Vaughan v Pagotto
[2006] FMCA 1287
•22 August 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| VAUGHAN v PAGOTTO & ORS | [2006] FMCA 1287 |
| BANKRUPTCY – Bankruptcy notice – judgment debt arising from solicitor/client costs assessments – counter‑claim in professional negligence – could not have been set up before the costs assessors – bankruptcy notice set aside. |
Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(6A), 41(7)
Federal Court Rules (Cth), O.62
Legal Profession Act 1987 (NSW), s.198L
Genovese v BGC Construction Pty Ltd [2006] FCA 105
Glew v Harrowell of Hunt & Hunt Lawyers(2003) 198 ALR 331
G P W Aussie Exports v Latin & Anor (1998) 85 FCR 324
Muriniti v Lyons [2004] NSWSC 135
Wentworth v Rogers [2006] NSWCA 145
| Applicant: | JOHN BERNARD VAUGHAN |
| Respondent: | ANTONIO B PAGOTTO & ORS T/AS WALTERS SOLICITORS |
| File Number: | SYG89 of 2005 |
| Judgment of: | Smith FM |
| Hearing date: | 22 August 2006 |
| Delivered at: | Sydney |
| Delivered on: | 22 August 2006 |
REPRESENTATION
| Counsel for the Applicant: | Applicant in person |
| Counsel for the Respondent: | Mr J Boyd |
| Solicitors for the Respondent: | Cameron Gillingham Boyd |
ORDERS
Bankruptcy Notice NN 3318 of 2004 dated 16 December 2004 is set aside.
The respondents must pay the applicant’s costs, including reserved costs, as agreed or taxed in accordance with Order 62 of the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG89 of 2005
| JOHN BERNARD VAUGHAN |
Applicant
And
| ANTONIO B PAGOTTO & ORS T/AS WALTERS SOLICITORS |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
I have before me an application filed on 12 January 2005 seeking an order that Bankruptcy Notice NN 3318 of 2004 (“the bankruptcy notice”) issued on 16 December 2004 be set aside. The application also sought other orders of a final and interlocutory nature, but the applicant has indicated today that he does not press for those orders.
The bankruptcy notice claimed a debt owed by the applicant to four partners in a legal firm trading as Walters Solicitors, who are the respondents to the present application. The bankruptcy notice referred to a debt of $112,087.71 “as shown in the Schedule”. Paragraph 2 of the bankruptcy notice said:
2.The creditor claims the debt is due and payable by you. A copy of the judgments or orders relied upon by the creditor is attached. At the time of applying for this Notice execution of the judgments or orders had not been stayed.
The Schedule identified in Item 1 “Amount of judgment or orders” a single amount of “$112,087.71”. Item 2, which refers to “Legal costs if ordered to be paid and a specific amount was not included in the judgments or orders”, was identified as “$NIL”. The Schedule showed no interest being claimed.
Attached to the bankruptcy notice were four costs assessment certificates under the Legal Profession Act 1987 (NSW) (“the Legal Profession Act”) which have been filed respectively in the Local Court and District Court, showing costs assessed in relation to three solicitor and client statements of account in the sums of $17,082.72, $77,212.04 and $17,792.95. Two of the certificates contain or affirm separate determinations as to the costs of first instance assessments, and the fourth certificate concerns only such costs. The assessment costs determinations were in the sums of $962.50, $2,197.70 and $1,058.75. Two of the certificates are issued by a review panel, and make provision for unspecified costs of the review to be further determined.
I have not attempted to identify the arithmetic by which the single debt claimed in the bankruptcy notice was calculated, nor the extent to which it included any of the costs of the costs assessment procedures. The applicant before me disavowed reliance on any errors of arithmetic.
He also did not take any objections based on compliance with the requirements of the form of bankruptcy notice, in particular, in relation to the identification of the amount of the judgment or orders relied upon and the proper annexing of certificates of costs determinations. It was, therefore, not necessary for me to enter into a consideration of issues such as were addressed by Lee J in Genovese v BGC Construction Pty Ltd [2006] FCA 105. Nor did the applicant take objection to the bankruptcy notice on the ground that it relied upon a debt in relation to more than one final judgment or order (c.f. G P W Aussie Exports v Latin & Anor (1998) 85 FCR 324).
The basis for the application to set aside the bankruptcy notice was that the Court should be satisfied within the terms of s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”):
… that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained; …
An application to set aside the bankruptcy notice on that ground was made before the expiry of the notice, and has been subject to express extensions of the notice under s.41(6A). There may also have been an automatic extension available to the applicant under s.41(7).
The evidence in support of the application has been unsatisfactorily presented by the applicant, who has represented himself in this proceeding. He presented incomplete sworn evidence, and his tender of further evidence today still left gaps in the relevant evidence. In particular, he has not established the terms of an agreement made between lawyers representing him in separate professional negligence proceedings and the lawyers representing the respondents in those proceedings. However, from the material before me, and from statements from the bar table by the applicant and by the respondents’ representative which were not contested by the other party, I consider that the following facts may be found.
The applicant and a company with which he is associated engaged in protracted litigation at first instance in the Land and Environment Court of NSW, and on appeal in the Supreme Court of NSW, in relation to a development proposal at Byron Bay. They employed the respondents as their solicitors, and at least two of the three costs assessments claimed by the respondents were incurred for their legal services in that litigation. I was told from the bar table that one of the assessments, involving about $17,000, concerned the provision of legal services in relation to another matter, but there is no evidence clarifying this.
When the applicant was served with the two costs assessments relating to his unsuccessful litigation, he sought to challenge them by way of appeal under the Legal Profession Act, firstly to a Costs Review Panel and then by commencing proceedings in the Supreme Court seeking to exercise the limited right of appeal under that Act.
The Supreme Court proceeding had already commenced at the time that the present application to set aside was filed on 12 January 2005. In support of that application, the applicant presented copies of documents which he claimed were the summons in that proceeding and his affidavit in support. These documents fully explain the disastrous failure of the Land and Environment proceedings so far as the applicant was concerned, and, in my opinion, gives some substance to the applicant’s claim that he received incompetent legal advice from the respondents in relation to the commencement and continuing of that litigation.
The applicant today tendered further evidence showing what subsequently happened while his application has been adjourned in this Court. This shows that there were negotiations in the Supreme Court proceedings between his legal representatives and the counsel and solicitors acting for the respondents, Hunt and Hunt, who were instructed, as I am told from the bar table, by LawCover. This reached the stage where the legal representatives of the respondents proposed to the applicant’s legal representative an agreement whereby the Supreme Court cost assessment appeal would be dismissed. The terms of the proposed agreement were conveyed in an email to Hunt and Hunt by their counsel after discussion with the applicant’s counsel:
Subject to agreement that the dollar‑value of the assessed costs as they currently stand will not be challenged further by the plaintiffs [i.e. including the present applicant] by way of appeal from the costs assessor, but in no way admitting those costs are payable to your clients [i.e. the present respondents], the plaintiffs would issue a Statement of Claim out of the professional negligence list of the Supreme Court to claim damages against your clients, including the subject costs being one of the heads of damages.
Your clients in return would agree to take no recovery action whatsoever against anyone involved, i.e. Mr Vaughan, his wife and the Company.
The respondents’ present legal representative before me said that his instructions were that, although an agreement as foreshadowed was in fact entered into by the respondents, the agreement did not advert to the third and separate legal bill for $17,000. However, he conceded that the amount of damages being claimed in the Supreme Court by the applicant exceeded the debt, and each part of it, relied upon in the bankruptcy notice.
The applicant claimed that the foreshadowed agreement between the parties’ legal representatives in the Supreme Court was entered into, but did not present satisfactory sworn evidence showing the exact content of the agreement. However, he tended a statement of claim which was filed in the Professional Negligence List of the Supreme Court in matter no. 20177 of 2005, by him and his company against the respondents, as envisaged by the agreement. The respondents’ representative conceded that this proceeding had commenced and was still on foot.
The initiating process is a well pleaded statement of claim, fully explaining allegations of professionally incompetent advice given to the applicant in relation to the proceedings in the Land and Environment Court and on appeal which I have referred to above. It contains a well particularised claim for damages exceeding $240,000, being amounts of moneys paid by the applicant to the respondents on their accounts, and moneys paid to other lawyers and other persons in relation to the unsuccessful litigation. The particulars in the statement of claim as originally filed do not include seeking recovery or set‑off in relation to the legal accounts which were the subject of the cost assessments, but I am prepared to find that the agreement between the legal representatives envisaged those items being added within the particulars of damages. In any event, even if they are not added as particulars of damages, the amounts already particularised exceed the costs assessments relied upon in the bankruptcy notice.
The statement of claim has an affidavit verifying its allegations of fact, and a certificate by a solicitor under s.198L of the Legal Profession Act certifying that:
… there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim in these proceedings has reasonable prospects of success.
In my view, I am entitled to give weight to the affidavit verifying the pleading and the legal practitioner’s certificate, and also to the contents of the particularised and well pleaded statement of claim, when forming a judgment as to the bona fides and prospects of the litigation which is on foot in the Supreme Court professional negligence list. I have also taken into account the applicant’s affidavits in evidence before me, as to the details of his claim that he suffered losses, including the legal expenses which are the subject of the costs assessments, as a result of negligent professional advice by the respondents.
I consider that the applicant has made out a threshold of merit sufficient to persuade a bankruptcy court to allow him to litigate the claims raised in the Supreme Court, and that they are of the nature of a counter‑claim, set‑off or cross demand against the present respondents in relation to some or all of the legal fees which are the subject of the bankruptcy notice. In this respect, I have been guided by the analysis of Lindgren J in Glew v Harrowell of Hunt & Hunt Lawyers(2003) 198 ALR 331.
It remains for me to address whether his Supreme Court professional negligence claims are claims “that he … could not have set up in the action or proceeding in which the judgment or order was obtained”, being the cost assessment procedure under the Legal Profession Act which allows a solicitor to obtain a final court order for the payment of a legal bill merely by the filing of a costs assessment certificate.
I was referred to one authority in relation to this. In Muriniti v Lyons [2004] NSWSC 135, Dunford J considered the process of cost assessment under the Legal Profession Act, and said:
56Having regard to the status and powers of Costs Assessors and the ordinary meaning of the word “assessor”, I am satisfied that the powers of Costs Assessors are limited to determining the value of the work done or services rendered in circumstances where there is no dispute that costs are payable and the only issue is as to the amount. It is no part of their function to determine whether or when such costs are payable. The matters set out in s 208A which they must, and in s 208B which they may, take into account are all matters relevant to putting a value on the work done or services rendered and the fairness or justice of the amount claimed; but are not matters which relate to the terms of a costs agreement (particularly if oral) and whether any conditions precedent to payment have been fulfilled. The determination of such questions requires the reception of sworn evidence, which can be tested by cross‑examination, and an assessment of such evidence. Costs Assessors do not have the power to deal with such matters.
57For similar reasons it has been held that a Costs Assessor has no power to hear a cross claim by a client against a solicitor based on negligence, nor to award damages: Ryan v Hansen [2000] NSWSC 354, 49 NSWLR 184, supra per Kirby J; or to make an assessment when no costs are presently due and payable: Lace v Younan [1999] NSWSC 1072 per Master Harrison (no bill of costs rendered); Baker v Kearney [2002] NSWSC 746 per Master Malpass (judgment in District Court that applicant for assessment not entitled to costs). I am therefore satisfied that on being notified of the dispute as to the plaintiff’s liability to pay the costs, the Costs Assessor should have declined to make a determination or issued a certificate unless and until such issue was resolved.
58It could never have been the intention of the legislature that where the liability for a debt for costs was disputed, a party to the dispute could render the other party to the dispute liable for the debt without any judicial determination of the disputed issues between them simply by having the value of the work assessed by a Costs Assessor and the certificate of determination registered as a judgment in a court of competent jurisdiction. Yet this is precisely what the defendant has sought to do in the present case.
Santow JA has recently disapproved Dunford J’s opinion that a costs assessor cannot determine the terms of a retainer of a legal practitioner (see Wentworth v Rogers [2006] NSWCA 145 at [42]), but his reasoning does not suggest that a costs assessor also has authority to determine and set‑off a claim in negligence against a liability to legal fees when arriving at a costs assessment determination. I consider that it remains correct that a claim based on negligence in answer to an account for legal services actually incurred under a retainer is not a matter which can be determined by a costs assessor.
I am therefore satisfied that the applicant’s present claim in the Supreme Court professional negligence list is not a claim which could have been litigated before the costs assessor. It would appear to me that the agreement between the legal representatives in the Supreme Court, which led to the termination of the applicant’s costs assessment appeal to the Supreme Court in favour of separate proceedings in the professional negligence list, reflected a similar understanding of the legal situation.
I am therefore satisfied that the applicant is entitled to an order setting aside the present bankruptcy notice, on the ground that he has a counter‑claim, set‑off or cross demand of the character described in s.40(1)(g).
It is therefore unnecessary for me to consider whether, expressly or implicitly in the agreement between the legal representatives, there was any element which rendered this bankruptcy notice an abuse of process, or which might have allowed the applicant to obtain a stay on the orders in the Local Court and District Court in relation to the costs assessments.
In relation to costs in this Court, the applicant seeks an order allowing his legal costs and disbursements to be taxed and paid under the Rules. It is unclear to me whether he actually has any substantial costs which could be covered by a costs order. Certainly before me, and it would seem from the start of the present proceeding, he has not had solicitors on the record of this proceeding. However, this is a matter for a taxing officer, and I do not consider that he should be kept out of a costs order given the outcome of the case.
I accept the point made by the representative of the respondents that the proceeding today might have taken a direction which was not apparent on the documents filed in January 2005. Obviously the dealings between the parties since that time have progressed quite considerably. However, the respondents allowed the adjournments, presumably on the basis that it was preferable to allow the dispute to be first addressed in the Supreme Court rather than this Court. They accepted that up‑to‑date evidence needed to be addressed by the Court, and took a sensible course of not taking technical objections to the informality in which the proceedings were conducted today. In all the circumstances, I do not accept the respondents’ submission that there should be no order as to costs, and I shall make an order in favour of the applicant.
I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 8 September 2006
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