Re Emanuelli, D.J. v Ex parte Horsburgh, A.m.

658

Eankruot:?: Award of costs

nade

favour of

le ,?al l ; r

assisred person prior to the date of a sequentration o r t e r

belng saie agalnst him - whether the provisions of the Leq3.l Ald Commisslon Act 1978 ( V l c ) which pravide that the casc:3

awarc.2

shaii

Se payable to the Leqal Aid

Commlsslm operate

as a

settlement wlthin the

cerms of s . 1 2 0

cf the 9anl..rldstcv

1966.

No. 4 5 1 of 1984

SmLthers U.	.
Cankerca.

26 November i985

IN THE FEDERAL COURT

OF AUSTRALIA )

)

DIVISION	GENERAL	)
) No. 451 of 1984

BANKRUPTCY DISTRICT

OF THE STATE )

)

OF VICTORIA

)

DAVID JOHN

EMANUELLI

(A Bankrupt)

EX PARTE:

ALAN MURRAY

HORSBURGH (as

trustee of the

property of David

John Emanuelli, a

bankrupt)

(Applicant)

AND:	LEGAL	AID
COMMISSION

(Respondent)

Judse Makins Order: Smithers J.

Date of Order:

26 November 1985

Where

Made:

Canberra.

MINUTE OF ORDER

THE COURT ORDERS THAT:

1. The application be dismissed.

2 .

2 . 1

The questions raised in the application are answered as

follows

(a)

the amount of costs ordered to be paid to

the

bankrupt should be paid to the Commission;

(b)	the amount held should be paid to the Commission in compliance with the Act;
( C )	the amount is not property of the bankrupt;

(d) the

whole

the

amount

payable

the

Coaslssicn;

(e) the applicant is not entitled to any part of the

amount unless that amount together with the sum

of $1040

paid by the bankrupt exceeds the sum

which, in the opinion of the Commission, would if the bankrupt had not been an assisted person have been properly chargeable to him for costs as between solicitor and client in the relevant

matter.

2.2	The applicant is directed to act in accordance with the situation expressed in the above answers.

S I

3 . The applicant is to pay the respondent's costs including

reserved costs.

NOTE: Settlement

and

entry

of orders is dealt

with by

Bankruptcy Rule 124.

IN THE FEDERAL COURT OF AUSTRALIA 1

DIVISION

GENERAL

)

1 No. 451 of 1984

BANKRUPTCY DISTRICT OF THE STATE

) )

OF VICTORIA

)

RA :	DAVID JOHN EMANUELLI

(A Bankrupt)

EX PARTE: ALAN MURFAY

HORSBURGH (as trustee of the property of David

John Emanuelli, a

bankrupt

(Applicant)

AND:	LEGAL AID COMMISSICN

(Respondent)

Coram: Smithers J.

Date: 26 November 1985

REASONS FOR JUDGMENT

David John Emanuelli became

a bankrupt on 12 June 1984.

Kr. Alan Murray Horsburgh, who is the trustee of hi3 estate, seeks directions under s.134 of the Bankruptcv Act 1966 in

respect of the sum of $25,553.71, being the amount ordered

the Supreme Court

of Victoria to be paid to the bankrupt in

' ,

2 .

proceedings brought by

the bankrupt before the bankruptcy.

The proceedings in which the costs in question were ordered to be paid to the bankrupt were third party proceedings launched

by the bankrupt

for

indemnity against liability incurred by

him in respect of

a fire which caused damage. Proceedings

under

which

the

bankrupt

claimed

indemnlty

were

brought

against A" Fire & General Insurance Company Ltd.

(A"). Those

proceedings were successful. Costs of

$25,553.71

were agreed

by AMP to be paid by it in respect

of the order for costs made

against it in favour of the bankrupt.

That

sum has been paid

and is now held by the solicitors then acting for the

bankrupt.

arrangement they hold the sum for disposal

accoraing LO cne ouccome or' this application.

In c~,i;,i;ecti;n

with the proceedings of the bankrupt against

AMP the bankrupt

sought legal

aid.

The legal aid sought by the bankrupt

was the subject

an application

him

the

Legal

Aid

Committee

made

expressly under the provisions of Parts 2 and

3 of the Leual

Aid Act

1969 of the State of Victoria.

It authorised the

Committee to retain solicitors and/or barristers on behalf of

the

bankrupt

respect

of the

subject

matter

of the

application and contained an agreement by the bankrupt to be

bound by the terms and conditions attached to the application.

One of those conditions was

that if the application for aid

were granted the bankrupt should be liable to pay to the

Committee

towards

the

costs

and

expenses

of any

legal

assistance

provided,

such

sum

sums

(if

any) as the

Committee should think reasonable.

In March

1979 the Committee granted the application of

the bankrupt for the legal aid sought. It was a condition of that grant that the bankrupt execute a charge in favour of the

Legal Aid Committee of all his legal and equitable interest

certain real estate, being in fact

his dwelling house, to

secure payment to the Committee of all legal

costs, counsel's

fees and disbursements which it might incur on his behalf in

connection

with

proceedings

then

contemplated.

Those

proceedings included those to obtain the indemnity mentioned

&ovs.

ELe,k charqe ;

2zt:S

e J m e 19?9.

In the course of the proceedings in respect of the

indemnity claimed by the bankrupt judgment was given for the

bankrupt

1 6 September 1982.

The relevant

provisions

thereof were as follows:

' I . . .

Judgment be entered for the Plaintiff against

the

Defendant

the

sum

$89,359.75

and

$38,867.00

darnages by way of interest and

the said

Mr. Justice Murphy having further ordered that

Judgment be entered for the defendant against the

Third Party in the sum of $89,359.75 and

$38,867.00

damages by way of interest and the said

Mr. Justice Murphy having further ordered that the

Plaintiff's costs including Transcript

be taxed

and paid

by the Defendant AND THAT the costs of

the Defendant

including the costs

of the

action

and the Third Party proceedings and

Transcript be

taxed and paid by the Third Party to the Defendant

AND THAT the Third Party pay to the Defendant such

costs as are found on

taxation to be payable by

the Defendant to the Plaintiff THEREFORE

IT IS

ADJUDGED that the Plaintiff recover against the

Defendant $128,226.75

and costs, including the

costs of Transcript, to be taxed AND IT IS FURTHER

ADJUDGED that the Defendant recover against the

Third Party

$128.226.75

and costs, including the

costs of the action, the

Third Party proceedmgs

and Transcript to be taxed AND

THAT the Third

Party pay to the Defendant such costs

as are found

on taxation to be payable to

CsicIl the Defendant

to the Plaintiff.

was these last mentioned costs which were agreed

$25,553.71 and were paid by

AMP, the third party, and

are held

by the bankrupt's former solicitors.

Since legal aid was granted to the bankrupt the Leqal

Aid Act

1969 has been superseded by the Lesal Aid Commission

is78 i G r c Act;. By

a . 5 4 ( 2 >

that Act the gr-nt of lege1

aid made to the bankrupt under the Act of

1969 is deemed to be

made as if it were

provision of legal aid under the Act and

as if the grant were made subject to the conditions to which

that grant was subject under the former Act.

It is provided by s . 4 6 of the Act as

it was by s.11 of

the Act of 1969 that:

" 4 6 . ( 1 )

A Court

may make in favour of an assisted

person any such order for costs as it may make in

favour of a person who is not an assisted person

notwithstanding that no amount

has been paid or is

or will be payable for costs by the assisted

person in whose favour the order is made or that

the costs

so ordered are

in excess of the total

amount paid	or payable for costs by the assisted
person.

( 2 ) All

costs payable under the

terms

of any

judgment

order or of any settlement of an

.' '

action or claim to

a person who has been assisted

under the scheme in the obtaining

of such judgment

order or settlement (except any portion

of such

costs as may

for

services

rendered

disbursements paid for that person before

he was

so	assisted) shall be payable to the Commission

which shall be entitled to exercise in

the name of

that

person

all

the

rights

and

remedies

relation to the recovery of

such costs which that

person would be entitled to exercise if	he were
not an assisted person.

( 3 ) A

person who is

liable to pay any costs

payable under this section to the Commission and

to whose solicitor notice in writing of the rights

of the Commission in

relation thereto has been

given by the Commission or the solicitor

who

obtained the judgment order or settlement for the assisted person shall not be discharged from his

liability by reason only

of his making any payment

in respect thereof to any person other than the

Commission or such solicitor.

(4) On the taxation of costs payable under the

terms C= ar,y j~dq=x=?t cr

crder

z ; r

settlement of an action or claim to an assisted

person no item thereof shall be disallowed merely

because the assisted person is by reason of his

being

an assisted person under no obligation to

pay in whole or in part for the service to which

the item relates or in any case of

a disbursement

(whether for counsel's fees or otherwise) merely

because the amount thereof	has not been pald prior
to the taxation."

It is provided by	5.47 of the	Act, as it was	by 5 . 1 2 of the
Act of 1969, that:

"47. (1) All costs received or recovered which are

payable to the Commission under section

46 and all

moneys paid by assisted persons towards costs in

accordance with any terms or conditions imposed by

the Commission or a legal aid committee shall be

paid to the

Fund.

( 2 )

Where the costs paid in any matter to the

Commission and all moneys paid by the assisted person in respect of that matter together exceed

the amount

which in the opinion of the Commission

would if the assisted person was

not an assisted

person be properly chargeable to him for costs as

between solicitor and client

in that matter the

amount of the excess shall be paid to the assisted

person.

“

In connection with the proceedings conducted by the bankrupt

as a legally assisted person under the Act the Commission paid

out in costs and disbursements the sum of $23,647.63 against

which it received $1040 from

the

bankrupt,

leaving

the

Commission out of pocket o the extent of

$22,607.63.

On behalf of the applicant, the trustee of the bankrupt

estate,

contended

that

the

whole

the

sum

$25,553.71

or alternatively the difference between that sum

-- x 2 the s m

$22,507.63 paid cut h? the Cnmmissim are moneys

to which the trustee

is entitled.

It is contended that the claim by the Commission is

claim as assignee

from the bankrupt of the costs payable by

AMP that the assignment was given without consideration, and

that-it constituted a settlement within the meaning of s.120

of the Bankruptcv A&

1966 and is therefore void against the

trustee. Section

120 provides as follows:

“120	(1) A settlement of property, whether made

before or after the commencement of this	Act, not
being -

(a)

a settlement made before and in consideration

of marriage, or made in favour

of a purchaser

or encumbrancer

good

faith and

for

valuable consideration; or

(b) ...

1 .

is, if

the

settlor

becomes

a bankrupt

and

settlement came into operation after, or within 2

years before, the commencement of the bankruptcy,

void as against the trustee in the bankruptcy.

...

(8)

In this

section,

'settlement

property'

includes any disposition of property."

recognized

that the

assignment

was

brought

into

existence by 3 . 4 6 of the Act but it is 'nevertheless said to be

a disposition constituting a settlement and for

which there

was

consideration.

Mr. Irlicht

for

the

Commission

contended however, in the first place, that there was no

statutory assignment. The effect of

3 . 4 6 ,

he said,

is to

provide that although

an order may be made by

a Court in

favour of

an assisted person the assisted person has

entitlement thereunder.

The amount ordered to be paid to the

assisted persor: is

not payable to him by the ;?erson ordered

pay it.

The amount

ordered to be paid is by

s . 4 6 ( 2 )

payable to the Commission. In the case of an order for costs in favour of a litigant who is an assisted person under the Act, the order does not confer upon him any beneficial

interest.

The statute has disentitled him to any benefits

thereunder. A person who makes

a payment to him of the amount

ordered to be paid to him receives

discharge of his

obligation under the order to make a

payment of that amount.

The

effect of

the statute was to eliminate any entitlement

which the assisted person had

or might

have had under the

order

and

substitute

therefor

an entitlement

the

.’ *

Commission. That was not, to my mind. a process of statutory assignment. It was a process which prevented the accrual to the assisted person of the rights which according to the legal

formalities

would

otherwise

have

accrued

him and

substitute therefor

right in the Commission against the

party who was ordered

to make the payment.

The statutory provision in

s . 4 6 ( 2 )

that the Commission

may use the name of the assisted person

to pursue the remedies

which, according

to the formalities, reside in the assisted

person

merely

a machinery

provision.

gives

the

Commission the statutory right to use the state of the record,

inciudlng tne name of tine asyisted person, a;j&.i,ist the Fzrty

in whom, according to the record, the liability in favour of

the assisted person resides. It uses the formalities of

the

legal process

to effectuate recovery by the Commission of

money payable to it under the statute and which never was

payable to the bankrupt.

It is submitted also by

Mr. Irlicht that, the concept of

settlement in

5.120 of the Bankruptcv Act

1966 is of a

voluntary settlement, an act on the part

of a settlor.

said that in the situation under review the right conferred

Gpon the Commission to the benefit

of the order of the Court

for costs

in favour of the assisted person was brought about

otherwise than by the act of that person.

True it

is that

that person applied for legal assistance knowing that if

$ 8

assistance

were

provided

and

fortified

therewith

defended and instituted legal proceedings by and against

persons and succeeded in obtaining orders for costs in those

proceedings, the benefit of those orders would not accrue to

him but to the Commission. But this non-accrual to him and

accrual to the Commission occurred not by any act of

his. It

was achieved by

an independent statutory provision not related

in any way to the

attitude thereto of the assisted person.

was but a

legal consequence of his obtaining legal assistance

and conducting legal proceedings.

applying

for

and

receiving

legal

asistance

the

assisted person bid not expressly

or impiiediy a5s:qi; ';S kke

Commission the benefit of any order for costs which	he might
recover. He would have preferred that there was	no such

assignment. But for the statutory provision operating upon the

fact that

an order

in his favour came into existerxe

tnere

would have been o l o s s of

that benefit to him and no accrual

thereof

the

Commission.

course

both he and

the

Commission knew that,

if fortified by legal aid he engaged in

litigation and succeeded in obtaining

an order for costs, the

benefit thereof would by law not accrue to him but would

accrue to the Commission. But to enter into legal relations

knowing that in certain events the law will operate to prevent

rights which would otherwise arise in

a party from arising and

to confer those same rights on another party

not, on the

5 10.

part	of either party, to participate in that prevention or

. .

conferring.

On the basis that there was a statutory assignment in

the nature of a settlement within the meaning of

s.120 of the

Bankruptcv Act 1966 it was contended on behalf of the trustee that there was no consideration therefor. This view cannot be

accepted. There

was

ample

valuable

consideration

the

provision of the legal aid

which was the subject of the

bankrupt's

application.

was

the

ssence

of the

transaction between the bankrupt and the Commission that it

was between parties who are at arms length.

A settlement is

not of that nature.

I am sacisfied. chat the provisions

3.46 are not to be regarded as effectuating an assignment from an assisted person to the Commission of costs awarded to the assisted person.

Having regard to the foregoing I consider the contention

that the accrual to the Commission of the benefit of such

costs was effectuated by or the subject of a settlement made

by the bankrupt without consideration cannot be sustained.

It remains

to consider the circumstance that, although

the Commission contributed the sum of $22,607.63,

the sum of

the costs recovered under the order in favour of the bankrupt

and now held by his former solicitors is

$25,553.71.

There

are two aspects of this.

The first relates to the charge.

The Commission has undertaken to release the charge and remove

the caveat which is registered in support of

it if it receives

the sum of $25,553.71

from the solicitors

now holding it. The

second concerns the question whether it should beneficially

receive the $25,553.17

making no deduction in favour of the

bankrupt or the trustee. This depends on	the	terms of s . 4 7 ( 2 1
of the Act.

It is clear from the provisions of

3.46

that the full

amount of costs recovered under the order in favour of the

bankrupt are payable to the Commission. Save

as provided by

s . 4 7 ( 2 )

the total amount received by the Commission

s payable

by tne Commission in accordance with

s.47i;;

fnts the Lzgal

Aid Fund established under

9.41 of the Act.

It is only mder

s .47 (2 )

that the bankrupt or the trustee could possibly claim

any part of the

$25,553.71.

The evidence that the amount

which could, if the bankrupt were not

an assisted person have

been properly chargeable to him for costs of the relevant

proceedings as between solicitor and client would exceed the

amount

of costs paid

to the Commission, namely,

$25,553.71

together

with

the

sum of $1040, in all, $26,593, is

uncontradicted.

It is improbable that the Commission will be

of the opinion that the taxed costs referred

would not

exceed this sum.

It is improbable therefore that any portion

of the sum received by the Commission will be payable to

the

bankrupt or the trustee under

s . 4 7 ( 2 ) .

12.

In the result I

am satisfied that the sum of $25,553.71

in the custody

the former solicitors of the bankrupt is

payable to the Commission and the accrual to the Commission

its interest therein pursuant to 3 . 4 6 of the Act	is not void
as against the Trustee.

respect of the specific questions raised

the

application the answers

are as follows:

the amount of costs ordered to be

paid to the bankrupt

should be paid to

he Commission;

the amount held should be paid	to the	Commission in
compliance with the Act;

the amount is not property

of the bankrupt;

the whole of the amount is payable to the Commission;

the applicant is not entitled to any part cf the amount

unless that

amount together with the sum of $1040 paid .

by the bankrupt exceeds the sum which, in the opinion of

the Commission, would

if the bankrupt had not been

assisted person

have been properly chargeable to him for

costs as	between solicitor and client in the relevant
matter.

13.

I direct the applicant in accordance with the foregoing.

I would dismiss the application, and order that the

applicant pay the respondent’s

costs including reserved costs.

I certify that this and the

preceding 12 pages are a true copy of the Reasons for Judgment herein of the

Honourable	Mr.	Justice
Smithers.

Associate

Date: 26 November 1985

[1985] FCA 658

26 Nov 1985