek an extension of time for compliance with a bankruptcy notice which had been issued by that company, as well as other matters.

She had received a cheque from the debtor for $600 to cover her outlays, but that cheque had been dishonoured.  She said that there had been over 27 attendances by her firm on the debtor and that, as at the date the act of bankruptcy alleged against the debtor was committed, work totalling at least $3000 had been carried out by her firm on his behalf.

The debtor does not deny the instructions he gave to Ms Gurnsy's firm or that work was done for him by that firm.  He says, however, that at no time has he been provided with a bill of costs in taxable form.

The short issue for decision is whether in these circumstances Ms Gurnsy is entitled to succeed in her petition. Assuming otherwise, in her favour, that all other formalities have been complied with, that question turns upon whether Ms Gurnsy has shown that there is owing by the debtor to her a debt which is a liquidated sum and which was, at all relevant times, payable immediately, or at a certain future time within the meaning of those words in s 44(1) of the Bankruptcy Act 1966 (Cth).

It is well accepted law that a petitioning creditor, including for present purposes a substituted petitioning creditor, must show the existence of a debt in the relevant amount as a liquidated debt which satisfies the requirement that it be payable immediately or at a certain time in the future, as at the time of the commission of the act of bankruptcy.  See Re Jon R. Tait; Ex parte Deputy Commissioner of Taxation (unreported, Lockhart J, 26 April 1996) and the cases cited in that judgment at page 8.

For the debtor, reliance is placed upon the provisions of s 22 of the Costs Act 1867 (Qld) and its successor, s 5 of Legal Profession Act 1995 (Qld), which are in relevantly identical terms. Section 22 of the Costs Act provides:

"Bills to be delivered.  6 & 7 Vic. c.73 s.37.  No attorney nor any executor administrator or assignee of any attorney or the trustee of his estate shall commence or maintain any action or suit for the recovery of any fees charges or disbursements for any business done by such attorney until the expiration of one month after such attorney or executor administrator or assignee of such attorney shall have delivered unto the party to be charged therewith or sent by the post to or left for him at his counting-house office of business dwelling house or last known place of abode a bill of such fees charges and disbursements and which bill shall be subscribed by such attorney in his proper handwriting (or in the case of partnership by any of the partners either with his own name or with the name and style of such partnership) or by the executor administrator or assignee of such attorney or the trustee of his estate."

Section 22 and its successor have been the subject of a number of decisions, including Re Beckwith; Ex parte Power & Power (unreported, Cooper J, 7 July 1993); Re Flower & Hart's Bill of Costs [1991] 2 QdR 20 at 24; Re Walsh Halligan Douglas' Bill of Costs [1990] 1 QdR 288. These cases make it clear that a solicitor is precluded from recovering fees or disbursements for professional services performed as an attorney unless the solicitor has sent a bill in such detail as would enable the client to determine whether taxation of the bill is desirable.

There is no evidence before me that any such bill was sent at any relevant time, or at all.  But to say that a solicitor is precluded from recovery is not to say that no amount is payable to the solicitor, nor is it to suggest that a solicitor's costs are other than of a liquidated amount.  So much appears from the judgment in the Court of Appeal, in Coburn v Colledge [1897] QB 702. In that case, Lord Esher MR emphasised that a section such as s 22 does not take away the right to recover costs, but merely the procedure to enforce that right. His Lordship said, speaking of s 37 of the Solicitors Act 1843 (UK), a section in not dissimilar terms to the Queensland legislation:

"Similarly, I think section 37 of the Solicitors Act, 1843, deals, not with the right of the solicitor, but with the procedure to enforce that right.  It does not provide that no solicitor shall have any cause of action in respect of his costs or any right to be paid till the expiration of a month from his delivering a signed bill of costs, but merely that he shall not commence or maintain any action for the recovery of fees, charges, or disbursements until then.  It assumes that
he has a right to be paid the fees, charges, and disbursements, but provides he shall not bring an action to enforce that right until certain preliminary requirements have been satisfied.  If the solicitor has any other mode of enforcing his right than by action, the section does not seem to interfere with it.  For instance, if he has money of the client in his hands not entrusted to him for any specific purpose, there is nothing in the section to prevent his retaining the amount due to him out of that money.  If that be the true construction of the section, it does not touch the cause of action, but only the remedy for enforcing it."

It was submitted that the costs claim was unliquidated on the basis that intervention of the Court, in the form of taxation of the costs, was necessary before the amount of the costs was finally determined.  With respect, I do not accept that argument to be correct.  A claim in quantum merit, and where costs are not agreed, a solicitor's claim for costs for services can be so described, may need the intervention of the Court before the amount of a reasonable charge for the service can be quantified, but such a claim is not a claim for an unliquidated sum.

Generally, it may be said that a claim will be liquidated when the amount of the claim has been agreed upon by the parties in some binding and conclusive fashion; cf Alexander v Ajax Insurance Co Limited (1956) VLR 436 at 442 per Sholl J. But that is an imperfect definition, as indeed that case demonstrates, so far as it would treat amounts which could be sued for under a common money count as not liquidated. The old test in bankruptcy that no claim could be proved in bankruptcy which could be determined only by the intervention of a jury would not have precluded proof of a solicitor's costs, nor do I think that the requirement that the bill of costs be prepared affects that position.

The critical question in the present case is not whether the claim for costs is a claim for a liquidated sum;  it is.  The question is whether the claim is payable immediately the work is completed, rather than only when the bill is rendered or perhaps the time for taxation has passed.  I do not distinguish here between the circumstance where there is an entire contract between the solicitor and client where no bill may be rendered unless and until that contract is completely performed, and the case where there is no entire contract.

Although the case was not argued in this way, it is possible to base an argument for the solicitor upon the comments made in Coburn v College, that while no action can be maintained to recover the debt for fees unless and until the bill has been rendered and the time in which a request for taxation might be made has expired, the debt itself was payable immediately.  It is only the remedy of recovery of the debt which has been barred, not the right itself.  Such a distinction was also favoured by a Full Court of this Court in Barratt v Federal Commissioner of Taxation (1992) 92 ATC 4275. There, the question was whether a medical partnership had, by the time the bills were rendered, derived as income fees for bills it had rendered to clients when legislation precluded the recovery of the fees until six months had elapsed without the exercise by the patient of rights to have the bill reviewed. In that sense, the medical fees were analogous to the legal fees in the present case. The Court held that the income was derived when the work was completed. Gummow J, in a judgment with which the other members of the Court agreed, said (at 4283):

"The distinction between the coming into existence of a debt and the operation of impediments upon the recovery of an existing debt is well established and is drawn on in many areas of the law.  A recent example is provided by the decision of the Full Court of this Court in Re Pollack; Ex parte Deputy Federal Commissioner of Taxation 91 ATC 4925 at 4930, 4933, 4936;  (1991) 103 ALR 133 at 140, 144, 147-149, where the effect of the regime established by Part 31A of the New South Wales District Court Rules was considered.

... in Pollack, the effect of the Rules of the District Court was that although the judgment debt subsisted, payment could not be enforced.  In the same category as AGL [Federal Commissioner of Taxation v Australian Gas Light Company 83 ATC 4800; (1983) 74 FLR 13] is the decision of the Victorian Full Court in Re Australia and New Zealand Savings Bank Limited; Mellas v Evriniadis [1972] VR 690, where it was held that the provision requiring production of the passbook before money might be withdrawn from a savings account was a condition precedent to any obligation of the bank to repay moneys deposited therein.  The consequence was that there was no debt owing or accruing from the bank which might be subject to a garnishee order obtained by a creditor of the customer.

Section 41B of the Medical Practitioners Act provides that a person not registered under that statute should not be entitled to sue or otherwise recover any charge or remuneration for any medical or surgical advice, service, attendance or operation given or performed by him.  The effect of S35 is to confirm that those registered under the statute are entitled to sue to recover their charges or remuneration, being a right conferred under the general law of contract.  The limitations imposed by subsection 35(2) upon the institution of actions or suits for recovery of fees or remuneration, and the provision for review in s36, do not stipulate conditions precedent to the existence of any debt.  Rather, they are impediments to enforcement, in the same category as those considered in Re Pollack."

While this argument is not without substance, I am, however, of the view that it should not succeed in the present case.  Were it correct, a creditor whose debt at the time the act of bankruptcy was committed was statute barred in a jurisdiction where the right remained but the remedy was extinguished, could qualify as a petitioning creditor.  For like the solicitor whose bill has not been rendered, such a creditor would have a right to payment immediately, notwithstanding that the remedy to enforce it had been removed.  Yet it is clear in both principle and authority that this is not so.

In Motor Terms Company Pty Ltd v Liberty Insurance Limited (In Liquidation) (1967) 116 CLR 177, the question arose whether a creditor whose debt was statute barred (the right remaining only, the remedy being barred) before the commencement of the winding up by the filing of a petition, was entitled to present that petition. On the facts of the case, it was found that there had in fact been an acknowledgment of the debt so that it was not statute barred and the question did not arise. However, the Court made it clear that, had the debt been statute barred at the relevant time the debtor would not have been entitled to present the petition. The reason for this appears in the judgment of Kitto J at 180, which is directly apposite to the present case. His Honour said, speaking of the Companies Act 1961 (NSW):

"It is convenient to consider first the question of construction, whether s221(1)(b) authorises the making of an order where the petitioning creditor's debt though not barred under the Statute when the petition was presented, is so barred by the time the petition comes on to be heard.  It is a question as to whether the word `creditor' in the section excludes a statute-barred creditor, and, if so, as at what date the court must be satisfied that a petition upon which it is invited to make a winding up order is the petition of a `creditor' in the relevant sense of the word.  The application of the word in its most general sense is not affected by the Statute of Limitations, for the operation of the Statute in respect of a debt is only to bar the remedy:  it does not extinguish the debt.   But in construing statutory provisions for the distribution of assets amongst
creditors, there is a natural presumption that the only creditors in contemplation are those who, by the operation of the relevant statute in the particular case, are denied a right they would otherwise have had to sue for their debts by action or suit under the general law and are given instead a right to participate in the distribution.  In the case of a bankruptcy or the winding up of a company the event upon which the substitution takes place is not the event which the relevant legislation deems to be the `commencement' of the bankruptcy or of the winding up: it is the commencement of the administration, that is to say the adjudication in bankruptcy or the making of the order for winding up.  Lord Eldon made the general principle clear ... Under the Bankruptcy Act 1924-1960 (Cth) a creditor's right to recover his debt by ordinary legal proceedings is taken from him at sequestration (s60, cf s63) and the right of proof which he is given in its place is expressly limited to liabilities to which the bankrupt is subject at the date of the sequestration order (s81)...

The fundamental notion that special modes of administering assets are for the benefit of those creditors only whose ordinary rights of recovery are withdrawn from them upon the initiation of the special administration was applied by the Court of Chancery in relation not only to bankruptcies and insolvencies but to trusts for creditors and administration decrees in respect of deceased estates.  It is a necessary corollary that a person is not a creditor in the relevant sense if, at the time when a right to come in to receive payments under an official administration of the debtor's assets supersedes an existing right of action or suit, his right of enforcement by action or suit is barred by the Statute of Limitations (if the debt is legal), or would be denied by a Court of Equity on the analogy of the Statute (if the debt is equitable).  This was held to be so in bankruptcy in Ex parte Ross; Re Coles (1827) 2 Gl. & J. 330 ...".

In the present case, it is clear that at no relevant time (and the reference to "relevant time" includes the time at which the act of bankruptcy is said to have been committed) could Ms Gurnsy be described as a person having a right to sue, such that her right would by a sequestration order be converted to a right to prove in the estate.  Her right to sue had been removed by statute and would arise only when a bill in proper form had been sent and the time in which a request to tax that bill had passed.  Accordingly, I am of the view that she has not established that she is a creditor with a liquidated debt which is payable either immediately or at a certain time in the future.  The most that can be said is that she had a debt which could become payable at an uncertain time in the future, dependent upon whether she presented a bill, and either that bill was taxed or the time within which taxation could be requested had passed.

I would accordingly dismiss the petition.  I would order that Ms Gurnsy pay the costs of BBC Hardware Limited of 20 March and 18 April and a reasonable amount for the costs of submissions made yesterday as to costs, as well as the costs of the debtor on those days, and the costs of the debtor of the hearing yesterday and today.

I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Hill.

Associate:

Date:  12 July 1996

Solicitors for the Debtor:   N Robson of Baker Johnson

Solicitors for the          B Patane of Bennett & Philp

Original Petitioning
Creditor:

Solicitors for Substituted   M Fisher of S J Gurnsy & Co

Petitioning Creditor:

Date of Hearing:            17 June 1996

Date Judgment Delivered:         18 June 1996