Consideration
67 As Stewart J observed in Nazloomian (at [37]) an allegation of abuse of process is "serious" and cannot be made without a sufficient factual foundation. It is for Mr Alhalek to establish that the issuing of the Bankruptcy Notice constitutes an abuse of process. In that regard he bears a "heavy onus" but it is not necessary for there to be direct evidence of the ulterior purpose. A conclusion as to that purpose can properly be made by way of inference: see Nazloomian at [37].
68 The first basis on which Mr Alhalek contends that the issuing of the Bankruptcy Notice is an abuse of process is that it was issued for an ulterior purpose in that Kells failed to take proper steps to have the Costs Judgment paid or to have Mr Alhalek enter into an arrangement to pay the debt prior to its issue. For the following reasons, I do not accept that is so.
69 First, in this case Kells took steps to enforce the Costs Judgment. It applied for the issue of garnishee notices directed to two authorised deposit-taking institutions (ADI) with which Mr Quintiliani was aware Mr Alhalek held accounts, the CBA and ANZ. Kells was informed by the ANZ that it held insufficient funds to satisfy the Costs Judgment and received no response from the CBA.
70 Two observations can be made about garnishee notices. First, unless the court so orders, there is no requirement to serve an application for a garnishee order on a judgment debtor: see r 39.34(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). Accordingly, in the absence of such an order, which I infer was not made, there was no requirement to inform Mr Alhalek of the garnishee notices issued to the CBA and ANZ. Secondly, it was not incumbent on Kells to apply to serve a garnishee notice on every ADI in order to achieve satisfaction of the Costs Judgment. That is apparent given the requirement in r 39.35 of the UCPR that an affidavit be filed together with an application for a garnishee notice in which the deponent must identify the garnishee, and any debts that are, or are reasonably likely to be, owed by the garnishee to the judgment debtor. That being so, the "scattergun approach" urged by Mr Alhalek is not appropriate or required.
71 Mr Alhalek relies on the fact that he held an account with the NAB as at the period ended 19 March 2020 in support of his contention that Kells failed to take proper steps to enforce the Costs Judgment. However, Kells applied for the issue of a garnishee notice to those ADIs with which it was aware Mr Alhalek had dealings. Given the requirements of the UCPR, that is all that it could do. At the relevant time, Kells was not aware that Mr Alhalek held an account with the NAB. In any event there were insufficient funds in Mr Alhalek's NAB account to satisfy the Costs Judgment as at 19 March 2020.
72 Mr Alhalek submits that there were other steps that Kells could have taken to enforce the Costs Judgment which would have brought it to his attention and may have led to the parties entering an agreement to pay the debt. Those steps include issuing a demand and/or applying for an examination order. According to Mr Alhalek, the latter would have led to Kells becoming aware of his arrangement with F1 Prestige (see [24]-[25] above).
73 The effect of Mr Alhalek's submission is that a party must exhaust all avenues of recovery before resorting to service of a Bankruptcy Notice and, it follows, to do otherwise would amount to an abuse of process. But that is not what the authorities suggest. Rather, the question of whether there was an ulterior purpose in the issue of a bankruptcy notice must be viewed having regard to the facts as a whole and in context. In this case Kells took steps to enforce the Costs Judgment based on the information known to Mr Quintiliani but those steps were unsuccessful.
74 Secondly, while it is apparent that Kells did not serve a demand on Mr Alhalek, that of itself is not sufficient for me to draw an inference that Kells had an ulterior purpose in issuing the Bankruptcy Notice, having regard to other factors.
75 Related to this, and perhaps of more significance, is whether the Costs Certificate, reasons and Costs Judgment were served at the Woollahra Address or at all. As far as Kells was aware, Mr Alhalek was receiving mail at the Woollahra Address. However, there is no evidence that the Costs Certificate and reasons were sent to that address by Kells or that the Costs Judgment was served at that address by Kells. In the Determination, under the heading "Decision", the manager, costs assessment states that "the costs assessor's determination was sent to the same address previously used in the assessment", being the Woollahra Address, and that "none of the correspondence sent to it, appears to have been returned as being unsuccessfully delivered" (see at [29] above). There is no evidence before me, beyond that statement, that the Costs Certificate and reasons were sent to the Woollahra Address by the costs assessor. In his evidence Mr Alhalek says that the Costs Certificate, the reasons and the Costs Judgment were sent to the Woollahra Address but, notwithstanding that, he did not become aware of any of those documents. This was so despite the fact that he checked the post box at the Woollahra Address on approximately a weekly basis.
76 On the basis of the available evidence, I would infer that the Costs Certificate, reasons and Costs Judgment were not sent or served at the Woollahra Address and, even if they were, I accept Mr Alhalek's evidence that he never became aware of those documents. If Kells had sent or served the documents, I would have expected Mr Quintiliani to have given evidence to that effect. His evidence in relation to the Costs Certificate and reasons is simply that they were issued on 8 November 2019. An inspection of the material annexed to Mr Quintiliani's affidavit sworn on 26 May 2020 shows a Costs Certificate annexed to a cover letter dated 8 November 2019 addressed only to Kells.
77 That Mr Alhalek engaged in the Costs Assessment Application by providing submissions on 26 August 2019 and 22 September 2019 can be explained by the fact that the letter from the Supreme Court (see [8(b)] above) was addressed to Mr Alhalek at his email address and the letter from Kells (see [11] above) was addressed to Mr Alhalek at the Woollahra Address, the Paddington Address and his email address. In other words, Mr Alhalek could have become aware of that correspondence by a number of means including by its receipt by email and/or, in the case of the latter, at the Paddington Address.
78 That being so, I accept Mr Alhalek's evidence that he first became aware of the Costs Certificate and, I infer, the Costs Judgment when he was served with the Bankruptcy Notice on 20 March 2020.
79 That fact is of some concern. The absence of service of the Costs Certificate and Costs Judgment does not represent best practice, particularly where the creditor is a firm of lawyers. However, it does not lead me to infer that Kells had any collateral purpose or sought to bring undue pressure to bear on Mr Alhalek in serving the Bankruptcy Notice. While Mr Quintiliani does not explain why, for example, the Costs Judgment was not served, Kells did take steps to enforce the Costs Judgment before resorting to the issue of the Bankruptcy Notice. Those attempts bore no result. That combined with the fact that Mortgage Loan & General, a company with which Mr Alhalek was clearly associated, had gone into liquidation led Mr Quintiliani to believe that Mr Alhalek was likely insolvent.
80 Thirdly, while Mr Alhalek submits that, had Kells contacted him or served a demand prior to issuing the Bankruptcy Notice, he would have acted on it, there is no evidence of what he in fact would have done had that occurred. Indeed Mr Sibley expressly declined to make submissions on "whether [Mr Alhalek] would have instantaneously paid [the] debt" if, for example, a demand had been served on him and, rather, referred to Mr Alhalek's claim of set off.
81 Fourthly, I cannot draw the same inference as was drawn by Stewart J in Nazloomian. In that case his Honour found (at [67]-[75]) that the inference that the bankruptcy notice was issued for an improper purpose could be drawn from a number of matters including that:
(1) there had been a long history of litigation involving Mr Nazloomian and the Royals, the debtors, based on which his Honour drew the inference that Mr Nazloomian had a "propensity to readily resort to court processes for ulterior purposes, and recklessly as to their prospects, including that bankrupting the Royals would give him an advantage in other litigation";
(2) as known to Mr Nazloomian, the Royals had bona fide set off claims;
(3) the debt underpinning the bankruptcy notice was relatively small;
(4) the Royals made a bona fide attempt to secure the debt; and
(5) Mr Nazloomian proceeded to issue the bankruptcy notices with "considerable haste" and without even writing a letter asking them to pay the debt. His Honour noted that, a few weeks after the costs certificate had issued in that case, Mr Nazloomian applied for and was issued a judgment of the Local Court in his favour on the strength of which the first bankruptcy notice was issued. Shortly after the first bankruptcy notice was set aside, Mr Nazloomian again applied for a judgment from the Local Court and one business day later issued the second bankruptcy notice and served it on the Royals.
82 The facts before me are quite different and do not permit the same inference to be drawn. They include that:
(1) Mr Alhalek retained Kells to act for him for over a period of six months;
(2) when Mr Alhalek terminated Kells' retainer in August 2018 he had fees which remained unpaid;
(3) it was not until August 2019, that is, some 12 months later, that Kells filed its Costs Assessment Application;
(4) Mr Alhalek was aware of the Costs Assessment Application and participated in it;
(5) Mr Alhalek did not become aware of the Costs Certificate issued on 8 November 2019 or the Costs Judgment at the time of its issue on 18 November 2019;
(6) on 22 November 2019 Kells sought to enforce the Costs Judgment by the issue of garnishee notices. That attempt was unsuccessful; and
(7) the Bankruptcy Notice was issued on 19 March 2020, some 19 months after Mr Alhalek terminated Kells' retainer and some four months after the Costs Judgment was issued.
83 These facts do not lead me to infer that the Bankruptcy Notice was issued for an improper purpose or ulterior motive, namely to bring pressure to bear on Mr Alhalek to pay the Costs Judgment. The Bankruptcy Notice was issued because, putting to one side the failure to issue a demand or bring the Costs Judgment to the attention of Mr Alhalek, the steps taken to enforce the Costs Judgment had been unsuccessful. Mr Quintiliani was unaware of any source of income from which Mr Alhalek could satisfy the Costs Judgment. This conclusion was reinforced by the fact that Mortgage Loan & General, a company which Mr Quintiliani knew Mr Alhalek had some association with and which had paid a part of the legal fees owing to Kells on Mr Alhalek's behalf, had gone into liquidation. It was following the receipt of the letter from the ANZ that Mr Quintiliani formed the view that Mr Alhalek was probably insolvent and in March 2020 he concluded that the only course open was to issue the Bankruptcy Notice.
84 The second basis on which Mr Alhalek contends that the Bankruptcy Notice is an abuse of process is because he was solvent at the time it was issued. He contends that as at 19 March 2020 he had sufficient assets to meet the Costs Judgment and was otherwise solvent. In that regard Mr Alhalek relies on his arrangement with F1 Prestige and a statement of account dated 31 March 2020 which discloses that he had net equity of $385,000 in or with F1 Prestige.
85 In Sandell v Porter (1966) 115 CLR 666 at 670-671 Barwick CJ (with whom McTiernan and Windeyer JJ agreed) said the following about the assessment of solvency:
Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due.
86 Mr Alhalek has not provided any evidence of his ability to pay his debts as they fall due out of his own assets beyond the arrangement with F1 Prestige. While he may have had available to him cash reserves of $385,000 at 24 hours' call as at 31 March 2020, he provides no evidence of his liabilities beyond the Costs Judgment let alone of his financial position in its entirety. Thus, no proper assessment can be made of his solvency or otherwise. Accordingly, Mr Alhalek has not established that the issue of the Bankruptcy Notice was an abuse of process because he was solvent at the time of its issue.