Sommer v C Pty Ltd
[2020] FCCA 1412
•5 June 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SOMMER v C PTY LTD | [2020] FCCA 1412 |
| Catchwords: BANKRUPTCY – PRACTICE AND PROCEDURE – Application under s.35A(2A) of the Bankruptcy Act 1966 (Cth) for an order that a proceeding for the setting aside of a bankruptcy notice be transferred to the Family Court of Australia (FCoA) to be heard together with a proceeding in the FCoA in which the applicant in the proceeding to set aside bankruptcy notice is a party – whether there are overlapping issues between the bankruptcy proceeding and the FCoA proceeding – whether the transfer of the bankruptcy proceeding will reduce costs or enhance convenience – application for transfer dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.35A(1), 35A(2A) Legal Profession Uniform Law Application Act 2014 (NSW), s.70 |
| Cases cited: Combis v Jensen (No 2) [2009] FCA 1383 Firth v Centrelink and Anor [2002] NSWSC 564 Horne v Tebb [2013] FCA 585 Obrart v Grego [2017] FCCA 929 |
| Applicant: | MS SOMMER |
| Respondent: | C PTY LTD |
| File Number: | SYG 697 of 2020 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 29 May 2020 |
| Date of Last Submission: | 29 May 2020 |
| Delivered at: | Sydney |
| Delivered on: | 5 June 2020 |
REPRESENTATION
| Applicant in person, by video |
| Counsel for the Respondent: | Mr D Edney |
| Solicitors for the Respondent: | ICL Lawyers |
ORDERS
The application in a case filed by the applicant on 27 April 2020 for an order under s.35A(2A) of the Bankruptcy Act 1966 (Cth) that this proceeding be transferred to the Family Court of Australia is dismissed.
The applicant pay the respondent’s costs of the application in a case, such costs to be assessed by Judge Manousaridis.
By 19 June 2020:
(a)the respondent file and serve an affidavit and short submissions in relation to the assessment of the respondent’s costs, such submissions to state whether the respondent would consent to Judge Manousaridis assessing the respondent’s costs of the application in a case on the papers; and
(b)the applicant file and serve any additional affidavit or affidavits on which the applicant intends to rely in support of her application to set aside the bankruptcy notice.
By 3 July 2020:
(a)the applicant file and serve an affidavit and short submissions in response to any affidavit and submissions the respondent may file pursuant to order (3)(a), such submissions to state whether the applicant would consent to Judge Manousaridis assessing the respondent’s costs of the application in a case on the papers; and
(b)the respondent file and serve any additional affidavit or affidavits on which the respondent intends to rely in opposition to the application to set aside the bankruptcy notice.
IT IS NOTED that publication of this judgment under the pseudonym Sommer & C Pty Ltd is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 697 of 2020
| MS SOMMER |
Applicant
And
| C PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant applies for an order under s.35A(2A) of the Bankruptcy Act 1966 (Cth) (Act) that the proceeding she has brought in this Court to set aside a bankruptcy notice (bankruptcy proceeding) be transferred to the Family Court of Australia (FCoA). The applicant claims it would be more efficient and convenient if the bankruptcy proceeding were determined by the FCoA when it determines the parenting and property settlement proceeding her husband brought against her in that Court (FCoA proceeding). That proceeding has been set down for hearing for five days commencing on … 2020.
The respondent, C Pty Ltd, who applied for the issue of the bankruptcy notice the applicant seeks to set aside, opposes the bankruptcy proceeding being transferred to the FCoA. C Pty Ltd submits the issues arising in the bankruptcy proceeding to set aside the bankruptcy notice are distinct from those arising in the FCoA proceeding; and a transfer to the FCoA would add to costs and delay without providing any countervailing benefits.
To be in a position to determine the application for transfer, it will be necessary to identify the debt referred to in the bankruptcy notice, the evidence relating to the circumstances in which the debt came into being, and the grounds on which the applicant seeks to set aside the bankruptcy notice. It will also be necessary to describe the FCoA proceeding. I will do this in the course of setting out the circumstances in which the debt came into being, because the debt has arisen out of legal services C Pty Ltd provided to the applicant in connection with the FCoA proceeding.
Given the nature of the application I consider in these reasons, nothing I say in relation to what the evidence appears to disclose is to be taken to constitute a finding by me. My purpose in setting out what the evidence appears to disclose is to identify the issues by reference to which I am to consider whether to make an order under s.35A(2A) of the Act transferring this proceeding to the FCoA.
The debt demanded by the bankruptcy notice
The bankruptcy notice demands payment of $236,238.61. That is the difference between a judgment debt of $336,238.61 and $100,000. The judgment debt represents the determination of costs recorded in the Certificate of Determination of Costs (Costs Certificate) issued on 18 July 2019 pursuant to s.70 of the Legal Profession Uniform Law Application Act 2014 (NSW) (LP Act).
The Costs Certificate was issued in response to an application C Pty Ltd made under s.198 of the Legal Profession Uniform Law (NSW) (LP Law) for the assessment of costs for legal services C Pty Ltd provided to the applicant in connection with the FCoA proceeding. C Pty Ltd conducts a legal practice under the name of “C Lawyers”; and the costs it applied to be assessed are those described in a tax invoice dated 15 March 2019 it issued to the applicant.[1] C Pty Ltd arranged for the Costs Certificate to be registered as a judgment of the Supreme Court of New South Wales pursuant to s.70(5) of the LP Act.
[1] Affidavit of Ms A 12.05.2020, [26]; annexure “H”.
The $100,000 represents the payment that was made to C Pty Ltd out of the proceeds of sale of a property that was the subject of the FCoA proceeding. The payment was made after the Costs Certificate was registered with the Supreme Court.
Evidence of background to the creation of the debt
The judgment debt arises out of legal services C Pty Ltd (who in the remainder of these reasons I will refer to as “C Lawyers”) provided to the applicant in connection with the FCoA proceeding. It would therefore be convenient to begin with the evidence of the circumstances in which the applicant engaged C Lawyers to provide those services.
The applicant’s engagement of C Lawyers
The starting point is a meeting the applicant had with a former solicitor of C Lawyers on 15 December 2015. In that meeting the applicant indicated she wished to instruct C Lawyers to act for her in the FCoA proceeding. After the meeting C Lawyers sent a letter dated 15 December 2015 to the applicant confirming the applicant required C Lawyers to act in relation to “your Family Law parenting and property matters (not including divorce)”. The letter enclosed a number of documents, one of which was headed “Standard Terms of Engagement Effective from 1 July 2015” (STE).[2]
[2] Affidavit of Ms A 12.05.2020, [3], [4]; annexure “A”
By letter dated 10 March 2016 C Lawyers informed the applicant she was “approved to go onto the Delayed Payment Option and that all work from January 2016 will be charged at the B rate”. The “Delayed Payment Option” referred to in this letter appears to be a reference to the “deferred payment arrangement” (DPA) in cl.7.2 of the STE. That clause is as follows:
Deferred Payment Arrangement
7.2.1If we have agreed with you to enter into a deferred payment arrangement (DPA) for your Costs (or any part of your Costs) other than in accordance with our standard account terms in clause 7.1.2 then that part of your Costs subject to the DPA are payable on the earliest of:
7.2.1.1.at settlement of the sale, purchase or transfer of any real estate or personal property in which you have an interest or an entitlement to receive a benefit;
7.2.1.2.out of the payment of any sum of money payable to you where we have acted for you and we have contributed to, or been instrumental in, your being entitled to receive such sum;
. . . .
7.2.1.4.termination of this agreement by you or us; and
7.2.1.5.upon completion of our work in the matter.
7.2.2DPA matters will be charged on the B Rate [these being the rates identified in cl.2.2.1], unless otherwise advised in writing by us.
7.2.3.The deferred payment does not apply to disbursements and office expenses, which are payable in accordance with our Standard Account Terms in clause 7.1.2.
The STE contains provisions for the termination of the STE by C Lawyers and by the applicant. Clause 20 provides that C Lawyers “reserve the right to terminate our retainer and to cease work on your behalf on any matter or generally” if any of the matters identified in the clause occur. These include “you do not co-operate with us”, “you refuse to accept our advice”, “you fail to act in accordance with our advice”, “you indicate to us or we form the view that you have lost confidence in us”, and “we believe there is just cause to do so”. Clause 20 further provides that C Lawyers will give the applicant “at least 7 days notice of our intention to terminate our agreement and the grounds on which the termination is based”. The right of the applicant to terminate the STE was provided for by cl.22:
You may terminate our instructions in any matter or generally at any time upon providing written notice of termination. All outstanding Fees, Disbursements and Office Expenses incurred on your behalf until the date of termination on any matters being conducted by us on your behalf or any expenses for which we remain responsible, shall be immediately due and payable.
With their letter dated 10 March 2016 C Lawyers provided a document titled “Instruction Notice (Family Law)” (Instruction Notice).[3] The document confirmed the applicant wished to retain C Lawyers in relation to “the matter described below”, being “your family law property and parenting matters”. The document identified the lawyer responsible for the matter, and it provided an estimate of costs on various assumptions. One assumption was that the FCoA proceeding would require a hearing of one day. The cost estimate given based on that assumption was $82,500. By clause 6 of the Instruction Notice the applicant charged her interest in any real property to secure money due or which was to become due to C Lawyers.
[3] Affidavit of Ms A 12.05.2020, [9]; annexure “C”
There appears to be no dispute the applicant agreed to retain C Lawyers on the terms set out in the STE and the Instruction Notice. In the remainder of these reasons I will refer to the agreement that came into being when the applicant agreed to retain C Lawyers on these terms as the “Retainer Agreement”.
The FCoA proceeding up to 5 March 2019
In the FCoA proceeding the applicant’s husband (husband) claims parenting orders and orders in relation to property.[4] At the time the husband commenced the FCoA proceeding there were three properties in which the applicant had an interest – the matrimonial home at Suburb B, and two investment properties in Suburb D. The investment properties are co-owned with the husband, the husband’s brother, and a company owned by the husband’s brother. The applicant, the husband’s brother, and the company are respondents in the FCoA proceeding.
[4] This part of my reasons is based on the background contained in the CA Report to which I refer later I these reasons.
On 6 June 2018 a mediation failed to resolve the FCoA proceeding. On 29 June 2018 the applicant filed an amended response for an order for the sale of the Suburb B property, and an order for occupation of one of the Suburb D properties. According to what Ms A, a director of C Lawyers communicated to the costs assessor, one of the orders the applicant sought in the amended response was to pay out of the proceeds of sale of the Suburb B property $373,000 to C Lawyers for costs.
The amended response, to the extent it applied to the sale of the Suburb B property, was resolved on 5 November 2018 by the FCoA making consent orders which provided for the sale of the Suburb B property and the payment out of the proceeds of sale various amounts to particular persons. These included the payment of $400,000 to the applicant and $100,000 to the husband “by way of partial property settlement”. The balance of the amended response was adjourned to the duty list on 26 November 2018. [5] The matter was not reached on that day, and it appears it was set down for hearing before Henderson J on 13 March 2019.
[5] Affidavit of Ms A 12.05.2020, [14]; annexure C2”, pages 37-40
Events from 5 March 2019 to 2 April 2019
On 5 March 2019 the applicant attended a conference with Ms A and Mr E, the barrister whom C Lawyers retained. The conference appears to have been prompted by the hearing that was due to take place in the FCoA proceeding on 13 March 2019. According to an entry contained in the tax invoice dated 15 March 2019 C Lawyers issued to the applicant, “K”, who I infer is an employee of C Lawyers, typed a “Notice of Ceasing to Act and blank Notice of Address for Service” before the conference of 5 March 2019.[6]
[6] Affidavit of Ms A 12.05.2020, [26]; annexure “H”, page 116
According to Ms A, at the conference of 5 March 2019 the applicant said she would represent herself; she will argue her case herself; and “[y]ou no longer act for me”.[7] Ms A subsequently asserted to the applicant, and has asserted to the costs assessor and to the Office of the Legal Services Commissioner, that the applicant had terminated the Retainer Agreement in that conference. The applicant disputes she terminated the Retainer Agreement at that conference, or at any time after the conference. The applicant claims C Lawyers purported to terminate the Retainer Agreement, contrary to its terms.
[7] Affidavit of Ms A 12.05.2020, [11]
Ms A does not in her affidavit set out the context in which the applicant is said to have stated she would represent herself; she will argue her case herself; and “[y]ou no longer act for me”. There is, however, other evidence of what occurred at that conference, and of the events leading up to it. First, there is the following entry in the tax invoice dated 15 March 2019 that C Lawyers issued to the applicant:[8]
[8] Affidavit of Ms A 12.05.2020, [26]; annexure “H”, page 116
05/03/2013
Ms A
Personal Attendance conference with client and barrister to discuss the preparation for the hearing next week, effect of the low sale price of Suburb B on the Orders to be sought and issue as to continued representation in the case
Second, there is the following passage from the document issued by the costs assessor titled “Reasons for Determination of Practitioner/Client Costs” dated 18 July 2019 (CA Reasons) (emphasis in original).[9]
62. In their [sic] response to the objections the Applicant [C Pty Ltd trading as C Lawyers] has provided copies of various file notes.
On 5 November 2018, the interim application [was] to be heard that day in the Family Court and it is noted “We discussed with the client that it seems the house price would have dropped..[sic]” There was agreement reflected in orders for the sale of the Suburb B house. As at 5 November it was indicated that the Suburb B house “may be around $1,200,000.”
63. On 26 November 2018, the matter came back before the Family Court for further interim hearing. The file note indicates that there were discussions about exploring options for settlement, but [the applicant], despite advice that the matter was likely to be not reached, indicated she would not proceed with any settlement discussions but wishes to proceed with the hearing. At least one issue for the court was the Respondent’s [that is the applicant’s] desire to live in one of the Suburb D properties. The sale was still pending. The Respondent indicated the agent said the sale price would be “significantly less at $1,100,000.” It is clear that at that stage . . . the Respondent was aware of the ramifications of the low anticipated sale price.
64. On 5 March there was a further meeting with Ms A and Mr E with [the applicant]. The house at Suburb B had not sold however there had been an offer at $980,000. There was discussion regarding lack of funds for rental or to establish the ability to rent. She also “expressed her opinion that she would like the legal fees to be taken out at the end of the final property settlement”. The Respondent [that is, the applicant] was advised inter alia that the property at Suburb B had dropped 40% since valuation.
[9] Affidavit of Ms A 12.05.2020, [40]; annexure “O”, page 168
Third, there is the following passage from a letter dated 26 February 2020 from the Office of the Legal Services Commissioner to the applicant, being a response to a complaint the applicant made about C Lawyers:[10]
Ms A has provided a file note of the meeting of 5 March 2019 which reads, inter alia: ‘She said she will argue the case herself for occupation of Suburb D and we no longer act for her.’
[10] Affidavit of Ms A 12.05.2020, [58]; annexure “U2”, page 235
Fourth there is the following statement the applicant made in a document headed “Objection to Costs Assessment Filed by C Pty Ltd Trading as C Lawyers” the applicant filed with The Manager of Costs Assessment on 24 April 2019 (Applicant’s Costs Submissions):[11]
I was asked to attend a conference with Mr E and Ms A on Tuesday, 5 March under the false pretence of discussing the upcoming hearing which is held on 13 March 2019 (which was in 8 days’ time). However, during the conference Mr E and Ms A threatened that they would cease representing me if I did not agree to provide them full payment of their fees up front and agreed to enter into negotiations with the Other Side based on a proposal they would provide me with. In addition, they stated that they would only allocate a few hours of work to the negotiation if I did agree as they did not want to waste any more time on my case or go to Court. I was visibly upset and crying and pleading with them, saying I needed rent money and a roof for my children as I had no home. However, they continued to put words in my mouth to say that I was intending to cease their representation. At no stage did I make such a claim.
[11] Affidavit of Ms A 12.05.2020, [36]; annexure “M”, at page 146, [59]
There is evidence that on 5 and 6 March 2019 emails were exchanged between the applicant and Ms A, although Ms A does not, in her affidavit, refer to these emails. There is also evidence that Ms A and the applicant had at least one telephone conversation, and there was a further conference, although Ms A does not depose to any telephone conversations or further conference.
First, there is the following passage from the CA Reasons (errors in the original):[12]
The Respondent [that is, the applicant] sent an email to the Applicant [that is, C Lawyers] the evening of that meeting [that is, of 5 March 2019] (and a subsequent phone call) The Respondent expressed significant disappointment that she felt the solicitors were “getting paid and dumping her”. The Applicant responded to the effect that there was too great a risk that a final judgment would not cover her past and future costs. The Respondent had the previous day been urged to try to settle the matter. The Applicant advised “I confirm your advice yesterday that if we could not agree to further delay payment of your legal fees, you would be terminating the retainer”.
[12] Affidavit of Ms A 12.05.2020, [40]; annexure “O”, page 168, [65]
Second, there are the following entries from the tax invoice dated 15 March 2019 that C Lawyers issued to the applicant:[13]
[13] Affidavit of Ms A 12.05.2020, [26]; annexure “H”, page 116
05/03/2019
Ms A
Reading email from client – complaint as to our conduct of the matter and issue as to payment of costs (no charge)
05/03/2019
Ms A
Email detailed lengthy email to client to respond to the various matters complained of and payment of costs from sale of house issue (no charge to client)
05/03/2019
Ms A
Telephone client to further discuss her instructions from meeting today and client complaints (no charge)
05/03/2019
[sic]
Ms A
Telephone with Mr E (8am Wed) to discuss further conduct of the case, counsel’s advices as to proposal for settlement and calculations and advices as to prospects of the case. Counsel to meet with client Wednesday 6/3/19. (No charge to client)
06/03/2019
Ms A
Reading email from client requesting further matters, including amended points of Claim and Notice to Inspect; instructions to secretary to make arrangements (no charge)
06/03/2019
Ms A
Telephone Mr E as to the conference with client today to advise as to prospects and to obtain instructions to put a settlement offer (no charge to client)
07/03/201
Ms A
Reading email from Mr E re detailed advice as to prospects of the case, calculations and proposal for settlement
Third, there is what the applicant in the Applicant’s Costs Submissions claims she said in an email she sent to Ms A on 5 March 2019, namely, that “I outlined the nature of the discussions held and confirmed that they had threatened to terminate their representation” but “[t]hey did not dispute this email and continued to charge me for work”. [14]
[14] Affidavit of Ms A 12.05.2020, [36]; annexure “M”, page 148, [71]
Fourth, there is the following passage from the Applicant’s Costs Submissions (emphasis added): [15]
I then met with Mr E upon his request, for a conference at C Lawyers on 6 March 2019 where Mr E gave me evidence from his brother to support his claim that we could, at best case, receive a limited amount of money from the asset pool which he said words to the effect of could be used to cover their final fees and maybe leave me with a little.
Following the meeting, out of fear, I asked Mr E and Ms A to see what their proposed settlement offer was and I advised that I would visit my brother the following day to review it and get back to them.
The next day, Thursday 7 March 2019, I was unable to visit my brother due to the immense stress which had triggered my medical condition L [[16]] . . . . On the same day, I was sent an updated Tax Invoice. . . .
[15] Affidavit of Ms A 12.05.2020, [36]; annexure “M”, page 146, [60]
[16] At paragraph 95 of the Applicant’s Costs Submissions the applicant states she “was diagnosed with medical condition L in 2006. It drastically impacts my day to day life and ability to work and I am currently taking medication.”
The applicant explained the bold portion of this passage in the following passage from the Applicant’s Costs Submissions (emphasis in original):[17]
I will also note that Mr E appeared to ask his brother ‘Stick’ loaded questions in order to obtain a favourable answer (Annexure N – Email from Mr E to his Brother).
[17] Affidavit of Ms A 12.05.2020, [36]; annexure “M”, page 147, [67]. The email referred to in this passage is not in evidence before me.
On 7 March 2019 Ms A sent a letter to the applicant in which Ms A confirmed “our agreement to the deferred payment option for your legal fees”; and, after stating that C Lawyers “always strive to conduct your matter in the most cost effective manner and to keep you updated on all aspects including costs incurred to date”, the letter attached a “draft tax invoice of your fees and disbursements”. The letter stated the draft invoice was provided “for your information purposes only and no payment is required at this point”.[18] Ms A acknowledges she sent this letter to the applicant; and Ms A says she did so because at that time “the Respondent was of the view that it had security for the majority of its unpaid fees and disbursements given the orders . . . made 5 November 2018 which entitled the Applicant to an interim payment of $400,000 from the marital assets which in accordance with clauses 7.2.1.1 and/or 7.2.1.2 of the [STE] was required to be paid to the Respondent”.[19]
[18] Applicant’s affidavit 19.03.2020, [9]. The affidavit does not annex the “draft tax invoice of your fees and disbursements” referred to in the letter.
[19] Affidavit of Ms A 12.05.2020, [13]
On 8 March 2019 Ms A sent the applicant the following email:[20]
[20] Affidavit of Ms A 12.05.2020, [15], [16]; annexure “D”, page 41
I note that I have not heard from you despite your discussion with Mr E [that is, the barrister] on Wednesday, stating that you would contact us by yesterday afternoon to advise as to your intentions. I confirm my phone calls and email to you yesterday requesting an urgent response without reply.
I confirm that you terminated our instructions on Tuesday at our meeting with Mr E.
I asked that you take some time to reconsider your position.
Later that day you spoke to me and the following day met with Mr E in an effort to assist you in coming to a settlement of the matter.
Mr E informed you that if you wish to re-engage us to undertake negotiations to settle the matter or continue to represent you in any capacity, that monies would need to be placed in trust and you were to speak to your family as to their assistance and views of Mr E’s settlement advices.
Under all of the circumstances that have developed and in view of the fact that the hearing is listed in the Family Court on Wednesday next week, unfortunately, I cannot allow this situation to go on as I have an obligation to the Court to inform the Court and the other parties of the situation.
I have not as yet contacted or responded to the other parties or the Court. However, unless I hear from you by 4PM today I will have no option but to inform the Court and the other parties that you have terminated our retainer and that you are, at this stage, self-represented.
I will send to you today a Notice of Address for Service that you will need to complete and file on the Court portal or at the Registry.
. . . .
It is most unfortunate that the case has taken this course, however, the effect of the significant downturn in the property market has had a pivotal impact on your case and is a matter beyond our control. It is incumbent on us as your legal advisers to provide you with realistic advices as to your risks and prospects as the case has now developed. We would not be performing our duties to you diligently if we were to ignore the current state of facts and just continue to litigate a case which will likely result in just further increasing your legal debt with no real prospect of recovery.
In the Applicant’s Costs Submissions the applicant says she received this email after she received at 10 am on 8 March 2019 a voicemail from Ms A “stating that she wanted to know what my thinking was, and that if I was going to self-represent, that she may be able to prepare me for Court”.[21]
[21] Affidavit of Ms A 12.05.2020, [36]; annexure “M”, page 147, [64]
The applicant responded to Ms A’s email by email sent on 8 March 2019 to Ms A and to Mr E, in which the applicant stated as follows: [22]
[22] Affidavit of Ms A 12.05.2020, [17]; [18], annexure “E”, page 42
I am overly stressed from our conversations.
As mentioned in my last email, I have never terminated you. You put those words in my mouth.
If you do not wish to represent me on Wednesday and fight my case to occupy Suburb D, and you do not show on the day, I will take it that you are no longer representing me at your own choice.
Please forward all correspondence to me in the meantime.
After I speak to my brother on the weekend, I will be in a better position to know where to from [sic] here.
I have asked that you purely send all correspondence to me to reduce all costs.
You have no right to send an email to all parties. If you no longer want to represent me, you can seek the courts permission prior to hearing as you have not provided adequate notice. Again your duty is to the court and me, and not to the other parties.
Please advise whether you have chosen to stop representing me as I will need to seek urgent legal advice and or representation for Wednesday?
At 5.31 pm on 8 March 2019 Ms A sent an email to the applicant attaching a Notice to Cease to Act (NCA), together with advice that the applicant complete a Change of Address.[23] The email does not state the NCA was given pursuant to any term of the Retainer Agreement. The NCA only states: “I no longer act for you in this case”. The applicant filed a Notice of Address for Service in the FCoA proceeding on 11 March 2019.[24]
[23] Affidavit of applicant 19.03.2020, [10]; annexure “D”
[24] Affidavit of Ms A 12.05.2020, [21], [22]; annexure “G”, pages 45-46
At 1:23 pm on 11 March 2019 Ms A sent to the applicant an email which included the following:[25]
[25] Affidavit of Ms A 12.05.2020, [19], [20]; annexure “F”, page 43
I confirm my email to you last Friday that you terminated our retainer on Tuesday during the meeting with Mr E.
I note your email of Friday 8/3/19 that you dispute this now.
Under these circumstances, I sent to you on Friday afternoon a Notice of Ceasing to Act to ensure that there can be no misunderstanding that we no longer can act for you.
You have put us in an untenable position in that you requested that we represent you on Wednesday 13/3/19 and pursue your claim for occupation of the Suburb D property, despite the fact that it has now become apparent that no monies will be available from the sale of Suburb B to put aside for the proposed rent of $1,000 per week. Both Mr E and I advised you that under the circumstances, your application for occupation of Suburb D ought to be abandoned as it had no prospects of success. You stated that if we were not prepared to “fight” for that in Court, that you would represent yourself and we were no longer instructed to act for you.
We also advised you, on Tuesday at the meeting, by phone call with me on Wednesday evening and in conference with Mr E on Thursday, that you should immediately consider settlement of the whole case.
The advice from Counsel sent to you on 6/3/19, as to the overall prospects of your case was clearly set out being that in view of the significant drop in value of the real estate and on the evidence to date on the issues investigated, it is not cost effective for you to continue the litigation. He strongly advised you to negotiate a final settlement by putting forward an offer to settle.
You were to consider the advice and get back to me on Thursday afternoon as to your decision. It is apparent from your email on Friday that you have not taken up that advice.
Although we are of the view that you terminated our retainer on Tuesday, it is clear that in any case, we cannot continue to represent you under circumstances where:
1.You refuse to take our advice;
2.You request us to conduct your matter in an unreasonable manner;
3.We believe in all of the circumstances, there has been a breakdown in our solicitor/client relationship;
4.It is apparent that you have lost confidence in us; and
5.We believe and have advised you that certain aspects of your claim have insufficient merit to pursue and you have failed to act in accordance with our advice.
On these grounds we forwarded to you the Notice of Ceasing to Act and attached Notice of Address for Service for you to complete and file on Friday evening.
In regards to the Court Hearing on Wednesday, I note that I have no clear indication from you as to what you intend to do.
I advise that I will appear on the day as a courtesy to the Court and to you and indicate to her Honour Justice Henderson that I no longer act for you.
According to the Applicant’s Costs Submissions, on 12 March 2019 the applicant received an email from the solicitor for the husband’s brother and his company giving notice that those parties intended to apply for the suspension of the orders that provided for the payment to the applicant of $400,000 out of the proceeds of sale of the Suburb B property, and instead permit the distribution to the applicant of only $100,000 for rent.[26]
[26] Affidavit of Ms A 12.05.2020, [36]; annexure “M”, page 149, [74]
The matter came before Henderson J on 13 March 2019. The applicant appeared on her own behalf. Her Honour made a number of orders. These included an order made by consent suspending the orders made on 5 November 2018 for the distribution of $400,000 to the applicant and $100,000 to the husband out of the proceeds of sale of the Suburb B property, and instead ordering that, out of those proceeds, $100,000 be paid to the applicant, $33,000 to the husband, and $50,000 to the husband’s brother and the company.
On 15 March 2019 Ms A sent to the applicant the following letter:[27]
We confirm that our retainer in this matter has been terminated and that we no longer act for you. We note that you have filed on Monday, 11 April 2019 a Notice of Address for Service in the Family Court indicating that you now represent yourself.
In accordance with our Standard Terms of Engagement (clause 7.2.1.4) as forwarded to you under cover of our letter dated 15 December 2015, your legal costs now become payable.
We therefore now enclose the following:
1.Our tax invoice for all costs and disbursements dated 15 March 2019;
2.Trust Account Statement dated 15 March 2019.
[27] Affidavit of Ms A 12.05.2020, [26]; annexure “H”, page 58
As you will note, our trading terms require full payment within 14 days.
Please contact me if you seek to request any alternate arrangements in relation to the payment of your account.
The attached tax invoice claims a total of $427,179.47 for fees and disbursements. This consists of $252,423.90 fees for work carried out by C Lawyers, $6,300 for “office expenses”, disbursements subject to GST of $127,868.44, and disbursements not subject to GST of $1,927.90. Most of the disbursements – $127,671.25 – are for counsel’s fees.[28]
[28] Affidavit of Ms A 12.05.2020, [39], [40]; annexure “O”, page 167, this being the sum of the fees of $115,475, $7,796.25, and $4,400
On 22 March 2019 Ms A sent a letter to the applicant in which she noted that the Suburb B property was due to settle on 16 April 2019. Ms A requested the applicant inform her “what you propose in relation to the payment of your legal fees and any arrangements in that regard”.[29] The applicant replied by email sent on 29 March 2019 stating she is disputing the costs.[30]
[29] Affidavit of Ms A 12.05.2020, [27], [28]; annexure “I”, page 121
[30] Affidavit of Ms A 12.05.2020, [29], [30]; annexure “J”, page 122
Assessment of C Lawyers costs
On 2 April 2020 C Lawyers lodged an application for assessment of its costs pursuant to s.198 of the LP Law.[31] On 24 April 2020 the applicant lodged the Applicant’s Costs Submissions. The application for costs was referred to a costs assessor who, as I have already noted, on 8 July 2019 determined C Lawyers’s costs and disbursement to be $336,238.61.
[31] Affidavit of Ms A 12.05.2020, [33], [34]; annexure “L”, page 126
The costs assessor found C Lawyers did not make the disclosures s.174 of the LP Law required it to make before briefing counsel; it did not make appropriate disclosures during 2015 or 2016 “when it was clear the costs for any final hearing in the matter would exceed $82,500, by a significant amount”; and, for those reasons, there “was a serious failure to advise in advance of increased costs and disbursements generally” which, “[i]n those circumstances, s178(1) provides that the costs agreement is void”.[32] Notwithstanding these findings, the costs assessor:
a)assessed the costs charged by C Lawyers by reference to the rates specified in the STE, but disallowed the work charged to administrative staff ($28,039.60), and reduced the hourly rates charged to work carried out by particular lawyers: $350 plus GST instead of $422 plus GST for “F”, a lawyer with one year’s post admission experience (resulting in a total reduction of $30,102); $410 plus GST instead of $510 plus GST for “G”, “an accredited specialist” admitted in 2000 (resulting in a total reduction of $3,152); $340 plus GST instead of $440 plus GST for “H”, a lawyer admitted in 2017 (resulting in a total reduction of $252); and, in the case of Ms A, $490 plus GST instead of $540, resulting in a total reduction of $14,578;
b)allowed $3,500 plus GST instead of $6,300 for “sundries”; and
c)deducted $3,650 from the last bill from Mr E.
[32] Affidavit of Ms A 12.05.2020, [39]-[40]; annexure “O”, pages 165-166, [42]
C Lawyers intervene in FCoA proceeding
In the meantime, on 8 April 2019 Henderson J granted C Lawyers leave to intervene in the FCoA proceeding. Her Honour also made the following order:[33]
The husband and wife hereby forthwith direct J Lawyers to pay the sum of $100,000, due to the wife under Orders made 13 March 2019, to C Lawyers to be held in a controlled monies account in the wife’s name, pending further Order. The Court notes this money is held pursuant to an equitable lien.
[33] The nature of “equitable lien” to which this order refers is that considered by Campbell J in Firth v Centrelinkand Anor [2002] NSWSC 564
On 16 December 2019 Henderson J, by consent, ordered that the $100,000 that by that time had been paid into a controlled account maintained by C Lawyers be released to C Lawyers “in partial payment of legal fees and disbursements owed by the mother to” C Lawyers “pursuant to the Certificate of Determination of Costs”.
Applicant’s grounds for setting aside bankruptcy notice
The grounds on which the applicant relies for setting aside the bankruptcy notice are stated in affidavits the applicant made on 19 March 2020, 9 April 2020, and 17 May 2020. The applicant is not a lawyer, and the affidavits do not appear to have been prepared with any legal assistance. I propose to read those affidavits in that context.
As I read her affidavits, the applicant relies on two grounds to set aside the bankruptcy notice. The first is contained in the following paragraph of the applicant’s affidavit of 19 March 2020:[34]
I still have an intention to pay the Respondent the remaining legal fees upon settlement in accordance with the agreement made between the parties prior to their termination of the retainer. The Responded [sic] confirmed this arrangement as recently as 7 March 2019 . . . .
[34] Applicant’s affidavit, 19.03.2020, [18]
From this, I infer the applicant claims as follows:
a)C Lawyers approved a deferred payment arrangement under which the applicant would become liable to pay C Lawyers’ legal fees only in the circumstances provided for by the terms of the Retainer Agreement;
b)at the time C Lawyers applied to have its costs assessed, none of the circumstances for the payment of C Lawyers’ legal fees had crystallised;
c)at the time C Lawyers applied for the issue of the bankruptcy notice, the only circumstances giving rise to a liability by the applicant to pay any of C Lawyers’ legal fees was the order Henderson J made on 8 April 2019 authorising the payment to C Lawyers’ controlled account of $100,000 out of the proceeds of sale of the Suburb B property; and the applicant had fulfilled her obligations under that order; and
d)in those circumstances, at the time C Lawyers applied for the assessment of its costs, and for the issue of the bankruptcy notice, the applicant was under no obligation to pay any of C Lawyers’ legal fees.
These claims give rise to issues that would include the following:
a)In what circumstances did the relevant provisions of the Retainer Agreement, properly construed, permit C Lawyers and the applicant to terminate the Retainer Agreement?
b)Did the applicant at the meeting of 5 March 2019 say words to the effect deposed to by Ms A in her affidavit? If so, did that have the effect of terminating the Retainer Agreement? If so, how, and by when?
c)If the applicant did not say words to the effect deposed to by Ms A, or if the applicant did say words to that effect, but those words by themselves did not operate to terminate the Retainer Agreement, was the Retainer Agreement terminated? If so, how, and by when?
d)Whether or not the Retainer Agreement was terminated, what relevance, if any, does or did the Retainer Agreement have to: (i) the applicant’s liability to pay any of C Lawyers’ legal fees; (ii) C Lawyers’ ability to apply to have its costs assessed; and (iii) C Lawyers’ ability to recover its fees?
The second ground on which the applicant relies to set aside the bankruptcy notice is the claim that C Lawyers’ applying for the issue of, and serving on the applicant, a bankruptcy notice constitutes an abuse of process. The applicant claims that C Lawyers “is attempting to pursue the bankruptcy notice to its finality for a private purpose; putting pressure on me to reach an early and unfavourable settlement and usurp the power of the Family Court rather than for the proper purpose of obtaining payment for creditors”.[35] This ground potentially overlaps with the first ground to the extent it claims that, given the terms of the Retainer Agreement, and the applicant’s claim that she did not terminate that agreement, it is not open to C Lawyers to seek to recover its costs until the determination of the FCoA proceeding.
[35] Applicant’s affidavit, 19.03.2020, [22]
Whether order for transfer should be made
It is now necessary to consider whether an order should be made under s.35A(2A) of the Act.
Principles
Subsection 35A(2A) of the Act provides:
If a proceeding is pending in the Federal Circuit Court, the Federal Circuit Court may, on the application of a party to the proceeding or on its own initiative, transfer the proceeding to the Family Court.
The equivalent provision under s.35A(1) of the Act for transferring a proceeding from the Federal Court of Australia to the FCoA has been considered by a number of authorities; and these were identified by Collier J in Combis v Jensen (No 2):[36]
The question whether bankruptcy-related proceedings should be transferred from the Federal Court to the Family Court has been considered in a number of cases by this Court. So, for example, the respondent has drawn my attention to the following cases:
oIn re Sabri; ex parte Sabri v Brien (1995) 60 FCR 131 Davies J held that the proceedings should be transferred to the Family Court because there was a possibility of conflict between potential orders of the Federal Court and the Family Court, and also because there was an issue concerning a possible equitable interest of the wife in relevant property with which the Family Court could properly deal.
oIn re Sharpe ex parte Powell v Donnelly [1996] FCoA 896 Lindgren J found that issues of efficiency and economy of judicial administration resulted in the case being appropriate to transfer, in light of the fact that issues touching the nature and extent of the assets and liabilities, income and expenditure of the husband required determination in the Family Court.
oIn Sutherland, in the matter of Khanafer [2000] FCoA 463 Madgwick J ordered the proceedings be transferred to the Family Court notwithstanding that the application was made by the non-bankrupt wife three days before the matter was listed for hearing in the Federal Court. In that case his Honour was persuaded that in the circumstances it would be reasonable for the Family Court to determine issues as to the reasonableness of the marital property settlement between the parties, and that costs would be lower if the matter was determined in the Family Court.
oIn Official Trustee in Bankruptcy, the Trustee of the Property of Phillip Martin Higgins v Higgins [2000] FCoA 1850 Tamberlin J ordered that the proceedings be transferred to the Family Court in order to avoid a situation where the an order of the Federal Court might conflict with an earlier order of the Family Court under s 79A of the Family Law Act. His Honour took the view that the fact that there were no existing proceedings in the Family Court was no reason not to order a transfer of proceedings to that Court.
oIn Macks v Edge (2006) 156 FCR 302 Besanko J refused to order that the proceedings be transferred to the Family Court on the basis that the proceedings were nearly ready for hearing in the Federal Court, and the Family Court claim in that case was contingent upon their outcome.
[36] Combis v Jensen (No 2) [2009] FCA 1383, at [58]
The cases to which Collier J referred indicate that the considerations that are particularly relevant to determining whether an order for transfer should be made are whether there is a risk of inconsistent orders or findings being made if the bankruptcy proceeding is not heard with the proceeding pending in the FCoA; and questions of efficiency and economy. As stated more succinctly by Bromwich J in Horne v Tebb, whether a bankruptcy proceeding should be transferred depends on consideration of “efficiency, economy and comity”.[37]
[37] Horne v Tebb [2013] FCA 585, at [16]
Parties’ submissions
At the hearing of the application for transfer the applicant submitted the bankruptcy proceeding should be transferred to the FCoA and heard at the time the FCoA proceeding is heard because C Lawyers have been a party in the FCoA proceeding since the day on which they were granted leave to intervene in that proceeding; C Lawyers have already received payment of about one third of their fees; they are still pursuing recovery of their fees; they always agreed to receive payment of their fees out of the settlement of the FCoA proceedings; their claims to being paid can be heard by the FCoA at less cost; and on 28 February 2020 Henderson J made an order in which her Honour granted the parties in the FCoA proceeding liberty to apply to relist the matter in that proceeding “in relation to any issues arising from the pending bankruptcy of the wife”.
The applicant set out in greater detail the grounds on which she relied in paragraph 23 of her affidavit of 24 April 2017. The applicant there relies on matters that include: C Lawyers have been a party in the FCoA proceeding since 8 April 2019; C Lawyers have already received $100,000 on account of their fees; none of the parties to the FCoA proceeding objects to payment being made to C Lawyers; C Lawyers agreed to a deferred payment plan under which they would be paid; the issues in the FCoA relating to the division of property are complex; C Lawyers is relying on the applicant’s equitable claims to the property of which she has been dispossessed; Henderson J has knowledge of the case; if the bankruptcy proceeding goes ahead the parties in the FCoA proceeding will need to be joined in the proceeding, thus adding to costs; and the applicant has no means of paying the amounts claimed by C Lawyers other than out of the proceeds of sale of the properties that are the subject of dispute in the FCoA proceeding. The applicant also relies on a number of other matters which are unnecessary to repeat in these reasons.
Counsel for C Lawyers, on the other hand, submitted there are no issues common to the bankruptcy proceeding and the FCoA proceeding; and the bankruptcy proceeding is ready to be heard. Counsel further submitted that the bankruptcy proceeding’s being transferred to the FCoA would add complexity, delay, and, therefore costs in the FCoA proceeding.
No order for transfer ought to be made
The applicant’s submissions in support of transfer depend in large part on the correctness of the proposition that C Lawyers agreed it would recover legal fees owing to it out of the proceeds of any money the applicant will receive in connection with the FCoA proceeding. C Lawyers, however, does not agree with that proposition; and the questions whether C Lawyers did so agree and, if so, whether having regard to the events that occurred on and after 5 March 2019 they remain bound by any such agreement, are issues that arise on the first of the grounds on which the applicant relies to set aside the bankruptcy notice; and they may also arise on the second of the grounds on which the applicant relies. The question is whether these issues should be determined by this Court in the bankruptcy proceeding or by the FCoA in the FCoA proceeding. In my opinion, they should be determined in this proceeding.
a)First, the issues are distinct from the questions that are likely to be in issue in the FCoA proceeding. There is therefore no possibility of inconsistent findings or orders being made if the bankruptcy proceeding and the FCoA proceeding are determined by different courts.
b)Second, the other parties to the FCoA proceeding – the husband, his brother, and the brother’s company – have no interest in the determination of the grounds on which the applicant relies to set aside the bankruptcy notice. That would mean that the husband, his brother, and his brother’s company would have to participate in a hearing that would include the leading of evidence and the making of submissions on issues that do not concern them. That would add to the delay and costs of determining the issues in which they do have an interest. The FCoA could, of course, decide to consider as a separate issue the grounds on which the applicant relies to set aside the bankruptcy notice; but that would defeat the purpose for which the applicant applies to have the bankruptcy proceeding transferred to the FCoA, namely, for it to be determined at the time the FCoA determines the matters that are currently before it.
c)Third, parties in the FCoA proceeding (other than the applicant and C Lawyers) would not be necessary parties to the bankruptcy proceeding, and they would have no right to join as parties to the bankruptcy proceeding. Thus, the continuation of the bankruptcy proceeding in this Court will not add to any costs or delay.
d)Fourth, if I were to transfer the bankruptcy proceeding to the FCoA, that might in practical terms resolve in favour of the applicant the first of the two grounds on which the applicant relies for setting aside the bankruptcy notice, namely, that C Lawyers had always agreed they would be paid out of any money the applicant might receive in connection with the FCoA proceedings. That is so because, assuming the applicant succeeds in obtaining an order in the FCoA proceeding for the payment of money to her, the likelihood is that some or all of that money would be subject to an order that it be paid to C Lawyers. Thus, if an order transferring the bankruptcy proceeding is made C Lawyers would in practical terms be denied the opportunity to contend that by no later than 15 March 2019 its fees have been due and payable by the applicant.
Disposition and further progress
I propose to order that the application for transfer be dismissed. I also propose to order that the applicant pay the respondent’s costs, and that those costs be assessed by me. I will direct C Lawyers to file and serve an affidavit of its costs within 14 days together with short submissions in relation to costs, and allow the applicant 14 days to file and serve any affidavit and short submissions in reply. I will also direct that the parties inform me whether they would consent to my assessing costs on the materials the parties may file and serve.
That, then, leaves me to consider what further steps should be taken. I assume that at the hearing of the application to set aside the bankruptcy notice the parties will rely on the material on which they relied in relation to the application for transfer, much of which I have set out in these reasons. I will, however, permit the parties an opportunity to file further evidence. One potentially important issue is what was said at the conference of 5 March 2019, and in conversations which the evidence suggests may have occurred after that conference. If the parties intend to rely on conversations it may be necessary for them to put into an affidavit their recollection of the effect of what was said, and that the effect of the conversations should be set out in direct speech. The parties may wish to consider including in any further affidavit they may file emails that are referred to in the evidence to which I have referred but a copy of which has not been annexed to any of the affidavits to which I have referred.
I therefore propose to order that the applicant file and serve any further affidavit on which she intends to rely within 14 days, and for C Lawyers to file any further affidavit on which it intends to rely within 14 days after the applicant files any further affidavit. When I pronounce my orders I will set down for hearing the application to set aside the bankruptcy notice at a time and day convenient to the parties.
Potential issues in relation to Costs Certificate
There is one matter I wish to raise; and that relates to the Costs Certificate. The applicant does not make any claim about the Costs Certificate; she accepts she is liable to pay the costs recorded in the Costs Certificate. Nevertheless, on the material before me, there may potentially arise issues of the sort I considered in Obrart v Grego,[38] where I held that in certain circumstances a bankruptcy court can go behind a judgment based on a costs certificate if there are substantial reasons for questioning the validity of a costs certificate because the costs certificate was issued on the basis of a costs determination that may be affected by jurisdictional error. I propose, therefore, to invite the parties at the hearing of the application to set aside the bankruptcy to make submissions on the following questions:
[38] Obrart v Grego [2017] FCCA 929, at [52]-[72]
a)Is it open to the Court to invite the parties to make submissions on the following matters?
b)Assuming (a) is answered in the affirmative:
i)When assessing the $252,423.90 professional fees component of the costs claimed in the tax invoice of 15 March 2019: (A) did the costs assessor go no further than assess the reasonableness of the hourly rates at which the work described in the tax invoice was performed, and that the costs assessor did this by reference to the level of experience of the lawyer who performed the work? or (B) did the costs assessor instead go further and direct her mind to and consider whether the legal costs for the work described in the tax invoice were fair and reasonable for the work so described having regard to the matters identified in s.172(2) of the LP Law, to the extent they are applicable?
ii)When assessing the $127,671.25 disbursements for counsel’s fees: (A) did the costs assessor proceed on the basis that because the applicant did not provide “any objections to the quantum of counsel’s fees” the costs assessor was not required to direct her mind to and consider whether the legal costs claimed by counsel for the work they described in the invoices they issued were fair and reasonable for the work so described having regard to the matters identified in s.172(2) of the LP Law, to the extent they are applicable? (B) Whether or not the costs assessor proceeded on such basis, did the costs assessor direct her mind to and consider whether the legal costs claimed by counsel for the work they described in the invoices they issued were fair and reasonable for the work so described having regard to the matters identified in s.172(2) of the LP Law, to the extent they are applicable?
iii)When considering whether the legal costs described in the tax invoice of 15 March 2019 are fair and reasonable, did the costs assessor have regard to “whether the legal costs conform to any applicable requirements of this Part, the Uniform Rules and any fixed costs legislative provisions” (see s.172(3) of the LP Law), and in particular, did the costs assessor have regard to there having been “no disclosure as required prior to the briefing of counsel”, and a “a serious failure to advise in advance of increased costs and disbursements generally”? If so, how?
iv)Assuming (i)(A) or (ii)(A) is answered in the affirmative; or (i)(B), (ii)(B), or (iii) is answered in the negative, would the costs determination on the basis of which the Costs Certificate was issued be affected by jurisdictional error such as to give rise to a substantial reason for questioning whether behind the amount recorded in the Costs Certificate which was registered as a judgment there was in truth and reality a debt due to C Lawyers?
I certify that the preceding sixty (60) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 5 June 2020
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