Ziman v McKellar
[2018] FCCA 3401
•23 November 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ZIMAN v MCKELLAR | [2018] FCCA 3401 |
| Catchwords: BANKRUPTCY – Application for sequestration order – whether preconditions for making sequestration order satisfied – whether order on the basis of which the creditor’s petition is based represents a true debt – whether there is any sufficient cause why sequestration order ought not be made – sequestration order made. |
| Legislation: Australian Constitution ss.72, 75 |
| Cases cited: Burrell v Reavill Farm Pty Ltd & Ors [2014] FCCA 1449 |
| Applicant: | DEREK ERROL ZIMAN |
| Respondent: | DONALD CAMPBELL MCKELLAR |
| File Number: | SYG 2016 of 2018 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 14 November 2018 |
| Date of Last Submission: | 14 November 2018 |
| Delivered at: | Sydney |
| Delivered on: | 23 November 2018 |
REPRESENTATION
| Counsel for the Applicant: | Mr I Chatterjee |
| Solicitors for the Applicant: | Ziman and Ziman Solicitors |
| Respondent, in person |
ORDERS
The estate of Donald Campbell McKellar is sequestrated under the Bankruptcy Act 1966 (Cth).
The applicant’s creditor’s costs (including reserved costs) be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
THE COURT NOTES THAT
The date of the act of bankruptcy is 16 June 2018.
A copy of this order is to be provided to the official receiver in Sydney within two business days.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2016 of 2018
| DEREK ERROL ZIMAN |
Applicant
And
| DONALD CAMPBELL MCKELLAR |
Respondent
REASONS FOR JUDGMENT
Introduction
Before me is an application for a sequestration order against the estate of the respondent, Mr McKellar. The act of bankruptcy on which the applicant, Mr Ziman, relies is Mr McKellar’s failure to comply with the requirements of a bankruptcy notice issued on 15 May 2018.
The bankruptcy notice is based on an order made on 10 May 2018 by another judge of this Court (FCC Judge) that Mr McKellar pay Mr Ziman’s costs fixed in the amount of $11,924 (Order). The Order was made in a separate proceeding Mr Ziman brought in which he sought a sequestration order against the estate of Mr McKellar based on a different debt. In the circumstances I will set out later in these reasons, the FCC Judge made the Order in the absence of Mr McKellar after Mr McKellar had paid the debt on which the creditor’s petition was based.
Mr McKellar, who is not legally represented, has filed a notice of grounds of opposition to the creditor’s petition stating two grounds. The first is that the “Costs Summary upon which the Costs Order the subject of these Proceedings was based, was fraudulent”. The second ground is that Ms McKellar “has never had the opportunity to satisfy the Court that he has a counter-claim, set-off or cross demand, equal to or exceeding the amount claimed in the Bankruptcy Notice”. At the hearing before me Mr McKellar said he does not submit he has any claim against Ms Ziman. In the course of the hearing, however, it became apparent that in addition to the grounds stated in his notice of grounds of opposition, Mr McKellar was also relying on the circumstances in which the FCC Judge made the Order.
Statutory framework, some principles, and questions arising
Before the Court can make a sequestration order it must be satisfied that the matters specified in s.43 and s.52(1) of the Bankruptcy Act 1966 (Cth) (Act) have been proven. These include the matters stated in the creditor’s petition, and that the debt or debts on which the petitioning creditor relies is or are still owing. The Court must also be satisfied that the relevant provisions of the Federal Circuit Court (Bankruptcy) Rules 2016 (Bankruptcy Rules) have been complied with, subject to the Court’s discretion to dispense with compliance with those rules. [1] If the Court is satisfied with the proof of the matters specified in s.43 and s.52(1) of the Act, and that the requirements of the Bankruptcy Rules have been met (or their compliance otherwise dispensed with), the Court may make a sequestration order. If the Court is not so satisfied it must dismiss the petition, or if it is satisfied by the debtor that he or she is able to pay his or her debts, or “that for other sufficient cause a sequestration order ought not be made”, the Court may dismiss the petition. [2]
[1] See Burrell v Reavill Farm Pty Ltd & Ors [2014] FCCA 1449 at [48]
[2] Act, s.52(2)
It will be apparent that an application for a sequestration order must be based on the debtor owing the petitioning creditor a debt. In most cases the relevant debt will be constituted by a judgment debt. That will be the case where the act of bankruptcy on which the creditor relies is the debtor’s failure to comply with the requirements of a bankruptcy notice. If the judgment debt has been paid before the date of the hearing of the creditor’s petition, the Court may decline to make a sequestration order. Even if, however, the judgment debt remains unpaid as at the date of hearing of the creditor’s petition, a bankruptcy court has a discretion to “go behind the judgment” if “substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner”.[3] Where the Court is satisfied such substantial reasons exist, the petitioning creditor will bear the legal burden of proving the judgment records a true debt.[4]
[3] Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 at page 225 (Barwick CJ)
[4] Cheung v Burness (Trustee) [2016] FCA 1381 at [79] (Moshinsky J)
There are other matters that it would be relevant to mention at this point, and these arise out of the nature of a judgment, what is inherent in the notion of going “behind a judgment” in general, and what is inherent in going behind a judgment or order of a judge of a court that has been created under s.72 of the Constitution. I begin with the following observations of Fullagar J in Corney v Brien:[5]
Generally speaking, a judgment at law for a sum of money creates an obligation of its own force. The pre-existing obligation, which the judgment is intended to enforce, merges in the new obligation so created, and, for most purposes as between the parties, it is conclusive evidence of the existence of the obligation which it creates. . . . It has, however, been well settled for very many years that in a court having jurisdiction in bankruptcy a judgment has no such conclusive effect. The court will in many cases, as is commonly said, “go behind” the judgment and inquire into the existence of the debt upon which it is said to be founded.
[5] (1951) 84 CLR 343, at pages 353-354
This passage may suggest that the principles relating to going behind a judgment only apply where there is a “debt” that has been merged into the judgment, and that a bankruptcy court’s jurisdiction does not extend to where what has merged into the judgment is a cause of action for an unliquidated amount. Although the cases dealing with “going behind” judgments of which I am aware have involved judgments based on an asserted pre-existing debt or claim for a liquidated sum, I am unaware of any authorities that have held or suggested that a bankruptcy court’s jurisdiction to go behind a judgment does not apply to judgments given on causes of actions or claims for unliquidated amounts. I am aware of one example, however, where it has been assumed that the principles relating to going behind judgments apply to a judgment or order in which there has been merged a claim for an unliquidated amount. That example is the Full Federal Court’s judgment in Lowbeer v De Varda.[6]
[6] [2018] FCAFC 115
In that case the debts on the basis of which the creditor’s petition was presented were constituted by orders of the Federal Court of Australia for the payment of costs that had been assessed by a judge of that Court. The primary judge found that the orders did not reflect true debts because the beneficiary of the orders was not entitled to an order for costs; and he was no so entitled because he did not incur any liability to pay costs in connection with the proceeding in which the costs orders were made. The beneficiary of the costs orders did not appear to contend before the Full Federal Court that the primary judge could not inquire into whether there were substantial reasons for questioning whether the beneficiary of the costs order was entitled to the order for costs; the primary ground of attack was directed to the factual findings the primary judge made. Nevertheless, the Full Federal Court did not say it was not open in the circumstances of that case for this Court to inquire into whether there were substantial reasons for questioning whether the beneficiary of the costs order was entitled to the order.
In the case before me, and as recognised by counsel for Mr Ziman, Mr McKellar is seeking to go behind the Order. The Order was made in response to Mr Ziman’s claim for costs. Although Mr Ziman’s claim for costs consisted of particular amounts, the claim itself was not in truth a claim for a liquidated amount because there was no pre-existing liability on the part of Mr McKellar to pay any of the amounts claimed in the “Invoice” to which I refer below, or to pay an amount calculated by reference to the rates on which amounts claimed in the “Invoice” were calculated. The Order was made in response to a claim that the Court fix, that is, assess, the amount of Mr Ziman’s costs. Assuming, then, as in my opinion is the case, the principles relating to going behind a judgment apply to a judgment or order based on claims for unliquidated amounts, and in particular, to claims for the fixing of costs, going behind such judgement or order involves considering whether there are substantial reasons for questioning whether the judgment or order should have been made. Further, given that judges of courts created under s.72 of the Constitution are amendable to the constitutional writs provided for by s.75(v) of the Constitution,[7] going behind a judgment of such a judge may also involve considering whether there are substantial reasons for questioning whether the judgment is not amendable to a constitutional writ. That will usually require consideration of whether there are substantial reasons for questioning whether the judgment was made without any jurisdictional error.
[7] See the discussion and authorities discussed by Kirby J in Re McBain; ex Parte Australian Catholic Bishops Conference [2002] HCA 16, at [167]
From this outline of the relevant statutory framework, and principles that apply in that framework, two broad questions arise. The first is whether Mr Ziman has proved that which s.43 and s.52(1) of the Act require to be proved, and whether he has otherwise complied with the relevant provisions of the Bankruptcy Rules. Assuming that question is answered in the affirmative, the second question is whether any of the matters on which Mr McKellar relies constitutes some “other sufficient cause” why a sequestration order should not be made. More particularly, the question is whether there are substantial grounds for questioning whether the Order was correctly or validly made.
Proof of matters specified in s.43 and s.52(1) of Act
As I have already noted, the act of bankruptcy on which Mr Ziman relies is Mr McKellar’s failure to comply with a bankruptcy notice. The relevant bankruptcy notice was issued on 15 May 2018 and demanded payment of $11,924. That represents an order made by this Court on 10 May 2018. There is no question, therefore, that Mr Ziman is a creditor of Mr McKellar.
A process server served the bankruptcy notice on 26 May 2016 by leaving a copy of it in a letterbox at an address in Hampton Victoria.[8] That is the address for service Mr McKellar has given in the notice of appearance he has filed in this proceeding, and the address he has given in an affidavit Mr McKellar swore on 21 September 2018. I find, therefore, that the address of the letterbox in which the process server placed the bankruptcy notice was Mr McKellar’s last known address, that the bankruptcy notice was served in the manner permitted by reg.16.01(c) of the Bankruptcy Regulations 1996 (Cth), and that it was served on 26 May 2018.
[8] Affidavit of Service of Bankruptcy Notice, H M Steele, 30.05.2018
Mr McKellar did not comply with the requirements of the bankruptcy notice within 21 days of service.[9] That means that Mr McKellar committed an act of bankruptcy within the meaning of s.40(1)(g) of the Act. The act of bankruptcy, therefore, occurred on 16 June 2018.
[9] Creditor’s petition, [4]
Mr Ziman filed a creditor’s petition with this Court on 19 July 2018. The application has been filed in accordance with the prescribed form,[10] and, as required by s.47 of the Act, Mr Ziman has sworn an affidavit verifying the creditor’s petition.[11] Mr Ziman also filed at the time he filed the creditor’s petition an affidavit required by r.4.04(1)(a) of the Bankruptcy Rules,[12] and an affidavit of service of the bankruptcy notice, as required by r.4.04(1)(b).[13]
[10] Bankruptcy Rules, r.4.02(1); Form B6
[11] Bankruptcy Rules, r.4.02(2)
[12] Affidavit of Search, D E Ziman, 19.07.2018
[13] Affidavit of Service of Bankruptcy Notice, H M Steele, 30.05.2018
As required by r.4.05 of the Bankruptcy Rules, the creditor’s petition was served on Mr McKellar on 14 September 2018, being more than five days before the date fixed for the hearing of the creditor’s petition, together with the affidavit required by r.4.04(a) of the Rules, and the affidavit of service of the bankruptcy notice.[14]
[14] Affidavit of Service of Creditor’s Petition, H M Steele, 17.09.2018. The creditor’s petition and the other documents were served pursuant to an order for substituted service made on 6 September 2018.
Finally, at the hearing on 14 November 2018, Mr Ziman swore from the witness box to the truth of matters contained in a document titled “Affidavit of Debt & Search”.[15] I permitted this to be done in substitution of that which was required by r.4.06(3) and r.4.06(4) of the Bankruptcy Rules because no affidavits as required by those rules had been sworn by the time of the hearing. I adopted this course pursuant to r.1.06(1) of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules) because I was of the view that it was not in the interests of justice that there be strict compliance with r.4.06(3) and r.4.06(4) of the Bankruptcy Rules in circumstances where the requirements of those rules could be met by Mr Ziman giving evidence from the witness box.
[15] Exhibit B
In these circumstances, I am satisfied Mr Ziman has proved the matters he is required to prove under s.43 and s.52(1) of the Act and that, subject to the matters on which Mr McKellar relies, a sequestration order should be made against the estate of Mr McKellar.
Facts relevant to matters on which Mr McKellar relies
The first step in determining whether the matters on which Mr McKellar relies constitute some “other sufficient cause” why a sequestration order ought not be made is to identify the relevant facts. Most of the evidence is contained in documents annexed to the two affidavits Mr McKellar has filed.
In early 2018 Mr Ziman, who is a solicitor, filed a creditor’s petition with this Court. The creditor’s petition had been set down for hearing before the FCC Judge on 10 May 2018.
On 8 May 2018 Mr Ziman sent an email to Mr McKellar in which he stated the following:[16]
[16] Affidavit D C McKellar 21.09.2018, exhibit DCM-1
For the avoidance of any doubt please note that the amount in respect of costs that I shall be seeking is the lumpsum [sic] amount of $6,493.00 as per Schedule 1.
If you wish to effect payment you should add the sum of $15,973.02 making a total of $22,466.02.
It is not clear to what Mr Ziman intended to refer by the words “as per Schedule 1”.
By 10:22 am on 9 May 2018 Mr McKellar had paid $13,172.52 into Mr Ziman’s trust account, and Mr McKellar’s son paid $2,800.50 into Mr Ziman’s trust account.[17]
[17] Email from Mr Ziman to Mr McKellar, Affidavit D C McKellar 29.10.2018, pages 20-21
At around 12:15 pm on 9 May 2018 a lawyer, Mr Faba, sent an email to Mr Ziman.[18] Mr Faba said he acted for Mr McKellar. He also said that “the full amount claimed has now been paid and the petition must be dismissed”. Mr Faba then referred to the “‘lump sum’ costs” of $6,493, and asked Mr Ziman to “confirm what this lump sum is made up of”. Mr Faba said he presumed it consisted of $1,980 “per 14.2 of the Federal Court Rules 2011”, proper disbursements, and “[s]ome other lump sum available under the FCC Rules for the balance”, and he requested that Mr Ziman “please itemise these”.
[18] Affidavit D C McKellar 29.10.2018, page 20
Mr Ziman responded by email at 12:29 pm on 9 May 2018.[19] He said:
The lump sum amount of costs is the amount that I shall be asking the Court to award on the basis of all the circumstances of the matter. It is obviously a matter for the Court’s discretion but if I’m obliged to do so I shall prepare a comprehensive bill of costs that will be substituted for the lump sum amount.
[19] Affidavit D C McKellar 29.10.2018, page 19
Mr Ziman also said that although money had been deposited into the trust account, no authority had been given by Mr McKellar or his son to permit Mr Zia to transfer the amounts paid to discharge the debt on the basis of which the creditor’s petition had been filed. Mr Ziman then said:
We have arranged that your client wishes to cross examine the witness who will be available tomorrow for that purpose. A proper hearing has been arranged at your client’s instance and Counsel has been properly briefed. I note your view that the matter should be dismissed with no order as to costs. In my opinion that view is baseless and I can assure you that will not happen.
I have given your client the figure for the amount of costs required to be paid and once that amount is paid and the amounts in my trust account are properly authorised and withdrawn I will be prepared to withdraw the brief from Counsel, appear tomorrow before The FCC Judge and have the matter dismissed.
You will appreciate that your client has been messing me around for an inordinate length of time and continues to try to do so. I will not allow this to continue and I am continuing, with Counsel, to prepare for tomorrow’s hearing. I expect you to be in Sydney and represent your client at that time.
It appears that by 5.06 pm on 9 May 2018 Mr McKellar had paid the debt owing to Mr Ziman. At that time Ms McKellar sent an email to “NSWRegistrarSupport” (copied to Mr Ziman) in which he said he has paid the debt, and requested that he “be allowed to again to appear by telephone tomorrow”, noting that “the only question now remaining should be as to the matter of costs which I will be seeking to have ordered to be agreed or taxed in lieu of agreement”.[20]
[20] Affidavit D C McKellar 21.09.2018, exhibit DCM-2
At 9:08 am on 10 May 2018 Mr Faba sent an email to Mr McKellar which forwarded an email Mr Ziman sent to the associate to the FCC Judge and to Mr Faba at 8:44 am on the same day.[21] The email from Mr Ziman to the FCC Judge’s associate was as follows:
The Respondent Debtor paid the amount of the claim yesterday but I have been unable to come to an arrangement with him regarding the costs. There will be no hearing on the merits of the matter today so his Honour may be able to adjust his schedule. I am sorry that this notice is so late but there was much in the way of to and fro communications yesterday. The Respondent Debtor has appointed a lawyer to whom I am copying this email despite him not having served on me a sealed Appearance.
I attach an unsworn affidavit containing a Costs Summary and shall be seeking an Order that my costs be paid by the Respondent Debtor. I shall have the sworn version of the affidavit at Court when the matter is called.
[21] Affidavit D C McKellar 21.09.2018, exhibit DCM-3
Attached to Mr Ziman’s affidavit was an affidavit titled “Affidavit – Costs Summary” which stated it attached a “draft Invoice setting out what I believe are the reasonable costs that are claimable by me in this matter by way of a “Lumpsum” amount”. The attached “Invoice” contains details of work to which there is assigned time and an hourly rate of $650 (exclusive of GST). It also lists disbursements. The “Invoice” claimed a total of $11,924.28 (inclusive of GST).
In his email to Mr McKellar, Mr Faba advised Mr McKellar he should “urgently email the Associate copying Ziman correcting him saying you are acting for yourself and I was assisting in negotiations only, hence no filing of appearance, and that you again seek to be heard via telephone”. In response to Mr Faba’s advice, Mr McKellar forwarded the email he had received from Mr Faba to “NSWRegistrarSupport” (copied to Mr Ziman) and stated as follows:[22]
Please review the attached. Mr. Ziman has incorrectly assumed that I am being legally represented. Let me reiterate that I am self represented and I will be available via telephone this morning on . . . .
[22] Affidavit D C McKellar 21.09.2018, exhibit DCM-4
The matter was called by the FCC Judge at 9.58 am.[23] The following exchange took place about the non-appearance of Mr McKellar:
[23] The transcript of the hearing before the FCC Judge is in evidence - Affidavit D C McKellar 29.10.2018, pages 22ff
[FCC JUDGE]: . . . . you said there was a solicitor who is appearing but are they not here today; is that correct?
MR ZIMAN: No, your Honour. And I received an email yesterday evening and again this morning from the debtor which was addressed to a registrar of the Federal Circuit Court asking for leave to appear by telephone.
[FCC JUDGE]: Yes. Well, that hasn’t been granted, and he should be here or he should have his representative here.
MR ZIMAN: Yes.
[FCC JUDGE]: I realise the registrar – they attached an order in respect to the registrar but this was a substantive hearing and I would not have granted leave to appear by telephone at a substantive hearing. . . .
The FCC Judge then asked whether the appropriate course might be for the creditor’s petition to be stood over to provide the parties an opportunity to negotiate costs. After Mr Ziman said he really doubted whether he would be able to negotiate anything with Mr McKellar, the following exchange occurred:
[FCC JUDGE]: So you seek an order for costs, do you, in the sum identified of the letter …..
MR ZIMAN: I do, yes, your Honour.
[FCC JUDGE]: Very well. I don’t need to hear from you further, Mr Ziman.
MR ZIMAN: Thank you.
[FCC JUDGE]:
(1) The creditor’s petition is dismissed.
The court orders:
(2)The respondent pay the creditor’s costs fixed in the amount of $11,924.28.
On 21 May 2018 Mr McKellar lodged for filing an application in a case seeking an order that the Order be set aside “on the basis that the costs ordered were manifestly excessive in that they did not comply with Schedule 3 of the Federal Court Rules 2011”, and also on the ground that Mr McKellar “was denied natural justice in that I had requested that I attend the hearing of his matter via telephone but I was not contacted and orders were made “ex-parte” despite my availability to attend”.[24] Mr McKellar also lodged an affidavit in support.[25] The Registry rejected the lodgement of the application in a case. The explanation for the rejection is contained in an email sent to Mr McKellar on 30 May 2018:[26]
In regards to the rejection of your Application in a Case on file SYG247/2018:
The application was not accepted for filing by Chambers. No leave was granted to the respondent to appear by telephone. The respondent’s failure to appear in person was with knowledge of the hearing date. A deliberate failure to appear does not enliven the powers to set aside the order. The Court is functus officio.
[24] Exhibit C
[25] Exhibit C
[26] Exhibit C
Parties’ submissions
At the hearing before me Mr McKellar submitted that the statement made in the email sent to him on 30 May 2018 that the “Court is functus officio” is not correct. He submitted that on 10 May 2018 the matter should have been adjourned indefinitely, and Mr McKellar should have “been given liberty to appeal”. Mr McKellar further submitted that:
a)the costs that Mr Ziman claimed should have been assessed in accordance with the Federal Court of Australia Costs Practice Note (FCA Costs Practice Note);
b)the FCA Costs Practice Note gives a very detailed description of what can be charged for, and what rates can be charged;
c)although solicitors who perform work for themselves may be able to recover costs “via the Chorley exception”, there “is also consideration of those matters in the” FCA Costs Practice Note;
d)given the matters referred to in (a), (b), and (c), Mr McKellar “could not contemplate under what basis” Mr Ziman had drawn up the “Invoice”, and if Mr McKellar appeared before the FCC Judge he “would have been pointing all those things out at the time”;
e)the amount claimed by Mr Ziman was excessive because it contained charges for GST that were not applicable, and the hourly rate of $650 was excessive; and
f)basically, Mr Ziman’s claim for costs “was not drawn up correctly in the first place under the legislation”.
Mr Chatterjee, who appeared for Mr Ziman, submitted the FCC Judge had power under r.13.02 of the Bankruptcy Rules to make a lump sum order for costs, and the amount for which the FCC Judge fixed Mr Ziman’s costs was within the range of amounts for which it was reasonably open to the FCC Judge to fix. Mr Chatterjee also submitted that Mr McKellar was aware of the hearing, he was put on notice that Mr Ziman would be seeking costs, and Mr McKellar was aware that although he had requested to appear by telephone, the FCC Judge had made no order permitting him to appear by telephone.
Substantial reasons for questioning correctness or validity of Order?
The FCC Judge’s making of the Order was the product of the exercise of three discretionary powers. One is the power conferred by r.13.01C(1)(e) of the FCC Rules which provides that, if a party to a proceeding is absent from a hearing, the Court “may proceed with the hearing generally or in relation to any claim for relief in the proceeding”. The second discretionary power is that conferred by s.32 of the Act which provides that the “Court may, in any proceeding before it . . . make such orders as to costs as it thinks fit”. The third discretionary power relates to the assessment of costs the Court has ordered a party pay. That power is conferred by r.13.01 of the Bankruptcy Rules which provides:
(1)Subject to Division 13.2, a person who is entitled to costs in a proceeding to which the Bankruptcy Act applies is entitled to costs in accordance with Part 40 of the Federal Court Rules 2011 unless the Court otherwise orders.
(2)In making an order or costs, the Court may fix the amount of the costs.
(3)If the Court fixes the amount of costs, Part 40 of the Federal Court Rules 2011 does not apply to a bill of costs submitted for the costs, except for the issue of a certificate of taxation.
When considering whether there are substantial reasons for questioning whether the Order should have been made, it is necessary to consider two questions in relation to the exercise of each of the three discretionary powers. The first is whether there are substantial reasons for questioning whether the occasion for the exercise of each power was present. The second is, assuming the occasion for the exercise of each power was present, whether there are substantial reasons for questioning whether the discretion was not lawfully exercised. That is to be assessed, at least in part, by reference to the following principles:[27]
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. Unlike courts of criminal appeal, this court has not been given a special or particular power to review sentences imposed upon convicted persons. Its authority to do so belongs to it only in virtue of its general appellate power.
[27] House v The King (1936) 55 CLR 499 at pages 504-505 (Dixon, Evatt, McTiernan JJ)
The lawfulness of the FCC Judge’s exercise of the powers I have identified is also to be assessed by reference to the grounds on which a decision of a judge of a court created under s.72 of the Constitution is amendable to a constitutional writ under s.75(v) of the Constitution. Those grounds will at the very least include acts or omissions that would lead the judge to make a jurisdictional error.
There are no substantial reasons for questioning that the occasion for the exercise of each of the powers I have identified had arisen. Mr McKellar did not appear at the hearing of 10 May 2018, which meant r.13.03C(1) of the FCC Rules was engaged. As for the power conferred by s.32 of the Act, by the time of the appointed hearing of the creditor’s petition, Mr McKellar had paid the debt on which the petition was based. Given there was no supporting creditor, that meant that the creditor’s petition had to be dismissed, and that was an occasion on which the power of the Court under s.32 of the Act to order costs could be exercised. Finally, there is no substantial reason to question that Mr Ziman applied for an order that the Court fix the amount of the costs Mr Ziman was seeking. That engaged r.13.01(2) of the Bankruptcy Rules. That meant the Court had the power to fix the amount of Mr Ziman’s costs without Mr Ziman having to claim his costs either by providing a short form bill of costs (as provided for by r.13.03 of the Bankruptcy Rules), or by submitting a bill of costs and disbursements (as provided for by r.13.04 of the Bankruptcy Rules). That is so because r.13.03 and r.13.04 of the Bankruptcy Rules are contained in Division 13.2 of the Bankruptcy Rules, and r.13.02(2) provides that Division 13.2 “does not apply if the Court fixes the amount of the costs”. Thus, contrary to Mr McKellar’s submissions, the FCC Judge made no error only because the FCC Judge fixed Mr Ziman’s costs by reference to a rate or form not provided for under the Federal Court Rules 2011 (Cth) or the FCA Costs Practice Note.
The next question is whether there are substantial reasons for questioning the lawfulness of the manner in which the FCC Judge exercised the discretionary powers that resulted in the making of the Order. As to the FCC Judge’s exercise of the power under r.13.03C(1)(e) of the FCC Rules, the transcript of the hearing before the FCC Judge on 10 May 2018 indicates the FCC Judge was aware that Mr McKellar had requested that he appear by telephone, and the FCC Judge refused to grant Mr McKellar the opportunity to appear by telephone because the FCC Judge took the view that Mr McKellar or his representative ought to have appeared in person. There was nothing before the FCC Judge that ought reasonably to have suggested to him there was some adequate reason why Mr McKellar did not appear at the hearing.
Next there is the exercise of the power under s.32 of the Act to order that Mr McKellar pay Mr Ziman’s costs. The FCC Judge gave no reasons for making such order. That by itself, however, does not give rise to a substantial reason for questioning the correctness or validity of the order that Mr McKellar pay Mr Ziman’s costs. As the plurality in Penfold v Penfold said:[28]
Judges very frequently make orders for costs without giving reasons or making findings, even when costs are in issue. The absence of reasons or findings does not in itself indicate that a judge has erroneously exercised his discretion to award costs, though it will place an appellate court in the position of examining the circumstances and of determining for itself whether the circumstances show that the discretion was erroneously exercised (Kent v. Kent (1970) 92 WN (NSW) 503, at p 505). Accordingly, in the absence of some positive legislative indication we should not attribute to Parliament the requirement that a judge must make particular findings in relation to an order for costs.
[28] [1980] HCA 4; (1980) 144 CLR 311, at pages 315-316.
On the information that was before the FCC Judge, Mr McKellar had paid in full the debt on the basis of which Mr Ziman presented the creditor’s petition. On its face that indicated Mr McKellar had no reason for not having paid the debt other than an inability or a difficulty in doing do, and that Mr Ziman’s resort to bankruptcy proceedings was reasonable and justified. These matters raise no substantial question that the FCC Judge properly exercised the discretion under s.32 of the Act to order costs against Mr McKellar.
That leaves the question of the FCC Judge’s exercise of the power under r.13.01(2) of the Bankruptcy Rules. The FCC Judge gave no reasons for accepting Mr Ziman’s claim that his costs be fixed in the amount of $11,924. Given the passage from the judgment of the plurality in Penfold v Penfold I set out above, the FCC’s Judge’s not giving reasons for fixing Mr Ziman’s costs for the amount he did does not by itself give rise to a substantial reason for questioning the validity of the Order. If anything, the exclusion by r.13.02(2) of the Bankruptcy Rules of the provisions of Division 13.2 of the Bankruptcy Rules when the Court makes an order fixing costs might be considered consistent with its not being necessary for the Court to give reasons or to make findings when making an order under r.13.01(2). In any event, the question that arises is whether, given the amount for which the FCC Judge fixed Mr Ziman’s costs, there is a substantial reason for questioning the FCC Judge correctly exercised the discretion conferred by r.13.01(2) of the Bankruptcy Rules. In my opinion no substantial reason for questioning the correct exercise of the discretion arises. Mr Ziman supported his application for costs with an itemised account; and although the amount Mr Ziman claimed, and for which the FCC Judge fixed Mr Ziman’s costs, might be at the upper end of the range of what might be considered reasonable, there is no substantial reason to question that the amount is within that range.
Even if there were substantial reasons for questioning the reasonableness of the amount for which the FCC Judge fixed Mr Ziman’s costs, that would not give rise to a substantial reason for questioning the validity of the Order. At most it would reduce the amount for which costs could be awarded. There is nothing to suggest that Mr Ziman’s costs could reasonably have been assessed at less than $5,000, being the minimum amount of the judgment or order for which a bankruptcy notice can issue under s.41(1) of the Act. In those circumstances “the Court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced and would not support a finding that there was, in truth, no debt at all”.[29]
[29] Katter v Melhem (No 2) [2014] FCA 1176 at [77] (Wigney J)
Other matters
There are three further matters I should address. The first relates to Mr Ziman having represented himself in the proceeding in which the Order was made and to the Order’s relating to work Mr Ziman carried out as a solicitor.
Mr McKellar acknowledged that Mr Ziman, although representing himself, could recover costs for the work he performed because Mr Ziman is a solicitor; and Mr McKellar was aware that a name attached to the rule that permitted this – the “Chorley principle”. That is a reference to London Scottish Benefit Society v Chorley, Crawford and Chester[30] which has been treated as authority for the principle that a party to litigation who is a solicitor is entitled to recover costs for the work the solicitor has done in the litigation. Mr McKellar suggested that special considerations, however, apply to assessing costs for work done by self-represented lawyers, although, understandably, Mr McKellar did not identify what those considerations are.
[30] (1884) 13 QBD 872
In Wilkie v Brown,[31] Beazley P (with whose reasons McColl and Gleeson JJA agreed) reviewed the authorities that have considered Chorley, including the judgments of the High Court in Guss v Veenhuizen (No 2), [32] and concluded as follows:[33]
Thus, where a statute provides a general power to award costs, and that power as framed does not limit or define it in any relevant way, Guss v Veenhuizen is authority that costs may be awarded to solicitors appearing for themselves.
[31] [2016] NSWCA 128
[32] [1976] HCA 57; 136 CLR 47
[33] [2016] NSWCA 128, at [29]
Section 32 of the Act is a “general power to award costs” and, for that reason, it was open to the FCC Judge to award costs for the work Mr Ziman, as solicitor, performed in representing himself in the proceeding in which the Order was made.
The second matter relates to the reasons for the Registry rejecting Mr McKellar’s application in a case given in the email sent to Mr McKellar on 30 May 2018. That email discloses no lawful basis for refusing Mr McKellar’s application in a case. That, however, does not affect the findings I have already made about the making of the Order, because the rejection of the application in a case occurred after the Order was made, and, for that reason, played no role in the making of the Order. Unfortunate as the rejection of the application in a case may have been, Mr McKellar had other rights available to him, and in particular, the right to apply to the Federal Court of Australia for leave to appeal against the Orders.
The third and final matter I should note is that although Mr McKellar has alleged fraud in his grounds of application, there is nothing before me that suggests Mr Ziman engaged in any fraud.
Conclusion and disposition
Mr Ziman has satisfied the matters necessary to enliven the power under s.52(1) of the Act to make a sequestration order. I am not satisfied there are any substantial reasons for questioning the debt constituted by the Order on the basis of which Mr Ziman has presented his creditor’s petition. I am otherwise not satisfied there is sufficient cause why a sequestration order ought not be made. I propose, therefore to make such order.
I certify that the preceding fifty (50) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Date: 23 November 2018
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