Russo v Condon

[2014] FCCA 326

FEDERAL CIRCUIT COURT OF AUSTRALIA

RUSSO v CONDON & ANOR [2014] FCCA 326

Catchwords:
BANKRUPTCY – Application for leave to take further steps in proceedings against a bankrupt – no leave required where the steps taken were against the petitioning creditor.

Legislation:

Bankruptcy Act 1966 (Cth), ss.58, 82

Uniform Civil Procedure Rules 2005 (NSW)

Applicant: SALVATORE RUSSO, TRADING AS RUSSO & PARTNERS SOLICITORS

First Respondent: SCHON GREGORY CONDON AS TRUSTEE OF THE BANKRUPT ESTATE OF COLLEEN ANNE RAYHILL

Second Respondent: ALYSON WENDY ASHE

File Number: SYG 868 of 2012

Judgment of: Judge Driver

Hearing date: 25 February 2014

Date of last submissions: 3 June 2014

Delivered at: Sydney

Delivered on: 4 July 2014

REPRESENTATION

Counsel for the Applicant: Mr G McDonald

Solicitors for the Applicant: Russo & Partners

Counsel for the Second Respondent: Ms Castle

Solicitors for the Second Respondent: Sally Nash & Co

ORDERS

1. The interim application filed on 29 July 2013 is dismissed.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 868 of 2012

SALVATORE RUSSO
TRADING AS RUSSO & PARTNERS SOLICITORS

Applicant

And

SCHON GREGORY CONDON AS TRUSTEE OF THE BANKRUPT ESTATE OF COLLEEN ANNE RAYHILL

First Respondent

ALYSON WENDY ASHE

Second Respondent

REASONS FOR JUDGMENT

Introduction and background

1. On 14 May 2012 I made a sequestration order against the estate of Colleen Anne Rayhill and consequential orders.  The first respondent, Mr Condon, became trustee of the bankrupt estate, having signed a Consent to Act as Trustee on 10 May 2012.  The petitioning creditor was the applicant, Salvatore Russo (a solicitor).  The petition was based upon failure to comply with a bankruptcy notice which in turn was based upon a judgment debt in the NSW District Court (District Court proceedings)[1].  The certificate of judgment annexed to the bankruptcy notice notes that judgment was given on 10 February 2012 and entered on 17 February 2012 in the NSW District Court.  The terms of the judgment were a verdict and judgment for the plaintiff, Salvatore Russo in the sum of $934,205.54 with the defendant, Ms Rayhill, to pay costs in addition. 

   [1] matter number 2010/157824

2. The judgment debt related to unpaid legal costs.  The present controversy is between Mr Russo and Ms Ashe concerning Ms Ashe’s fees as an expert costs assessor in the District Court proceedings, which resulted in the judgment debt.  By an interim application filed on 29 July 2013, Mr Russo seeks the following relief:

   1. A declaration that Alyson Ashe is and was at all material times a Creditor of Colleen Anne Rayhill (“the Bankrupt”) who was declared bankrupt on 15 May 2012 and Alyson Ashe was not competent to make the application to Charteris DCJ that Salvatore Russo (“the Plaintiff”) pay her costs of $77,000.00, as expert, in lieu of the Bankrupt, as she had not obtained leave of the Court having jurisdiction in bankruptcy under the Bankruptcy Act 1966 (Cwlth) to make or proceed with her application before Charteris DCJ.

   2. An Order that the Plaintiff be granted leave pursuant to Section 58(3) of the Bankruptcy Act 1966 to proceed with the Further amended Summons seeking leave to Appeal in the Supreme Court of New South Wales annexed to the Affidavit of Salvatore Russo sworn 29 July 2013.

   3. Such further Orders as the Court deems appropriate.

3. Mr Condon neither consents to nor opposes the first order sought and did not oppose the second order.

4. I heard argument in this matter on 25 February 2014.  I agreed at that time to grant relief similar to that sought at [2] of the application.  The order I made was in the following terms:

   The applicant be granted leave, pursuant to s.58(3) of the Bankruptcy Act 1966 (Cth), to the extent required in order to take further steps in proceedings 2012/332568 in the NSW Court of Appeal.

5. I also joined Ms Ashe to these proceedings.  I reserved judgment on the question of whether Ms Ashe required leave, pursuant to s.58(3) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) to obtain the order referred to in the first prayer for relief referred to above.  I also granted Ms Ashe leave to make any further submissions she may wish to on whether, if leave was required, she should have that leave nunc pro tunc.  Those submissions were due by 11 March 2014 and were not filed until 26 May 2014.  I had not granted an extension of time and, by letter dated 3 June 2014, the solicitor for Mr Russo formally requested that I reject those submissions.  I saw no need to re-list the matter, or to take account of the further submissions by Ms Ashe, in view of the conclusions that I have reached on the question of whether Ms Ashe required leave.

The evidence and submissions

1. Mr Russo relies upon his affidavits made on 29 July 2013 and 20 February 2014.  I also received the affidavit of Ms Ashe made on 11 February 2014 to which are annexed documents from the District Court proceedings and the following exhibits:

   ·A1 - Letter from the Trustee of Ms Rayhill’s estate to my Associate, 21.02.2014;

   ·A2 - Draft Notice of Appeal filed in Supreme Court of NSW.

2. Mr Russo submits that, pursuant to an agreement between the parties in the District Court proceedings, consent orders were made that Mr Russo and Ms Rayhill would be jointly liable for Ms Ashe’s fees.  He contends that once Ms Ashe made her determination, the parties to the District Court proceedings were jointly liable to pay her fees and that gave rise to a debt.  He contends that Ms Ashe could not pursue in the District Court a variation to the orders made without leave of the bankruptcy court, following the bankruptcy of Ms Rayhill. 

3. Ms Ashe contends that s.58(3) of the Bankruptcy Act did not apply in respect of her fees in the District Court proceedings because:

   a)Ms Ashe was not a creditor of Ms Rayhill;

   b)her professional fees of $77,000 ordered to be paid by Charteris DCJ in the District Court by Mr Russo is not a debt provable in the bankruptcy of Ms Rayhill under s.82 of the Bankruptcy Act;

   c)any step taken by Ms Ashe in respect of remuneration for her work as a court appointed expert in the District Court proceedings was not a “fresh step” under s.58(3);

   d)in the alternative, Ms Ashe submits that if she is incorrect in her contentions concerning the operation of s.58(3) of the Bankruptcy Act, she seeks leave nunc pro tunc in relation to her application to Charteris DCJ in respect of her remuneration made after the sequestration order.

Consideration

1. Section 58(3) of the Bankruptcy Act provides as follows:

   (3)   Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

   (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or

   (b)   except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.

2. On 20 June 2011 in the District Court proceedings, Charteris DCJ made orders appointing Ms Ashe as an expert to assess the fees and costs of Mr Russo in respect of the claim before him against Ms Rayhill.  Those orders were made by consent between the parties in the District Court proceedings but were made on the basis that Ms Ashe was not obliged to accept the appointment.  The orders provided that the parties to the District Court proceedings were bound by the determination made by Ms Ashe.  Order 11 was in the following terms:

   Order that the parties pay the costs of the Assessor in the proportions determined by the Assessor as referred to in the Certificate of Determination.

3. It was thus left in the hands of Ms Ashe as part of her determination to deal with the issue of her fees consistently with her determination.

4. On 6 February 2012, Ms Ashe issued a Certificate of Determination and quantified her fees for conducting the assessment at $77,000 inclusive of GST.  Ms Ashe included her fees in the determination in favour of Mr Russo.  In other words, the fees became part of the costs recoverable by Mr Russo from Ms Rayhill.  In addition, Ms Ashe, in correspondence to the District Court, sought an order that the parties to the litigation be jointly and severally liable for her fees.  Charteris DCJ did not deal with that request when he gave judgment for Mr Russo.

5. Following the bankruptcy of Ms Rayhill, Ms Ashe (perhaps understandably) pursued the issue with the District Court. 

6. Charteris DCJ ultimately dealt with the issue on 8 October 2012. In his judgment, he referred to rule 31.53 of the Uniform Civil Procedure Rules 2005 (NSW) (Uniform Civil Procedure Rules) which provide:

   (cf SCR Part 39, rule 5; DCR Part 28A, rule 5; LCR Part 38B, rule 5)

   (1) The remuneration of a court-appointed expert is to be fixed by agreement between the parties affected and the expert or, failing agreement, by, or in accordance with the directions of, the court.

   (2) Subject to subrule (3), the parties affected are jointly and severally liable to a court-appointed witness for his or her remuneration.

   (3) The court may direct when and by whom a court-appointed expert is to be paid.

   (4) Subrules (2) and (3) do not affect the powers of the court as to costs.

7. His Honour found that he had, by oversight, not dealt with Ms Ashe’s request for an order that the parties to the litigation be jointly and servably liable for her fees.  His Honour said:

   Having satisfied myself that I am not without power in the matter, and satisfying myself that I am not revisiting any earlier orders, I turn to my consideration of the order sought in the interests of Ms [Ashe].  In my view there is no basis for my departing from what I have described as the default position; that is that, unless the Court orders otherwise, the remuneration is to be borne jointly and severally by the parties in this action.  I also note that in the agreement between the parties concerning the orders of June 2011, the remuneration for Ms [Ashe] is included as part of the judgment in favour of Mr Russo.  It seems to me that it would therefore be appropriate that I make an order that Mr Russo pay the remuneration of Ms [Ashe].  Although the rule provides for joint and several liability, the judgment entered against the defendant already incorporates Ms [Ashe’s] fees.  I therefore conclude that I should make the orders sought by Ms [Ashe].  The order that she seeks is that the plaintiff, Salvatore Russo, practising as Russo Partners, and Salvatore Russo personally be held liable for the remuneration of Ms [Ashe], as a Court appointed expert, in the sum of $77,000.

8. The issue of whether Charteris DCJ erred in acting as he did is before the NSW Court of Appeal.  The issue before me is whether Ms Ashe required the leave of this Court to pursue the matter before the District Court following the bankruptcy of Ms Rayhill.

9. In my view, the order made by Charteris DCJ in favour of Ms Ashe was not a variation of the earlier orders in the District Court proceedings but simply a recognition that he had overlooked doing something that he should have done when giving judgment in favour of Mr Russo.  The determination by Ms Ashe was a determination in favour of Mr Russo, including her fees.  That determination, however, assumed that her fees would be paid.  Mr Russo pursued the District Court judgment in the bankruptcy proceedings on the basis of the judgment debt, which included the amount of Ms Ashe’s fees.  As those fees were unpaid at the time of the bankruptcy proceedings, hypothetically Ms Rayhill might have invited the Court to go behind the judgment of the District Court in order to determine whether the debt had been overstated.  That did not occur. 

10. As was noted in the supplementary judgment by Charteris DCJ, the default position under the Uniform Civil Procedure Rules is that both parties to the District Court litigation were jointly and severally liable for Ms Ashe’s fees. The District Court had not made any order to depart from that position prior to the bankruptcy. Order 11 referred to earlier made by consent between the parties to that litigation simply reflected the position that Ms Ashe would decide whether her fees should in whole or part be included in the determination in relation to Mr Russo’s costs. Unless Mr Russo paid Ms Ashe’s fees (and he has not), or at least accepted a liability to pay, it is difficult to see how he could have properly claimed them from Ms Rayhill.

11. If the District Court had made no further order, Ms Ashe would have been entitled to pursue either Ms Rayhill or Mr Russo for her fees. No further order was made by the District Court prior to the bankruptcy of Ms Rayhill. On that basis, it seems to me that Ms Ashe had a choice whether to pursue Mr Russo for her fees or whether to seek to prove in the bankruptcy of Ms Rayhill. Given the clear operation of the Uniform Civil Procedure Rules to establish joint and several liability in the absence of a court order, it seems to me that if Ms Ashe had lodged a proof of debt in the bankruptcy, the trustee would have had to accept it. However, she could equally have elected to pursue Mr Russo and I doubt that she needed the order ultimately made by Charteris DCJ.

12. Whatever view one takes of the order ultimately made by Charteris DCJ in favour of Ms Ashe and against Mr Russo, it was not a step in proceedings by Ms Ashe against Ms Rayhill because there were no such proceedings. It was a step in proceedings by Mr Russo against Ms Rayhill, but not a step by a litigant in those proceedings. Neither was it relevantly a step in a proceeding “in respect of” a provable debt. The proceeding was “in respect of” what became Mr Russo’s provable debt, not a proceeding in respect of what was, at least up until the order made by Charteris DJC on 8 October 2012, Ms Ashe’s provable debt. Accordingly, the leave of this Court was not required pursuant to s.58(3) of the Bankruptcy Act.

13. I will order that Mr Russo’s interim application be dismissed.

14. I will hear the parties as to costs.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Judge Driver

Associate: 

Date:  4 July 2014