Conway v Insolvency & Trustee Service Australia

REASONS FOR JUDGMENT 1 This is an application for an extension of time to file and serve a notice of appeal from the Administrative Appeals Tribunal (the "AAT"). The applicant is an unemployed pensioner. The background to the matter is that Mr Conway, the applicant, apparently advised by previous solicitors, began a "no win no fee" personal injuries claim against McDonalds Family Restaurants ("McDonalds") in the District Court of New South Wales. 2 Mr Conway lost the case against McDonalds before Judge Delaney in the District Court at Parramatta in July 2001. It is common ground that an order for costs was made against him. It appears from the evidence before me that at no stage has McDonalds ever taken steps to assess or quantify those costs by assessment or taxation. On three occasions, at least, the solicitors for McDonalds, Hunt & Hunt, have indicated that their client does not propose to take any steps to pursue Mr Conway for the costs. 3 A letter from Hunt & Hunt to the Insolvency & Trustee Service Australia dated 26 March 2002 was in the following terms: Thank you for your letter of 20 March, 2002. We confirm our client's instructions that they will not be pursuing costs and that therefore there is nothing owing to this firm. 4 The other communications from Hunt & Hunt were in like terms except one, which was apparently pursuant to a conversation with the respondent's solicitor. In that letter Hunt & Hunt said as follows: We refer to Donna Boyce's telephone conversations with Linda Bushell of our office and as requested set out below an estimate of our client's costs and disbursements which Mr Conway was ordered to pay. We note that recovery was not pursued. 5 There are then set professional costs of $12,203 and disbursements of $11,391.16. There is no evidence as to whether these were full profit costs or some estimate by the solicitor of what might be awarded on taxation or assessment, whether on a party/party basis or otherwise. They were not and did not purport to be taxed costs or an estimate thereof. 6 Mr Conway, having been told by his former solicitors that he might lose his furniture and car and fearing that he would not be able to look after a foster child who lives with him and who apparently suffers from Down's Syndrome, and on the advice of his former solicitors, filed his own petition. 7 His estimate in his statement of affairs of $60,000 owing to Hunt & Hunt was the result of his former solicitor's advice that that could be the worst case scenario. Of course, he never owed any money to Hunt & Hunt. They were solicitors for the successful defendant in the District Court case, McDonalds. The $60,000 estimate arose from what had been told by his former solicitor. When he became apprised of the fact that Hunt & Hunt and McDonalds had no interest in pursuing him whatsoever for his costs he sought his early release from bankruptcy. His other debts were in the vicinity of $4,000. Mr Conway's income for the year prior to his becoming bankrupt was in the order of $13,041. 8 He was disqualified from making an application under s 149Y of the Bankruptcy Act 1966 (Cth) if in terms his unsecured liabilities exceeded 150% of the income that the Trustee determined to have been derived by the bankrupt during the year immediately before the date of the bankruptcy. Therefore, his unsecured liabilities had to be 150% of the sum of $13,041. 9 The Receiver and the AAT apparently took into account the estimate of costs of Hunt & Hunt of $23,594.16 and when added to that sum the amounts that he owed for retail credit his total unsecured debts thereby were said to amount to $28,044.69; thus it was found that he was disqualified from seeking his early release. 10 No attention whatsoever was given apparently by either the Receiver or the AAT to the District Court Act 1973 (NSW) and Rules. There does not appear to have been any adversion to the question as to whether an order for costs with no steps whatsoever taken for taxation at any time created a provable debt in any sum, and indeed in what sum. 11 Reference was made in submissions before the AAT and before me to a section of McDonald Henry and Meek, 5th edition at par 82.1.65, where a passage from Re British Goldfields of West Africa (1899) 2 Ch 7, 11-12 of Lord Lindley MR is quoted. What is relied upon at that passage is as follows: If an action is brought against a person who afterwards becomes bankrupt, for the recovery of a sum of money, and the action is successful, the costs are regarded as an addition to the sum recovered and to be provable if that is provable, but not otherwise. If, therefore, what is recovered is unliquidated damages 'arising otherwise than by reason of a contract, promise, or breach of trust', that sum is not recoverable unless judgment, or at least a verdict for it, has been obtained before sequestration and if the sum recovered is not provable, neither are the costs of recovering it. …On the other hand, if what is recoverable is provable, so are the costs of recovering it. If the action against a person who becomes bankrupt is unsuccessful, no costs become payable by him or out of his estate, and no question as to them can arise. But if an unsuccessful action is brought by a man who becomes bankrupt, then, if he is ordered to pay the costs, or if a verdict is given against him before he becomes bankrupt, they are provable. …On the other hand if no verdict is given against him and no order is made for payment of costs until after he becomes bankrupt, they are not provable. In such a case, there is no provable debt to which the costs are incident, and there is no liability to pay them by reason of any obligation incurred by the bankrupt before the bankruptcy; nor are they a contingent liability to which he can be said to be subject at the date of his bankruptcy… 12 However, if that passage is relied upon as a proposition that, notwithstanding that there have been no steps towards taxation nor ever any intended, there was a provable debt in the amount of the estimate provided by Hunt and Hunt, that question is by no means clear to me. 13 In circumstances where the creditor has apparently indicated on a number of occasions that no steps will be taken to assess or tax the debt, a real issue, it seems to me, arises on the question whether the AAT has failed to take into account a relevant consideration being, as a matter of law, whether the circumstances of the attitude of McDonald's gives rise to any enforceable right as against Mr Conway; secondly, as to whether or not, until such steps as can be taken under the District Court Rules are taken, there is any provable debt; or thirdly, whether, if those steps are not able to be taken by reason of the interposition of the bankruptcy, a proper assessment must be made of taxed costs or assessed costs of which there was no evidence before the AAT. 14 It seems to me that relevant considerations may not have been arguably dealt with by the AAT. These matters may or may not be ultimately successful, but it seems to me there is a real issue as to whether or not the AAT has taken into account, as a relevant consideration, the absence of any evidence whatsoever of what the taxed costs would be. The letter from Hunt and Hunt is their estimate, on its face, of what was incurred. That would not necessarily be the taxed costs for which, whether as an inchoate unliquidated liability after the interposition of the bankruptcy, or as a liquidated debt once taxation had finished, Mr Conway was liable. 15 In these circumstances, and in the circumstances of the explanation of Mr Conway that he was waiting for Legal Aid, I propose to extend the time for Mr Conway to file an application. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop J.