Re Rounsefell, Dennis frederick v Ex Parte Bickford, John Lindsay

[1997] FCA 10

IN THE FEDERAL COURT OF AUSTRALIA  No QG 7056 of 1997
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND

RE:DENNIS FREDERICK ROUNSEFELL

Applicant

EX PARTE:JOHN LINDSAY BICKFORD

Respondent

CORAM:Drummond J

DATE:26 May 1997

PLACE:Brisbane

MINUTES OF ORDERS

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The applicant pay the respondent's costs of and incidental to this application, save only for the costs of the hearing on 14 April 1997.

NOTE:Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA  No QG 7056 of 1997
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND

RE:DENNIS FREDERICK ROUNSEFELL

Applicant

EX PARTE:JOHN LINDSAY BICKFORD

Respondent

CORAM:Drummond J

DATE:26 May 1997

PLACE:Brisbane

REASONS FOR JUDGMENT

This is an application by Mr Rounsefell to set aside the bankruptcy notice issued by his former solicitors, Bickfords, based upon a judgment for professional fees.  It is common ground that the fees in question were rendered in respect of work done by Bickfords in connection with a trust of which Mr Rounsefell was a trustee.

Mr Rounsefell contends that he has a cross demand of a kind referred to in s 40(1)(g) the Bankruptcy Act 1966 (Cth) arising from what he says is negligent advice given by Bickfords in connection with a specific activity of the trust.  He points to a letter of 23 February 1994 which Bickfords directed to him in reference to a loan agreement proposed to be entered into by Mr Rounsefell and a further person as his
co-trustee of the trust, Mr Douglas Carsburg.  Bickfords wrote:

"Liability is limited to both yourself and Mr Carsburg to the extent of the value of the assets of the trust.  There is no personal liability attached to yourself or Mr Carsburg with respect to the loan agreement."

Mr Rounsefell contends that he has a cross demand against Bickfords arising out of that advice.  He says that that advice was negligent and the negligence of Bickfords caused him loss which it is proper to regard as the subject of a cross demand.  The way he puts his case in support of this proposition is this:  he says that, in reliance upon the Bickfords advice, Mr Carsburg executed the loan agreement with the outside financier.  Mr Rounsefell himself executed a guarantee as sole guarantor of the loan, a matter as to which there is no dispute that Bickfords gave correct and accurate advice to Mr Rounsefell in that same letter of 23 February 1994.

The loan to the trust went into default.  The lender got judgment in default against both Mr Rounsefell and Mr Carsburg.  The lender ultimately sold the trust properties over which it held security and all liabilities of Mr Rounsefell and Mr Carsburg to the lender were met out of the proceeds of that sale.  Prior, however, to the sale by the lender of the trust properties, Mr Carsburg successfully applied to have the judgment in default entered against him and Mr Rounsefell set aside, as against him only, in proceedings he brought against the lender.

The argument that Mr Rounsefell advances is, firstly, this:  that while Mr Carsburg was able to recoup from the trust some of the costs he incurred in respect of
the litigation between himself and the lender, there is an amount of approximately $4,500 by way of costs for the payment of which he has made a claim on Mr Rounsefell which he has not recouped from the trust.  I am at a loss to see any legal basis upon which Mr Carsburg could hold Mr Rounsefell liable for his unrecovered legal costs in respect of the litigation that Mr Carsburg was involved in, or for the additional sum of approximately $6,000 which Mr Carsburg has claimed payment from Mr Rounsefell in respect of loss of income from his consultancy that resulted from Mr Carsburg’s involvement in this litigation.

Mr Rounsefell has failed to persuade me that there is any basis upon which Mr Carsburg can hold him legally liable for the amounts claimed.  The argument that Mr Rounsefell has a cross demand against Bickfords based upon their allegedly negligent advice also breaks down for a further reason, viz, that the evidence shows that the expenses which Mr Carsburg has demanded Mr Rounsefell pay arising out of his litigation with the lender to the trust were incurred effectively as a result of Mr Carsburg not choosing to defend the action initially.  That is a first step in the chain that Mr Rounsefell would have to point to before he could hope to establish that he personally has a cross demand which he can maintain against Bickfords in respect of the judgment debt.

Moreover, Mr Rounsefell has not satisfied me that Bickfords' advice concerning the exposure of himself and Mr Carsburg to the lender was negligent.  A Supreme Court judge who set aside the judgment against Mr Carsburg was of the view that it was arguable that Mr Carsburg's liability was no greater than that which
Bickfords advised Mr Rounsefell Mr Carsburg would assume if he executed the loan documents.  It was on that very basis that the judgment was set aside.

It is therefore apparent that Mr Rounsefell cannot hope to show that Bickfords has any liability to him in respect of the advice concerning Mr Carsburg's position under the loan.  In the absence of being able to do that, there is no possibility of him establishing a cross demand on the first basis upon which he relies.

Secondly, Mr Rounsefell says that as a result of the litigation in which Mr Carsburg and the lender were engaged, the trust has suffered a loss, that he is the sole member of the trust, and this loss, which he suggests is of the order of $19,000, is one which he can sheet home to Bickfords.  However, an essential link in the chain of liability which he seeks to rely on in this second regard is dependent upon proof that Bickfords were negligent in that letter I have already referred to of 23 February 1994 in advising as to the liability of Mr Carsburg if he were to sign the loan document as a co-trustee with Mr Rounsefell.  The attempt to show a cross demand based on this second basis fails for the reasons I have already explained.

Mr Rounsefell also points to that advice as a foundation for a submission that Bickfords agreed to look to him for payment of fees for services rendered to him in respect of trust affairs only to the extent that there were trust assets available to satisfy those fees.  The only evidence he relies on in support of this submission is the letter that I have mentioned, and it is apparent that that letter is confined to giving advice with respect to the position of Mr Rounsefell and Mr Carsburg in respect of one
isolated transaction of the trust, ie, the loan that the two trustees entered into on behalf of the trust with a third party lender.  There is nothing in the material to which I have been directed which would lend the slightest support to the proposition that Bickfords can be said to have dealt with Mr Rounsefell on the basis I have referred to, ie, one which would give them only limited recourse to Mr Rounsefell in respect of fees rendered in respect of trust business.

Finally, I raised concerns in the course of argument as to whether the communications between Ms Freeleagus on behalf of Bickfords and Mr Rounsefell, recorded in the further letter of 23 February 1994 exhibited to her affidavit of 28 April, might have amounted to an effective appropriation by Mr Rounsefell of certain funds which Bickfords anticipated would come into their trust account to the payment first of all of the fees which, in substantial part at least, comprise the judgment debt.  I raised that because on the material before me in Ms Freeleagus' affidavit, it appeared from the letter of 23 February 1994, attachment A to that affidavit, and the trust account authority signed by Mr Rounsefell on the same date referred to in the letter as having been enclosed with it, that such an argument might be available.  However, the exhibit includes what Ms Freeleagus describes as a reconciliation sheet, which shows a series of separate accounts in respect of which fees were due to Bickfords from a company, Morgate Finance, with which Mr Rounsefell was associated and on account of various trust business.  I accept Ms Freeleagus' evidence that, at the discussion which it is common ground took place between Ms Freeleagus and Mr Rounsefell at Bickfords’ office on 23 February, she handed to him not only the letter of 23 February and the authority which he then and there signed, but also the reconciliation
document.

I also accept Ms Freeleagus' evidence that there was some discussion which in effect conveyed to Mr Rounsefell ongoing concerns by Bickfords about non-payment of fees, some of which were quite old.  I am not prepared, however, to go beyond that and find that there was any specific agreement that the moneys then expected to come in to Bickfords’ trust account from various trust transactions would be appropriated strictly in accordance with the reconciliation document.  However, it seems to me that given that the reconciliation document was, on the evidence I accept, the subject of some general discussion about aged fees owing to Bickfords at the meeting of 23 February, the trust account authority then signed by Mr Rounsefell against the background of those discussions cannot be treated as an appropriation of the anticipated funds in payment first of all to the legal fees, liability for which is now merged in the judgment debt.  There not being an effective appropriation by Mr Rounsefell of those moneys which turned out to be insufficient to pay the whole of Bickfords’ outstanding fees, it was open to Bickfords, as the creditor, to make such appropriation as they saw fit, something they did, leaving the fees in question outstanding, which then, as I have said, ripened into the judgment.

I am therefore not satisfied that, on any of the bases put forward by Mr Rounsefell, he can show a cross demand of the kind required to justify the setting aside of the bankruptcy notice.  The application is therefore dismissed.

I order that the applicant pay the respondent's costs of and incidental to
this application save only for the costs of 14 April, there being no sufficient indication before me of any explanation why the respondent could not have been ready, notwithstanding late receipt of the affidavit material, to deal with the matter on the following Monday.

I certify that this and the preceding six
pages are a true copy of the reasons
for judgment herein of the Honourable
Justice Drummond.

Associate:

Date:  26 May 1997