Wilson, Allen John v Taaff, John Francis

[1997] FCA 1304

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - application to set aside bankruptcy notice - debtors not notified by former solicitor of proceeding relating to costs order - order as to costs made against them - debtors allege a collateral agreement was made with the creditor to limit the quantum of costs - alleged negligent failure of debtors’ legal advisors to voice set-off or cross-claim - whether such “could not have been set up in the action” - whether appropriate to go behind judgment

Bankruptcy Act 1966 (Cth), s 40

Autodesk v Dyason (No. 2) (1993) 176 CLR 300, applied
Walton v National Mutual Life Association A/Asia Ltd (1994) 49 FCR 406, applied

ALLEN JOHN WILSON AND ANOR v JOHN FRANCIS TAAFF
NG 7881 of 1997

MADGWICK J
SYDNEY

27 NOVEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7881  of   1997

BETWEEN:	ALLEN JOHN WILSON AND JOY PATRICIA WILSON APPLICANT
AND:	JOHN FRANCIS TAAFF RESPONDENT
JUDGE:		MADGWICK J
DATE OF ORDER:		27 NOVEMBER 1997
WHERE MADE:		SYDNEY

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The application to set aside the Bankruptcy Notice be dismissed.

1. The time for compliance with the Bankruptcy Notice be extended for twenty-eight (28) days, commencing 6 November 1997.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7881 of 1997

BETWEEN:	ALLEN JOHN WILSON AND JOY PATRICIA WILSON APPLICANT
AND:	JOHN FRANCIS TAAFF RESPONDENT

JUDGE:	MADGWICK J
DATE:	27 NOVEMBER 1997
PLACE:	SYDNEY

REASONS FOR JUDGMENT

MADGWICK J:  This was an application to set aside a Bankruptcy Notice which I dismissed, reserving my reasons.  These are the reasons.

The notice was served on the applicants (“the Wilsons”) in July 1997.  The notice was expressed to be in respect of a debt of $21,644.43, made up of $18,951 for legal costs and the balance for interest (pursuant to rule 8 of the Federal Court Rules).  The judgment or order upon which the debt was based was an order made by Merkel J on 23 May 1996 in a proceeding in the Victorian Registry (No. NG 326 of 1993) that the Wilsons pay Mr Taaff’s costs, and a subsequent order (pursuant to Order 62 Subrule 45(3) of the Rules) quantifying the sum to be paid, following upon taxation of those costs. 

As Merkel J remarked in the judgment which gave rise to the costs order, the saga is a “hard luck story” for the applicants.   Mr Wilson had an innovative idea for a soft toy which he called the “Hollywood Horse”.  In late 1992 the debtors met the creditor/respondent, Mr Taaff and agreed to give him a licence to use the invention.  They had sought to obtain appropriate intellectual property for it and had achieved the registration of the design under the Designs Act 1906 (Cth). Mr Taaff used, as his vehicle for the project, a company the name of which was later changed to Hollywood Toys (Australia) Pty Ltd. The licence agreement was entered into between the debtors and that company. In consideration of a licence fee of $28,000 to be paid over the six months from March 1993, a trademark called “Hollywood Horse” which the debtors owned, and what were apparently mistakenly thought to be patent rights in connection with the toy, were made available to the company. The company also agreed to pay $7,000 pursuant to a clause of the agreement which obliged it to pay “renewal fees for the patent and trademark ... due and payable on or about December 1992”, although it seems that the $7,000 was actually owed by the debtors to their then patent solicitors.

In March 1993, after he had become aware of the error in respect of patent rights, Mr Taaff caused a notice of termination of the licence to be given and thereafter commenced developing his own toy horse based on a prototype of the applicants.  In March 1993 the Wilsons sued Mr Taaff in the Magistrate’s Court of Victoria for the $7,000 as a “debt pursuant to an agreement”, and gave as particulars that Mr Taaff had agreed to pay the said sum on behalf of the plaintiffs to certain patent attorneys in consideration of the Wilsons’ entering into an agreement with the company.  At the hearing, the matter was settled part-heard on the basis that the Wilsons discontinue the proceedings and the parties would bear their own costs. 

In August 1993 the Wilsons commenced the proceedings referred to above in the Victorian Registry of this Court seeking, among other things, an injunction against the company, Mr Taaff and other named respondents, to restrain them from manufacturing a toy horse that the company was producing and which was known as the “Aussie Brumby”.  Mr Taaff alleges that, before the licence agreement was signed, Mr Wilson represented to him and the company that European and New Zealand patents existed and that a full USA patent was pending, as well as that a full patent had been granted in respect of the Hollywood Horse toy in Australia.  But it seems that these patents had not been obtained, were not kept up or did not provide the degree of intellectual property protection which had been represented.  In the notice of termination which Mr Taaff had caused to be issued, the company claimed that it was discharged from its liabilities under the licence agreement. 

On the material before me, despite assertions by Mr Wilson to the contrary, it seems that the Federal Court proceedings were only about the protection of intellectual property rights by injunction and by seeking accounts of profits, and that no claim was ever made for the sum of $28,000 referred to in the agreement.  It may be that the representations, which, as indicated in Merkel J’s judgment, were a mistake made by Mr Wilson, accounted for this decision.

In the proceedings before me, Mr Wilson (on behalf of his wife and himself) firstly suggested that Mr Taaff owed them $35,000 being the sum of the licence fee of $28,000 and an amount of $7,000, said to be the value of certain property connected with the intended marketing of the toy which had not been returned to them by Mr Taaff.  Mr Taaff says that all such property was returned in April 1993.  Secondly, Mr Wilson alleges that Mr Taaff had agreed that the parties should pay their own costs, or at worst they should be shared equally, if there were any legal proceedings as to intellectual property between the Wilsons on the one hand and the company or Mr Taaff on the other.  It was alleged that Mr Taaff had agreed to guarantee the company’s financial and other obligations under the licence agreement and, at the same time, had made a collateral oral agreement about the costs of any proceedings which might arise from a dispute about those obligations.

Mr Wilson agrees that the claim for $35,000 might have been made in the action which was ultimately heard before Merkel J and it seems to me that the Court had ample jurisdiction to entertain this claim.  Mr Wilson says, indeed, that he had wanted that claim to be so brought, did not authorise his legal representatives not to pursue it and understood that it was being pursued.  However, it seems that it was not.  Although “breach of contract” had been alleged in the Statement of Claim, Merkel J understood that the matter was only proceeding in respect of a claim against the company and Mr Taaff for infringement of the registered design.  Judgment was given adversely to the applicants by Merkel J on 7 March 1996.  If the claim for the $28,000 and/or the $7,000 for the value of goods allegedly unreturned could amount to a counter-claim, set off or cross-demand equal to or exceeding the sum specified in the Bankruptcy Notice owing to the creditor, it seems to me that there was no legal obstacle to the debtors having raised that claim in the litigation.  If the Wilsons’ legal representatives were negligent in not so raising the claim, that is not a sufficient reason for setting aside the Bankruptcy Notice:  Walton v National Mutual Life Association A/asia Ltd (1994) 49 FCR 406. In any case, on the balance of the materials before me, it does not seem to me that Mr Wilson could have understood that the said claim was in fact to be pursued at the hearing. It seems to me far more likely that, for whatever reasons, a tactical decision was made by the Wilsons to proceed only in relation to the registered design.

I turn to the alleged collateral agreement by Mr Taaff that, in the event of intellectual property proceedings, at worst the costs might be split equally.  Such a claim might possibly stand in a different category, for reasons to do with events which transpired in connection with the making of the costs order.  Before Merkel J reserved his decision, the Wilsons’ counsel had, in addressing his Honour, indicated that if he should find for the Wilsons, it might be useful to permit the parties to try to agree as to costs, since some issues raised in the Statement of Claim had been abandoned in the running of the matter before his Honour (a matter also not without significance for the conclusions expressed in the preceding paragraph hereof).  When his Honour gave judgment, there was attached to his Reasons for Judgment a “Minute of Orders” in the following terms:

“The Court orders that:

(1)      The proceeding be dismissed.

(2)The Applicant pay the First and Third Respondents’ taxed costs of the proceeding.”

When judgment was delivered, the Wilsons were not present in Court but their counsel indicated that, as the judgment was against his clients, there would be no reason for any delay by the Court in making a final order as to costs.  However, on 17 April 1996, a Deputy District Registrar of the Victorian Registry issued what purported to be an order of Merkel J, said to have been made on 7 March, and providing, as to costs, that “the question of costs be reserved for further hearing in default of any agreement between the parties”.

Mr Taaff’s solicitors raised the form of that costs order with the relevant Deputy District Registrar who spoke to Merkel J’s associate.  The associate advised the Deputy District Registrar on 19 April that the 17 April version of the order for costs was correct, being “as per Report of Listing”.  The last-mentioned record was the one from which the Deputy District Registrar had produced the order.  Mr Taaff’s solicitors then raised the matter in writing with his Honour’s associate, among other things, enclosing a letter from the Wilsons’ counsel in the proceeding.  The latter’s account of the matter was this:

“...at the conclusion of the hearing of the above matter I indicated to the Court that if the Plaintiffs were successful, but did not obtain an order for the full amount of their claim, submissions from counsel would be required with regard to costs.  It was on that basis that His Honour Justice Merkel gave leave to the parties to apply if agreement with regard to the question of costs could not be reached.

In the event, however, His Honour gave judgment in favour of the Defendants, whereafter I advised the Court that costs would simply follow the event, and no submissions concerning costs would be required.  My recollection is that His Honour agreed that was the case.”

Ultimately, on 23 May 1996, his Honour clarified the matter by issuing an order in the following terms:

“The Court orders that:

1.That the Applicants pay the First and Thirdnamed Respondents’ taxed costs of the proceeding.”

It seems that the solicitor who had acted for the Wilsons at the time when judgment was given by his Honour on 7 March 1996 had ceased so to act on 28 March 1996.  Nevertheless, that solicitor apparently attended before his Honour on 23 May when his Honour ultimately made the clarifying order and gave confirmation that matters were as asserted by Mr Taaff’s solicitor, who also appeared, and in substance as the Wilsons’ counsel had also asserted. 

The Wilsons received no notice from their former solicitor that there was any question of clarification of the costs orders.  They say that, if that had been known to them, they would have wished to raise with the Court, before any costs order was made, the collateral oral agreement which they claim Mr Taaff had made with them at the time of entering into the licence agreement.  They say they could not have raised that matter before his Honour because they had no notice of the proceedings on 23 May.  They say further that the Court should, in these circumstances, go behind the costs order. 

I think the answers to these submissions are these.  Firstly, there is nothing to indicate that Mr Taaff or his solicitors knew that the Wilsons’ former solicitors were no longer acting for them as at May 1996.  There was therefore no untoward conduct on Mr Taaff’s behalf nor any failure by him to do what he needed to do to apprise the Wilsons of the proceedings of 23 May.  Nor was there any legal impediment to the Wilsons having raised the matter before his Honour at the original hearing.  If the matter was not raised, then it was not.  At worst, it was simply a case of the Wilsons’ solicitor’s failure to raise in the case a matter about which, according to Mr Wilson, he had been instructed and, again, Walton would apply.

In any case, the Wilsons have known of the costs order for a long time.  If his Honour made the costs order without the Wilsons having had an opportunity to be heard, then there is no reason why they could not have approached the Court to vacate the costs order.  There is a broad discretion in the Court to cope with exceptional cases of injustice even after proceedings are concluded, even though in other circumstances the Court would regard itself as functus officio or precluded from again considering the matter:  in Autodesk v Dyason (No. 2) (1993) 176 CLR 300, Mason CJ said (at 302-3):

“.... the public interest in the finality of litigation will not preclude the exceptional step of reviewing or rehearing an issue when a court has good reason to consider that, in its earlier judgment, it has proceeded on a misapprehension as to the facts or the law....  However, it must be emphasized that the jurisdiction is not to be exercised for the purpose of re-agitating arguments already considered by the Court; nor is it to be exercised simply because the party seeking a rehearing has failed to present the argument in all its aspects or as well as it might have been put.  What must emerge, in order to enliven the exercise of the jurisdiction, is that the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing.  The purpose of the jurisdiction is not to provide a backdoor method by which unsuccessful litigants can seek to reargue their cases."

See also Donkin v AGC (Advances) Ltd (unreported, Black CJ, Davies and Whitlam JJ, 30 August 1995).

Thus, to the extent that any collateral oral agreement with Mr Taaff (as alleged by the Wilsons) might have amounted to a basis for avoidance of their liability for costs, I am not
satisfied that they could not have set it up in the proceedings in question.  That not having been done, it is not appropriate that the Bankruptcy Notice should be set aside.

Insofar as a question may remain as to whether the Court should nevertheless go behind the costs order to establish whether there truly was a debt founded thereon, I do not intend to do so.  The suggested collateral oral agreement was, in my opinion, the same kind of claim as Mr Taaff’s alleged oral guarantee of the performance of the company of the licence agreement.  The trial of whether there was any such collateral oral agreement might involve counter-assertions by Mr Taaff that the licence agreement was entered into on the faith of misrepresentations, albeit mistaken ones, made by Mr Wilson.  That entire area could have been raised, as indicated, in the substantive proceedings before Merkel J.  The decision was made not to do so and it is now too late to revisit that decision in proceedings such as are now before me.  If the Wilsons have any valid complaint concerning their solicitors or counsel, they can pursue it elsewhere. 

For these reasons, I dismissed the application to set aside the Bankruptcy Notice.  However, I took the view, if I may say so myself, charitably, and in the hope that the proceedings might be brought to an end after their long history (part only of which I have recounted here), that the time for compliance with the Bankruptcy Notice should be extended for twenty-eight days from 6 November 1997.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment of the Honourable Justice Madgwick.

Associate:       
Date:              27 November 1997

Appearances

For the Applicant:  Self represented
Counsel for the Respondent:     M Barrett
Solicitors for the Respondent:    Frederick Owens and Associates
Date of hearing:  7 November 1997