Re Garofano, C.D. v Ex Parte American Express International Inc

[1990] FCA 709

Re: CLINTON DAVID GAROFANO
Ex Parte: AMERICAN EXPRESS INTERNATIONAL INC.
No. P 2682 of 1989
FED No. 709
Bankruptcy - Costs
26 FCR 592

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT STATE OF NEW SOUTH WALES
GENERAL DIVISION
Einfeld J.(1)

CATCHWORDS

Bankruptcy - costs against a solicitor - sequestration order set aside by consent

Costs - order against solicitor

Bankruptcy Act s 32

HEARING

SYDNEY

#DATE 30:10:1990

Counsel for Lawrence Bernard Mr J.K. Chippindall
Feeney

Counsel and solicitors Mr M. Aldridge
for the petitioning creditor instructed by Kemp Strong

and Chippindall

ORDER

Mr Lawrence Bernard Feeney to pay the petitioning creditor's costs in this matter as of March 1990.

The Registrar to bring the evidence and judgment in this matter to the attention of the Law Society of New South Wales.

Note: Settlement and entry of orders are dealt with in accordance with Rule 124 of the Bankruptcy Rules.

JUDGE1

This is an application by the petitioning creditor for an order for costs arising out of a petition lodged by it against the debtor in September 1989. The matter was listed before a Registrar on more than 10 subsequent occasions and, on each, was adjourned by consent until 9 July 1990 when a sequestration order was made. On 7 August 1990 I set aside the sequestration order by consent on the basis that the bankruptcy notice had not been served on the debtor. The petitioning creditor now asks for an order for costs in its favour, either against the debtor or against Lawrence Bernard Feeney, a solicitor who acted in relation to the matter.

1. The question of costs was stood over to enable the parties to present further affidavits of the circumstances which gave rise to the invalid service, the numerous adjournments and the improper sequestration order. I directed that Mr Feeney be notified of the proceedings for costs against him. Affidavits by Mr Feeney and Ms Pauline Heng a clerk employed by the petitioning creditor's solicitors have now been supplied. Already filed were affidavits by the father of the debtor Pierluigi Garofano, the debtor himself and an earlier affidavit by Ms Heng. No party indicated a wish to cross examine any deponent. Written submissions were also supplied by counsel for the petitioning creditor and for Mr Feeney who had appeared when the matter was argued.

2. The relevant circumstances were these. The petitioning creditor issued a bankruptcy notice against the debtor for a debt of $20,613.64. The bankruptcy notice was not served on the debtor as required by the Bankruptcy Act but service was effected on and accepted by the debtor's father, Pierluigi Garofano on 22 September 1989. He did not inform his son of the bankruptcy notice and instructed Mr Feeney to act in the matter without advising his son or seeking his permission.

3. There is some dispute about the words spoken between the process server and Pierluigi Garofano. The affidavit of service of bankruptcy notice states that the process server asked "Are you Clinton Garofano named as debtor?", to which the person addressed is stated to have replied "Yes, I am. Thanks". The punctuation is mine.

4. Pierluigi Garofano's account, provided in his affidavit of 18 July 1990, is that the person said words in or to the effect "Clinton Garofano?". I have added the question mark. Pierluigi Garofano states that he replied "Yes". In his affidavit he explains that by saying "yes", he meant 'yes, he (Clinton) was part of the family'.

5. I do not accept this account. It is possible that the only words spoken by the process server were the name of the debtor, but not at all likely that it would have been a statement, as the absence of the question mark deposed to by Mr Garofano would mean. The person serving the notice was a licensed commercial sub-agent. He would be aware of the precise requirements of service. Whilst American Express must have had some knowledge of the age of the debtor as its cardholder, I must accept that it conveyed no information on that matter to its process server. As much as this is regrettable, it is not surprising to me. It is therefore likely that the process server would have asked a question about the person's identity and waited for an affirmative answer prior to handing over the relevant document. No one could have known, and I do not believe Mr Garofano meant, that the affirmative answer carried the suggested extended meaning. Furthermore, as the uncontradicted evidence of Ms Heng reveals, Pierluigi Garofano later deliberately deceived the solicitors for the petitioning creditor as to his identity, by telling Ms Heng more than once that he was the debtor. It is therefore more likely than not that he also sought to deceive at the point of service.

6. There is no doubt that Pierluigi Garofano deliberately misinformed the process server and Ms Heng that he was Clinton Garofano. I also find that Mr Feeney led Ms Heng to believe that he was the debtor's solicitor and later did not mention that the petition was factually flawed because the bankruptcy notice had been wrongly served. It follows that the petitioning creditor appears to have taken all reasonable steps in the matter, and was not responsible for, and could not reasonably be expected to have been aware of, the invalidity of the service of the bankruptcy notice.

7. A question arises as to when Mr Feeney knew that the service was invalid and thus from when his failure to alert the petitioning creditor of this fact should be viewed. In his affidavit of 24 August 1990, Mr Feeney attests that when Pierluigi Garofano first came to see him, he said: "Clinton knows nothing about this ....". Mr Feeney claims that this conversation took place early in May 1990, and implies that this was the first knowledge he had of the affair. This is quite impossible because attached to the affidavit of Ms Heng dated 2 October 1990 is a letter from Mr Feeney dated 16 March 1990 in regard to the matter. I have no doubt that Mr Feeney knew of the facts from the outset of his involvement. I infer that this was not later than mid March 1990.

8. Another issue for determination is for whom Mr Feeney acted or held himself out to act. Since Clinton Garofano knew nothing of the proceedings, it cannot be found that Mr Feeney was in fact instructed by him. In his letter to Ms Heng dated 16 March 1990, Mr Feeney did not make clear for whom he was acting, but launched straight into the body of the letter without the usual reference to the source of his instructions. Furthermore in this letter, he referred ambiguously to Mr Garofano by omitting the initials of the name. This must have been deliberate.

9. Mr Feeney says in his affidavit that he received "instructions to act for Clinton Garofano .... from his father." Yet he attests that he told Ms Heng that he was acting for the debtor's father and says that "at no stage did I tell or indicate to Mrs Heng that I was acting for the debtor himself". It is not explained how these two assertions can stand together. In any event, all of this is denied by Ms Heng who says that in numerous telephone conversations, Mr Feeney held himself out to be acting in the petition before the Court. Furthermore, Mr Feeney attended on two occasions when the matter was listed before a Registrar of this Court. Certainly the records of these proceedings by the Registrars note Mr Feeney's appearances for the debtor. As the father was not a party to these proceedings, all this was tantamount to an assertion that he was the debtor's solicitor.

10. The evidence also leaves no room for doubting that the petitioning creditor was led by Mr Feeney to believe that the only issue between itself and the debtor was the payment of the debt and its timing. Following earlier contacts between the father and Ms Heng to this effect, Mr Feeney had quite extensive discussions with Ms Heng over some months, on a number of occasions promising that the debt would be paid and obtaining adjournments of the petition to permit that to occur. Not once did Mr Feeney reveal that the bankruptcy notice had not been property served. This deceived the petitioning creditor and the Court into agreeing to several adjournments.

11. There is therefore good reason to award the costs of the proceedings to the petitioning creditor. However, the fault is not the debtor's. His father and Mr Feeney caused the fiasco. The question is whether the Court is empowered to order costs against either or both of these men.

12. The petitioning creditor submitted that section 32 of the Bankruptcy Act permits the Court to make such an order. This section reads:
    The Court may in any proceeding before it ...... make such orders as to costs as it thinks fit.

13. The petitioning creditor submitted that there is no reason to read down the breadth of this provision and cited Re Hodby Ex parte Kenny (1987-88) 77 ALR 118 in support of this proposition. This case dealt with the question of an order for security of costs, not an order for costs, and Justice Fisher held that the section was not relevant to this issue. In passing, his Honour stated that section 32 only empowers the making of orders for costs "to be paid by or in favour of parties to the proceedings".

14. Counsel for Mr Feeney submitted that Re Hodby meant that section 32 did not permit the making of orders for costs against a non-party. I do not agree. Such an obiter comment is of very little weight but even on its face, a costs order "in favour of" a party could be made against anyone.

15. The petitioning creditor also cited Re Mitchell Ex parte South Australian Tractor Co Ltd (1967) 9 FLR 286 in support of its submission. In that case an order for costs was made against the trustee under a deed of assignment who was not a party to the proceedings. However, as the costs were ordered to be paid out of the proceeds of the estate of the debtor who was a party, effectively the costs were paid by a party to the proceedings.

16. Counsel for Mr Feeney submitted that there are in fact no reported decisions in which orders for costs have been made under the Bankruptcy Act against persons who are not parties to bankruptcy proceedings. He further submitted that whereas the Supreme Court Rules (he might also have added a limited provision in the High Court Rules which governs the position in the Federal Court in other than bankruptcy matters: see my judgment in Potepa v Commonwealth of Australia, unreported 29 March 1990) provide specifically for costs orders against solicitors, there is no provision in the Bankruptcy Act or Rules. The consequence for which he advocates is that there is no power to order costs against him.

17. There may be different conclusions to be drawn as between true non-parties such as Pierliugi Garofano, and solicitors who appear before the Court for a party or who hold themselves out as so appearing, such as Mr Feeney. It is useless for an order to be made against Pierluigi Garofano because he has since been declared bankrupt. It is therefore not necessary to decide the susceptibility of true non-parties to such orders. In my view, as with Order 71 rule 1(1) of the High Court Rules discussed in Potepa which is in similar terms, power to order costs against solicitors is well able to be fitted within the scheme envisaged by section 32. I conclude that I have power to order costs against Mr Feeney.

18. However, whether or not an order for costs is made is a matter of discretion for the Court. The petitioning creditor did not make any written submissions in relation to the question whether the discretion should be exercised against Mr Feeney, although it was sought orally by its counsel.

19. Mr Feeney did address this issue if somewhat unconvincingly. He submitted that he was not properly informed in accordance with the Court's order of 7 August 1990 of the history of this matter. What I ordered then in this connection was:
    

The petitioning creditor is to notify Mr Feeney of the history of this matter including the proceedings today, and to notify him that the matter is listed on 27

August and that I shall at that time be entertaining an application by the petitioning creditor for costs

against him.

1. What in fact occurred was that the petitioning creditor's solicitors transmitted that order verbatim and did not carry it out. They did not tell Mr Feeney that costs were being sought against him because it was alleged that he had misled the petitioning creditor and the Court as to whom he represented and had not informed either that the debtor had not been served with the bankruptcy notice. By slavishly and thoughtlessly repeating the order made, this meant that the petitioning creditor's solicitors failed to do what was ordered.

2. However, in my view, their letter did serve to explain the situation sufficiently to a person who had been personally and closely involved in the matter for some time. Mr Feeney hardly needed to be made aware of any other facts. If he did, all he had to do was ask, as he would very well have known. His counsel made no complaint that his client did not know what he was being required to answer or address, nor did he seek an adjournment to allow his client to do so more fully. I take his submission to have been a technical criticism only. The attack on the technicalities is correct but an attack on the substance would have failed.

3. Despite the assertion of his client in his affidavit that he was acting for the debtor (albeit on the instructions of his father), Mr Feeney's counsel further submitted that his client did not purport to act for the debtor but for his father. At best I can find that Mr Feeney did not make clear for whom he was acting and that in the absence of an explanation of special circumstances, he must be taken to have held out that he was the solicitor for the debtor.

4. In his affidavit, Mr Feeney attests that "the father of the debtor set out to deceive the Court and the petitioner by apparently accepting service of process and purporting to negotiate a settlement of the debt". To me, this recognition is strange indeed. In view of the fact that Mr Feeney certainly knew from the outset that the debtor had not accepted service and was aware of the father's other layers of deception, his unceremonious inculpation of Pierluigi Garofano is capable of amounting to an admission that he, Mr Feeney himself, aided abetted and facilitated this deception.

5. There is no need for me to state or emphasise a solicitor's duty to the court and the law to be honest, and not deliberately to deceive. Yet on the facts revealed by the evidence, Mr Feeney deliberately misled the Court and another solicitor as to who his client was and as to the validity of the service. As such he wasted everyone's time, at considerable cost, while acting contrary to his duties as an officer of the Court. In failing to make clear that he was acting for the debtor's father, that the debtor himself was ignorant of any proceedings by the deliberate intervention of his father, and that the service was invalid, Mr Feeney caused the petitioning creditor to incur unnecessary expense in proceeding with the bankruptcy petition. If Mr Feeney had made known the invalid service immediately, steps could have been taken to rectify it or alternatively to commence proceedings against Pierluigi Garofano. As it was, the numerous appearances before the Registrar and the Court were completely useless.

6. I therefore order that Mr Feeney personally pay the petitioning creditor's costs of this matter since March 1990 when he was first in a position to inform the petitioning creditor of the facts. I also direct that the Registrar bring the evidence and judgment in this matter to the attention of the Law Society of New South Wales for consideration of whether any action is appropriate in relation to the conduct of Mr Feeney.