Richardson v Leonard Cohen & Co

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FEDERAL COURT OF AUSTRALIA

Richardson v Leonard Cohen & Co [2008] FCA 1392

BANKRUPTCY – creditor petition founded on money Judgment entered by District Court – default judgment – appellant deliberately frustrated respondent’s efforts to obtain discovery – further default before Court of Appeal – continuing disregard by appellant of its procedural obligations over considerable period of time – discretion to accept, or not, judgment debt as prima facie evidence of antecedent debt – preliminary investigation of merits of challenge to judgment debt – whether substantial reasons demonstrated for questioning whether behind the judgment there was in truth a debt owed to the petitioner – pleaded defence by appellant in suit for debt not supported by admissible evidence and contradicted by other evidence – evidence supported conclusion that allegations in defence were not genuinely made – conduct of appellant giving rise to procedural default relevant to whether pleaded defence was genuine – discretion of primary judge did not miscarry – appeal dismissed.

Bankruptcy Act 1966 (Cth) ss 44(1), 52(1)

Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 cited
Camila Pty Ltd v Actus Australia Pty Ltd (1994) 16 ATPR 41-367 referred to
Corney v Brien (1951) 84 CLR 343 cited
Joosse v Deputy Commissioner of Taxation (2004) 137 FCR 576 cited
Leonard Cohen & Co v Richardson [2005] WADC 172 referred to
Payne v Parker [1976] 1 NSWLR 191 cited
Richardson v Leonard Cohen & Co(a firm) [2006] WASCA 64 referred to
Richardson v Leonard Cohen & Co [2007] WADC 128 referred to
Richardson v Leonard Cohen & Co (a firm) [No 2] [2007] WASCA 205 referred to
Richardson v Leonard Cohen & Co [2007] FMCA 78 referred to
Richardson v Leonard Cohen & Co(a firm) [2008] WASCA 101 referred to
Scammell & Nephew Ltd v Ouston [1941] AC 251 cited
Upper Hunter District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 cited
Wren v Mahony (1971) 126 CLR 212 cited
Wolff v Donovan (1991) 29 FCR 480 referred to

PHILLIP RICHARDSON v LEONARD COHEN & CO

WAD 62 OF 2008

GILMOUR J
12 SEPTEMBER 2008
PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 62 OF 2008
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:

PHILLIP RICHARDSON
Appellant

AND:

LEONARD COHEN & CO
Respondent

JUDGE:

GILMOUR J

DATE OF ORDER:

12 SEPTEMBER 2008

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.The appeal be dismissed.

2.The appellant pay the respondent’s costs of the appeal to be taxed, such costs to be paid as part of the petitioning creditor’s costs out of the appellant’s bankrupt estate.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 62 OF 2008
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:

PHILLIP RICHARDSON
Appellant

AND:

LEONARD COHEN & CO
Respondent

JUDGE:

GILMOUR J

DATE:

12 SEPTEMBER 2008

PLACE:

PERTH

REASONS…

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Details
Case
[2008] FCA 1392
Decision Date

CaseChat Overview and Summary

In the case of Richardson v Leonard Cohen & Co, the appellant, Richardson, appealed a judgment of the Federal Magistrates Court that made a sequestration order in relation to his estate. The sequestration order was based on a creditor's petition lodged by the respondent, Leonard Cohen & Co, a law firm. The petition relied on an act of bankruptcy committed by the appellant in failing to comply with a bankruptcy notice. The bankruptcy notice was based on a judgment of the District Court of Western Australia, which was in favour of the respondent for unpaid legal fees.

The primary issues for the court to decide were whether the primary judge erred in not going behind the District Court judgment to consider if the appellant was indeed indebted to the respondent and if the requirements of the Bankruptcy Act 1966 (Cth) were satisfied. The court held that it is not necessary for the respondent to prove that the appellant was not, in truth and reality, indebted to them. All that was required was to show that there was "substantial reason for questioning whether there is... a debt". The court further held that the allegations of champerty and maintenance, or other illegality in the terms of engagement, could not succeed or were not genuinely arguable.

The court dismissed the appeal and ordered that the appellant pay the respondent's costs of the appeal to be taxed, such costs to be paid as part of the petitioning creditor's costs out of the appellant's bankrupt estate. The court found that the primary judge exercised his discretion appropriately in declining to go behind the District Court judgment.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellant pay the respondent’s costs of the appeal to be taxed, such costs to be paid as part of the petitioning creditor’s costs out of the appellant’s bankrupt estate.

Background

Background to the litigation

This is an appeal from a judgment of the Federal Magistrates Court given on 14 March 2008 making a sequestration order in relation to the appellant's estate based on a creditor’s petition lodged by the respondent.Background The creditor’s petition relied on an act of bankruptcy the appellant committed by failing to comply with a bankruptcy notice served on the appellant on 4 September 2006 (the “Bankruptcy Notice”). The Bankruptcy Notice was founded on a judgment of the District Court of Western Australia entered against the appellant in favour of the respondent on 16 September 2005 (the “Judgment”) in action 970 of 2000 (the “District Court action”). The Judgment was in the sum of $240,512.51 for unpaid legal fees together with interest. The respondent, a law firm, acted for the appellant and two other parties as plaintiffs in litigation in the Supreme Court of Western Australia. The other parties were Mr Bill Paligorov and Actus Australia Pty Ltd (formerly known as Camila Pty Ltd). The appellant’s grounds of appeal together concern whether the primary judge erred, in the exercise of his discretion, in not going behind the Judgment, which was a default judgment, to consider whether, in truth and reality, the appellant was indebted to the respondent and, accordingly, whether the requirements of s 52(1) of the Bankruptcy Act 1966 (Cth) (“the Act”) were not satisfied, alternatively the conditions of s 44(1) of the Act were not satisfied. The only ground of opposition before the primary judge was whether in truth and reality there was an antecedent debt which gave rise to the Judgment. Prior Court Proceedings In the District Court action the respondent sued upon a standard written Law Society of Western Australia costs agreement dated 1 October 1995. The respondent did not claim, nor does the Judgment include any so-called success fees. The defendants in that action filed a defence in September 2001 which I infer was drawn on instructions from the defendants in that action, including the appellant. The allegation of a “success fee” was pivotal in the defence, part of which is set out below:2. As to paragraph 2 of the statement of claim, the Defendants:(a)say that on or about 21 September 1995, at a meeting between Mr Leonard Cohen and Mr Melvyn Levitan on behalf of the Plaintiff and Mr Richard Kurland on behalf of the Defendants, the Defendants engaged the Plaintiff to represent the Defendants in relation to the assessment of damages in certain proceedings before the Supreme Court of Western Australia (Proceedings); (b)deny that the Plaintiff was engaged to act for the Defendants in the Proceeding in writing and, in particular, deny that the Plaintiff was instructed pursuant to a Law Society Costs Agreement relating to the hourly charge; (c)say that the Plaintiff was engaged to represent the Defendants in the Proceedings on the basis that the Plaintiff would be entitled to: (1)normal fees and disbursements; and (2)also a success fee of $50,000,but only if the Defendants were successful in the proceedings (Terms of Engagement). PARTICULARS In the course of the meeting referred to at paragraph 2(a) above Mr Kurland, on behalf of the Defendants, advised Mr Cohen and Mr Levitan, on behalf of the Plaintiff, that the Defendants were prepared to engage the Plaintiff on the Terms of Engagement and Mr Cohen, on behalf of the Plaintiff, advised Mr Kurland that the Terms of Engagement were acceptable to the Plaintiff, but that such terms could not be reduced to writing. 3.The Terms of Engagement pleaded in paragraph 2 above: (a)are champertous; or in the alternative(b)constitute a contract by way of maintenance.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

GILMOUR J
It is not necessary for a respondent debtor to prove that they are not, in truth and reality, indebted to the petitioning creditor. All that is required of a respondent debtor was to show that there was “substantial reason for questioning whether there is ... a debt”: Joosse v Deputy Commissioner of Taxation (2004) 137 FCR 576 at 579 [6] per North and Finkelstein JJ. The primary judgment The primary judge declined to go behind the Judgment for reasons he expressed in the following way. [17]Accepting that this Court can go behind a judgment, and that it can do so more easily where there is as here a default judgment, the matter is ultimately one for the exercise of the Court discretion. Given:a)the history of the litigation and the delays which have occurred (none of which are the fault of the Applicant); and b)that the Respondent has now failed, resoundingly, twice in the District Court and twice in the Court of Appeal in attempts to allow it to effectively further pursue the matter with a view to undoing the order of Sleight DCJ giving rise to the Judgment Debt;this Court does not consider it appropriate to go behind the Judgment Debt. There is a general principle of comity and recognition of other courts’ judgments which also underlies this Court’s view. [18]In any event, the Court does not consider the allegations of champerty and maintenance, or other illegality in the Terms, can succeed or are genuinely arguable. The Applicant was entitled to be paid for its services as a professional service firm, and the Respondent agreed to do so on the terms of a standard Law Society of Western Australia costs agreement. The express terms of that agreement preclude the implication of a term as to a success fee. Further, the evidence of the success fee agreement relied upon by the Respondent is, in any event, entirely hearsay and not admissible. Grounds of Appeal The amended grounds of appeal are as follows: 1.The Primary Court erred in fact and law in holding that it was not appropriate to go behind the judgment of the District Court entered on 16 September 2005 in Leonard Cohen & Co (a firm) v Richardson & Anor No 970 of 2000 when it was appropriate for the Primary Court to have done so; 2.Further or alternatively, the Primary Court erred in fact and law in holding that the appellant’s allegations of champerty and maintenance, or other illegality, could not succeed or were not genuinely arguable when the Primary Court should have held that the allegations were arguable and that the appellant was not, in truth and reality, indebted to the respondent; 3.Further or alternatively, the Primary Court erred in fact and law in holding that the evidence of a success fee agreement relied on by the appellant was entirely hearsay and not admissible when the Primary Court should have held that there was direct, admissible and uncontradicted evidence of those matters. The three grounds are inter-related. The second and third grounds concern findings made by the primary judge which led him to exercise his discretion in the way that he did. The first ground complains, in effect, that the discretion miscarried. The grounds are directed to a consideration of the “success fee” which, in the context of his Honour’s reasons, is the alleged $50,000 success fee said by the appellant to support the defence of illegality by reason of champerty and maintenance. Before me it was also said to ground a defence of breach of fiduciary duty by the respondent to the appellant although this was not pleaded in the District Court action.

Ratio Decidendi

Legal Principle Established

Established by: GILMOUR J

Full text does not contain this section.