Corney v Brien

The reference to "discretion" in this context is a reference to the discretion which exists in a court of bankruptcy to examine for itself the matters which underlie the judgment relied upon. In Wren v Mahony at 224-5, Barwick CJ put the matter this way: "... the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor's debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration. It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor's debt is a mere matter of its own discretion. Nothing in Corney v Brien (1951) 84 CLR 343 lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt. The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner." The circumstances in which a court will go behind a judgment cannot be stated in a definitive manner; however there are two guiding principles. First, as Fullagar J said in Corney v Brien at 356-7: "If the judgment in question followed a full investigation at a trial on which both parties appeared, the court will not reopen the matter unless a prima-facie case of fraud or collusion or miscarriage of justice is made out." Secondly, in the same case, Dixon, Williams, Webb & Kitto JJ at 348 cited the remarks of Latham CJ in Petrie v Redmond (1942) 13 ABC at 49 that "... the court looks with suspicion on consent judgments and default judgments". Fullagar J put this point more forcefully when he said at 357-8: "But, wherever the judgment in question is a judgment by default, it appears that the court will always go behind' the judgment if there is what it regards as a bona-fide allegation that no real debt lay behind' the judgment." In the present case, it was not necessary to go behind the judgment of the Local Court in the sense of making any investigation. The facts before the Court demonstrated that the creditor had not been entitled to the judgment and that the creditor had acted in contravention of s 198 of the Legal Profession Act in seeking and obtaining it.

There are, of course, sound reasons of public policy lying behind provisions such as those in s 198 of the Legal Profession Act as it was at the relevant time, and in like statutes in other States of Australia. The requirement for detailed bills of cost giving particulars which enable the bills to be taxed by an appropriate authority provides a necessary safeguard to clients. As Yeldham J said in In Dodd v Gillis (1989) 16 NSWLR 623 at 626: "As is pointed out in Saddington, Legal Practitioners Act 1898-1936 (1937) at 34: `The object of the statute is that the client should receive full particulars of the charges to enable him to check the bill, and further that the solicitor should hold his hand for a month for the express purpose of giving the client an opportunity of ascertaining whether the business was done and whether the charges are reasonable. ...'"

And in a case such as the present, where there is a dispute as to whether Mr & Mrs Udovenko engaged the creditor as their solicitor, it is of course very desirable that they should have particulars knowing what was the work for which the solicitor seeks payment. In my opinion, once it was brought to the Court's notice that the judgment had been obtained in breach of s 198 of the Legal Profession Act and that the creditor had not been entitled to seek judgment as he did, then the Court was bound to conclude that there was not in truth and reality a debt of such a nature as would support proceedings in bankruptcy.

The trial Judge considered that non-compliance with s 198 of the Legal Profession Act did not demonstrate that there was not an indebtedness underlying the judgment of the Local Court. Such non-compliance did, however, show that there was no indebtedness for which the creditor had been entitled to sue and no indebtedness which, by satisfying the terms of s 44(1)(b) of the Bankruptcy Act, would found a petition for bankruptcy. Before the trial Judge and in this Court, the issue of waiver was raised. Counsel for the creditor relied upon the decision of Yeldham J in Dodd v Gillis where his Honour, after examining the relevant authorities, held that a client may expressly waive the protection given to him by such a provision, in that case s 21 of the Legal Practitioners Act 1898 (NSW). In Dodd v Gillis, the submission of waiver was upheld in the circumstance where a detailed statement of account in relation to each of the critical amounts sued for had been provided and the defendant had acknowledged his indebtedness and had agreed to pay the amounts in question. There are no such facts in the present case. The principal matter relied upon by way of waiver is an affidavit by Wolodymyr Udovenko, but that affidavit was sworn and filed after the judgment had been given in the Local Court, after the bankruptcy notice had been served and after the petition had been filed. It does not and could not constitute a relevant waiver. The only other matter relied upon by way of waiver is that no defence relying upon s 198 of the Legal Profession Act was taken in the Local Court proceedings and, indeed, the point was first raised in an affidavit filed in this Court on 20 September 1996. It has not been shown that Wolodymyr or his parents were aware of the provision whilst the proceedings in the Local Court were on foot. The creditor was the solicitor. It was his duty to know the law and to protect his client by complying with it. The learned trial Judge did not find it necessary to decide the point of waiver. In my opinion, the protection of s 198 of the Legal Profession Act was not waived by the applicants expressly or otherwise.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT FOSTER J: I have had the advantage of reading in draft form the reasons for judgment of Davies and Carr JJ. I agree with the orders which their Honours propose and with their reasons for making those orders. I certify that this page is a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.

On appeal from a Judge of the Federal Court of Australia

JUDGE(S): DAVIES, FOSTER & CARR JJ DATE: 28 NOVEMBER 1997 PLACE: SYDNEY

REASONS FOR JUDGMENT CARR J: INTRODUCTION This is an appeal from sequestration orders made against the estates of the appellants by a judge of this Court on 19 February 1997. The appellants also appeal against certain related and consequential orders made by the learned primary judge. It may assist in the understanding of these reasons to appreciate that the petitioning creditor, Mr Alan Bernard Mitchell, is a solicitor attempting to recover from the appellants his fees and disbursements for representing them in certain proceedings in the Supreme Court of New South Wales. It is common ground that Mr Mitchell has not given to the appellants a bill for those costs in a form which complies with s 192 (formerly s 198) of the Legal Profession Act 1987 (NSW). FACTUAL BACKGROUND The first and second-named appellants are husband and wife ("Mr and Mrs Udovenko"). The third-named appellant is one of their two sons ("Wolodymyr"). Mr and Mrs Udovenko have another son Mr Valentyn Udovenko ("Valentyn"). In 1991 a company called Rasevi Pty Ltd ("Rasevi") sued the appellants and Valentyn in the Supreme Court of New South Wales. Those were the Supreme Court proceedings referred to immediately above ("the Supreme Court Action"). The Supreme Court Action was heard by Bryson J on 24 and 25 February 1992. The petitioning creditor, Mr Alan Bernard Mitchell appeared as the solicitor for the four defendants in those proceedings. The proceedings arose out of a business of agisting horses which was allegedly conducted by all four defendants on a property known as "Windarra" in the Hunter Valley. On 12 March 1992 Bryson J gave judgment in favour of Rasevi against the four defendants for $2758. During a period which ended on 20 August 1992 Mr Mitchell made several requests to his clients to pay his costs and disbursements. On 20 August 1992 Mr Mitchell caused a summons to be issued against the appellants and Valentyn in the Local Court at Dungog ("the Dungog Action") to recover those costs and disbursements. That summons was served on the defendants on 5 November 1992. On 2 December 1992 Wolodymyr filed grounds of defence and a supporting affidavit in the Dungog Action. In the meantime Mr and Mrs Udovenko and Valentyn applied, in the Equity Division of the Supreme Court, to set aside Bryson J's judgment. The basis of that application was that, allegedly, Wolodymyr had not bound his parents or brother by the instructions which he had given to Mr Mitchell and that Mr Mitchell had, in law, represented Wolodymyr alone in the Supreme Court Action. On 15 April 1993 Waddell CJ in Equity dismissed the application brought by Mr and Mrs Udovenko, but set aside the judgment against their son Valentyn on the basis that it had not been shown that the Supreme Court Action had come to his knowledge. [On 3 September 1996 the New South Wales Court of Appeal dismissed an appeal by Wolodymyr against Bryson J's judgment]. On 9 September 1994 Mr Mitchell filed a notice of motion in the Dungog Action for an order striking out Wolodymyr's ground of defence. The notice of motion and supporting affidavit were served on 21 September 1994. On 13 October 1994, a "certificate of readiness" was served on the appellants. On 3 November 1994 Mr Mitchell recovered judgment (either in default of appearance or on a summary basis - the evidence is silent on that point) against the appellants in the Dungog Action for $24,621.00 plus costs of $110.00 and professional costs of $632.00, making a total of $25,363.00. Interest thereafter accrued on the amount of the judgment. Mr Mitchell caused execution to be issued to enforce the judgment. There were no goods available for seizure, but the writ of execution was registered against the title to certain land owned by Mr and Mrs Udovenko and Valentyn. The writ was registered "as regards" the interests of Mr and Mrs Udovenko. On 19 December 1995 Mr Mitchell procured the issue of the bankruptcy notice ("the bankruptcy notice") which formed the foundation for the petition at first instance in this matter. The bankruptcy notice was issued on the basis of the judgment obtained by Mr Mitchell in the Dungog Action. [It was common ground in all the interlocutory proceedings until the hearing of the petition that the bankruptcy notice was served on 21 March 1996. In fact, although Mr and Mrs Udovenko were served with the bankruptcy notice on that date, it was not served on Wolodymyr until 12 June 1996. This matter has relevance to the third of the three issues which were decided by the learned primary judge.] On 3 April 1996 the appellants, representing themselves, filed an application to set aside the bankruptcy notice. The grounds on which that application was based do not appear from the appeal papers. On the same date a Deputy Registrar ordered, pursuant to what was then sub-s 41(6B) of the Bankruptcy Act 1966 (Cth) ("the Act"), that the time for compliance with the bankruptcy notice be extended to 22 April 1996. By two consecutive consent orders the application to set aside the bankruptcy notice was adjourned until 21 May 1996 and 4 June 1996 respectively and, on each occasion, time for compliance with the bankruptcy notice was extended up to and including each such respective day. On 4 June 1996 at about 10.10 am a Deputy Registrar ordered that the appellants' application to set aside the bankruptcy notice be dismissed and that the appellants pay Mr Mitchell's costs. There was no order for any further extension of the time for compliance beyond 4 June 1996. On 12 July 1996 Mr Mitchell filed a creditor's petition which was returnable on 23 August 1996. The act of bankruptcy on which the petition was based was the appellants' failure to comply on or before 4 June 1996 with the bankruptcy notice. The petition was served on 15 August 1996 with a first return date of 23 August 1996, but the hearing was adjourned on several occasions. On 12 September 1996 the appellants filed a notice of motion in the Local Court at Dungog seeking an order that the judgment of 3 November 1994 be set aside. That motion was returnable on 28 November 1996. The supporting affidavit asserted that Mr and Mrs Udovenko had not been aware of Mr Mitchell's claim against them in the Dungog Action, as their son Wolodymyr had not advised them of it because he considered that the debt was not related to them and he did not wish to worry them. In their affidavit Mr and Mrs Udovenko swore that they wished to defend Mr Mitchell's claim, that Wolodymyr himself had filed grounds of defence in 1994 "and was not aware of the Court date" and wished to have his defence heard. Apparently on the filing of that notice of motion, the Local Court granted an urgent stay of execution on the judgment until 26 September 1996 when the application for a further stay was heard and a decision reserved until 2 October 1996. On 17 September 1996 the appellants filed a notice of intention to appear on the hearing of the creditor's petition. On 1 October 1996 the appellants filed a further application to set aside the bankruptcy notice and for an extension of time for compliance with the bankruptcy notice. That application was referred to the learned primary judge for hearing on that day. Judgment was reserved. Pursuant to arrangements made at the hearing, his Honour was subsequently informed that on 2 October 1996 the Local Court had brought forward and heard the appellants' application to set aside judgment and for a continuation of the stay of execution. The Local Court ordered that both applications be dismissed. On 9 October 1996 the learned primary judge dismissed the appellants' application for an order extending the time for compliance with the bankruptcy notice and published his reasons for that decision. In summary his Honour held that: . the extended time for compliance with the requirements of the bankruptcy notice expired on 4 June 1996; . there was no evidence that a proceeding to set aside the Dungog Local Court judgment had been instituted by the appellants before that date; . the appellants' application to set aside the bankruptcy notice had been dismissed at 10.10 am on 4 June 1996 and had thus ceased to be a current application when the extended time for compliance expired; . on the proper construction of sub-s 41(6A) of the Act, the condition of the existence of the power to extend time was not satisfied by the mere institution of a proceeding or making of an application to set aside, which has been dismissed or otherwise ceased to subsist as a current proceeding or application before the time for compliance with a bankruptcy notice has expired. This was because, so his Honour held, the purpose of an extension of time under sub-s 41(6A) was limited to that of supporting a proceeding or application filed before expiration of the time for compliance with the bankruptcy notice; and . there was thus no proceeding or application satisfying the description in sub-s 41(6A) to which an extension of time could be ancillary, and accordingly the Court lacked power to extend time. After delivering reasons for judgment his Honour dismissed the appellants' application insofar as it sought an extension of time. On 14 October 1996 his Honour dismissed the remainder of that application (i.e. seeking an order setting aside the bankruptcy notice) and made directions in connection with the anticipated hearing of the creditor's petition. THE PROCEEDINGS AT FIRST INSTANCE The learned primary judge identified three issues which arose on the hearing of the creditor's petition. They were:

1. Whether he should exercise the discretion to go behind Mr Mitchell's judgment for the purpose of ascertaining if the appellants were truly indebted to him;
2. (An issue which was related to the first issue) Whether Mr Mitchell was disentitled from bringing the Dungog Action because he had failed to comply with the requirements of the then s 198 of the Legal Profession Act 1987 (NSW) by failing to give a duly itemised bill of costs to the appellants at least one month before instituting those proceedings. A further related issue was, if there had been such a failure to comply, what was the significance of such non- compliance, in relation to the petition?
3. Whether the fact, referred to above in these reasons and apparently raised by his Honour at the hearing of the petition, that Wolodymyr had been served with the bankruptcy notice not on 21 March 1996 (when his parents were served with that notice) but on 12 June 1996, constituted any basis for refusing the creditor's petition. The possible basis for such refusal was the fact that the date of the commission by Wolodymyr of the relevant act of bankruptcy (failure to comply with the bankruptcy notice) was wrongly stated in the petition. It was said to be 4 June 1996 in respect of all appellants, but should have been 3 July 1996 in respect of Wolodymyr.

THE FIRST ISSUE As mentioned above, the judgment debt referred to in Mr Mitchell's petition arose from a claim to fees in respect of services rendered in the Supreme Court Action. So far as Mr and Mrs Udovenko are concerned, they dispute (and still dispute) liability for those fees on the basis that Mr Mitchell was not authorised to represent and appear for them in the Supreme Court Action. His Honour reviewed, in detail, the proceedings which had taken place before Waddell CJ in Eq. in April 1993, part of which involved that very issue. That was the basis upon which Mr and Mrs Udovenko had sought to have set aside, as against them, the judgment given by Bryson J on 12 March 1992. As the learned primary judge in these proceedings noted, Waddell CJ in Eq., for reasons which, in my view, the learned primary judge was entitled to regard as extremely cogent, dismissed Mr and Mrs Udovenko's application and expressly found that they had authorised Wolodymyr to defend the Supreme Court Action on their behalf as he saw fit. Counsel for the appellants had argued at first instance in this matter that because Mr Mitchell was not a party to the Supreme Court Action, no issue estoppel as between him and Mr and Mrs Udovenko arose from the decision of Waddell CJ in Eq. His Honour acknowledged that, but then said: "But it remains a weighty consideration, relevant to the exercise of my discretion whether to go behind the judgment, that the issue whether Mitchell was authorised by Michael and Helen [Mr and Mrs Udovenko] to represent them in that litigation was contested over two days before his Honour when Michael and Helen were legally represented, and was decided against them by his Honour in a 14 page judgment on 15 April 1993." His Honour then analysed, again in great detail, the proceedings which took place in the Dungog Local Court. In particular, his Honour reviewed the applications to set aside the judgment. In both those applications Mr and Mrs Udovenko alleged that Mr Mitchell had not been authorised by them to represent them in the Supreme Court Action. Also in each of those applications there was a complaint that an itemised bill of costs had not been served. His Honour referred to the fact that on 6 November 1996 the appellants and Valentyn had sued Mr Mitchell in the District Court of New South Wales at Newcastle claiming damages for his alleged negligence in the conduct of the Supreme Court Action. At the time of the hearing of the petition, that action was listed for hearing in the District Court on 23 September 1997. His Honour declined to go behind the Local Court judgment, expressing his conclusions as follows: "In the light of the extensive litigation which has already taken place as to Mitchell's retainer to represent Michael and Helen in the Rasevi action, I exercise the discretion vested in me against going behind the judgment for the purpose of ascertaining whether there is an indebtedness of the Debtors to Mitchell for costs. The hearing before Waddell CJ in Eq and the dismissals of the three applications in the Dungog proceeding are strong considerations which weigh against doing so. The issue of authority is essentially a factual one. With respect, it was examined thoroughly by Waddell CJ in Eq." THE SECOND ISSUE His Honour then turned to the second, related, issue which arose out of the requirements of the then s 198 of the Legal Profession Act. That section provided: "198. (1) Proceedings for the recovery of costs incurred by a solicitor in transacting any business shall not be commenced or maintained against any person unless at least one month has passed since the person has been given a bill of the costs so incurred. (2) A bill of costs must be signed by the solicitor or by some other solicitor who is a partner of, or is employed by, the solicitor. (3) It is sufficient compliance with subsection (2) if a letter that is so signed is attached to, or enclosed with, the bill of costs. (4) If the regulations so require, a bill of costs shall be in such form, and contain such particulars, as may be prescribed by those regulations. . . . (7) Nothing in this section prevents the Supreme Court from making an order authorising a solicitor to commence or maintain proceedings against a person before one month has passed since the person has been given a bill of costs, but such an order shall not be made unless the Supreme Court is satisfied that the person is about to leave New South Wales."

The appellants did not dispute that at least one month before Mr Mitchell commenced the Dungog Action on 20 August 1992 he gave a bill of costs, at least to Wolodymyr. The appellants' complaint was that the bills were not "itemised" and that they were not given to Mr and Mrs Udovenko. His Honour referred to a course of judicial decisions which he noted established that, in order to satisfy s 198, a bill of costs must allocate specific charges to items of work. It is common ground (and the evidence tends to confirm this) that the bills rendered by Mr Mitchell were not "itemised" and thus did not amount to bills of costs within the meaning of s 198. His Honour noted that the appellants were not submitting that they were not indebted to Mr Mitchell in the amount for which he obtained judgment. Rather, they were submitting that Mr Mitchell was not entitled to obtain the judgment for the costs owed to him by them which he in fact obtained in the Dungog Local Court and on which the bankruptcy notice was based. Mr Mitchell had submitted at first instance that the appellants, by their conduct from a time prior to being served with the Local Court summons, had waived any defence based on s 198. This included an affidavit sworn by Wolodymyr on 27 August 1996 and filed in these proceedings, in which he said that if the appeal to the New South Wales Court of Appeal should succeed, he would obtain an order, the enforcement of which would enable him to satisfy Mr Mitchell's judgment. The learned primary judge said that he entertained some doubt whether there had been a waiver by Mr and Mrs Udovenko but that in any event he was not persuaded by the appellants' submission based on s 198 of the Legal Profession Act to go behind the Local Court judgment. His Honour said that the chief consideration which persuaded him from doing so was that the particular submission did not go to the existence of an underlying debt in the very amount for which Mr Mitchell obtained judgment. His Honour referred to what he described as two further, albeit less cogent, factors which told against going behind the judgment. One was that in view of Waddell CJ in Eq's finding that Wolodymyr was authorised by his parents to do whatever was necessary on their behalf to defend the Supreme Court Action there was "at least a question whether, for the purpose of s 198, Mitchell's giving of his bill of costs to Wolodymyr amounted to a giving of them to his parents as well". The other was that it was arguable that any non-compliance with s 198 had been waived. His Honour said that for all those reasons he exercised his discretion against going behind the Local Court judgment. THE THIRD ISSUE It will be recalled that this question arose out of the fact that Wolodymyr was served with the bankruptcy notice on 12 June 1996, whereas the petition recited 21 March 1996 as being the date upon which he had been served with that notice. His Honour decided to exercise the power given by para 33(1)(b) of the Act to amend the petition. His Honour stated that there was no prejudice to any party. The effect of the amendment would be to allege that Mr and Mrs Udovenko had committed the relevant act of bankruptcy on 4 June 1996 and that Wolodymyr had done so on 3 July 1996. His Honour stated that this would present no difficulty, because the petition was presented on 12 July 1996 i.e. later than 3 July 1996. His Honour made orders accordingly. THE APPEAL In their supplementary notice of appeal, the appellants seek orders that the creditor's petition be dismissed, or in the alternative that their bankruptcy be annulled. The following is a summary of the grounds of appeal: . The learned judge erred in exercising his discretion in that: - There were proper grounds for questioning the record of the Dungog proceedings; - No or no sufficient consideration was given to the fact that the respondent was not a party to the proceedings before Waddell CJ in Eq; - The legal relationship between the appellants and the respondent was not in issue before Waddell CJ in Eq; - The circumstances of the case gave rise to a substantial or sufficient risk of injustice to warrant the exercise of the Court's discretion. . In the circumstances of the case the Full Court should permit the admission of fresh evidence, namely that pursuant to s 104 of the Justices Act 1902 (NSW), following upon a refusal of Mr O'Keeffe SM to state a case to the Supreme Court, that Court ordered the magistrate to state a case to it on 5 June 1997 concerning the sufficiency of the judgment or judgments of the Dungog Local Court. . The learned judge erred:

• by taking into account and giving weight to the respondent's contention that the appellants had by their conduct waived in part or in whole a defence grounded upon the failure of the respondent to duly itemise and serve his bill or bills of costs;
• in holding that such failure to comply with the provisions of the Legal Profession Act did not give rise to available defences to the claims of the respondent against the appellants;
• in exercising a power to amend the petition; and
• in the circumstances, erred in exercising the discretion conferred by s 52 of the Bankruptcy Act.

SHOULD THE SEQUESTRATION ORDERS BE SET ASIDE? In my view, this appeal can be disposed of solely by reference to the requirements of s 198 of the Legal Profession Act. As his Honour stated in his reasons, this matter was not explored in detail in the submissions made to him on behalf of the appellants. Counsel for the appellants simply submitted that Mr Mitchell had not supplied an "itemised" bill of costs as required by the section and referred to an authority for that proposition. His Honour said: "... the present submission is not a submission that there was not an indebtedness of the Debtors to Mitchell underlying the judgment in the Dungog proceeding. Rather, it is a submission that Mitchell was not entitled to obtain the judgment for the costs owed to him by the debtors which he in fact obtained in that proceeding and on which the bankruptcy notice was based. Consistently with the submission, the Debtors may have been indebted to Mitchell for the very amount of the judgment for which he was entitled to obtain judgment in another proceeding after complying with s 198." With the greatest respect to the learned primary judge, I think that this assessment reads too much into what appears to have been a somewhat short submission. The submission was made in the context of there having been two applications to the Local Court to set aside judgment, each based partly on the complaint that an itemised bill of costs had not been served. That course of conduct, so it seems to me, is more consistent with the appellants seeking to challenge the quantum of Mr Mitchell's various bills. In an affidavit sworn on 8 November 1996 and filed in opposition to the petition, Wolodymyr deposed as follows: "2. I say that I have been trying for 4 years without success to obtain from Mr Mitchell a properly itemised Bill so I could ascertain whether or not work had been properly done. I only received an itemised Bill in October 1996, some 4 years after the Claim on which the Default Judgement is based, and the proceedings are based. I am seeking taxation of the October Bill." On examination, Mr Mitchell's bills reflect a degree of estimation. The word "say" occurs at the end of several of those of the bills which are in narrative form. If those bills were assessed, I think it would be an "extraordinary coincidence" [to use the words of Heerey J in an analogous situation in Jarena Pty Ltd v Sholl Nicholson Pty (1996) 136 ALR 427 at p 429] if the bills as assessed came to the same amount as that claimed by Mr Mitchell. But even if that were the case, there is inherent in the construction placed by the primary judge upon counsel's submission in the Court below, that the appellants were waiving any right to challenge the quantum of Mr Mitchell's fees. His Honour expressed some doubt as to whether there had been a waiver by the appellants of the benefit of s 198 by certain other conduct which I have described above. His Honour referred to that evidence. But that did not relate to the specific issue of the quantum of Mr Mitchell's fees. It is trite law that there can be no waiver without full awareness of the circumstances. I find it difficult to see how the appellants, in the context of their repeated insistence that Mr Mitchell was not entitled to judgment for his fees until he complied with s 198 of the Legal Profession Act, could be taken to have waived any objections which they might otherwise have wished to make to Mr Mitchell's itemised bill of costs, before even having been served with such a bill. The respondent relied (both at first instance and before us) upon the decision of Yeldham J in Dodd v Gillis (1989) 16 NSWLR 623. I think that the factual circumstances in Dodd v Gillis are to be distinguished from the present matter. In that case there was a finding of fact in the Court below that the defendant client accepted the charges rendered by his solicitors as being reasonable and said that he would pay them. The question in this case is whether Mr Mitchell's claim had been sufficiently established and quantified in a legal sense to constitute a debt upon which to found first a bankruptcy notice and secondly a sequestration order based upon failure to comply with that bankruptcy notice? The cases show that a court of bankruptcy needs to be satisfied that the petitioning creditor is owed the money on which the petition is founded before it changes the legal status of a person to that of a bankrupt. In appropriate circumstances, a judgment against that person in favour of the petitioning creditor will not be enough: Corney v Brien (1951) 84 CLR 343; Wren v Mahony (1972) 126 CLR 212. In the present matter, I do not think that the debt upon which Mr Mitchell relied had been sufficiently established and quantified in law to form the foundation of a bankruptcy notice, let alone a sequestration order based upon failure to comply with that bankruptcy notice. Until the procedure referred to in s 198 has been complied with, Parliament has, in mandatory terms ("shall not") prohibited a solicitor from commencing or maintaining proceedings for recovery of costs. Section 44(1)(b) of the Act relevantly provided (and still provides) that a creditor's petition shall not be presented against a debtor unless the debt: "(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and (ii) is payable either immediately or at a certain future time; ..." In my view, a solicitor claiming his fees in contravention of the section which was s 198 but is now s 192 of the Legal Profession Act cannot be said to have a debt which is "payable either immediately or at a certain future time" within the meaning of that phrase in the above sub-paragraph. He or she must first give to the client a bill of costs and thereafter at least 30 days must have passed. Having reached that conclusion, I was fortified to find that another judge, Hill J, had reached a similar conclusion in relation to a comparable provision, s 22 of the Costs Act 1867 (Qld), in Re Devy; Ex parte BBC Hardware Ltd (1996) 67 FCR 355 at pp 356-360. That case was not cited to the learned primary judge, nor was it cited to us on appeal. In Devy a former solicitor of the bankrupt was substituted as petitioning creditor. Her firm claimed an amount of at least $3,000. The bankrupt did not deny having given instructions to that firm or that work had been done for him by the firm. He opposed the petition on the basis that he had at no time been provided with a bill of costs in taxable form. Section 22 of the Costs Act 1867 (Qld) relevantly provided: "No attorney nor any executor administrator or assignee of any attorney or the trustee of his estate shall commence or maintain any action or suit for the recovery of any fees charges or disbursements for any business done by such attorney until the expiration of one month after such attorney or executor administrator or assignee of such attorney shall have delivered unto the party to be charged therewith or sent by the post to or left for him at his counting-house office or business dwelling house or last known place of abode a bill of such fees charges and disbursements ..." Hill J considered an argument, which apparently had not been put by the petititoning creditor, that while no action could be maintained to recover the debt for fees unless and until the bill had been rendered and the time in which a request for taxation might be made has expired, the debt itself was payable immediately i.e. it was only the remedy of recovery of the debt which had been barred, not the right itself. While acknowledging that the argument was "not without substance", his Honour held that it should not succeed in that case. His Honour noted that if the argument were correct, a creditor whose debt, at the time the act of bankruptcy was committed, was statute barred in a jurisdiction where the right remained but the remedy was extinguished, could qualify as a petitioning creditor. His Honour stated that it was "clear in both principle and authority" that this was not so. Hill J relied upon the decision of the High Court of Australia in Motor Terms Co Pty Ltd v Liberty Insurance Ltd (1967) 116 CLR 177. In Motor Terms the High Court considered whether a creditor whose debt was statute barred (the right remaining only, the remedy being barred) before the commencement of the winding up by the filing of a petition, was entitled to present that petition. On the facts, it was found that there had been an acknowledgment of the debt so that it was not statute barred. However, as Hill J noted, the High Court made it clear that had the debt been statute barred at the relevant time, the debtor would not have been entitled to present the petition. His Honour referred in particular to passages from the judgment of Kitto J at pp 180-181 as being apposite in the case which he was deciding. Two of those passages were as follows: "But in construing statutory provisions for the distribution of assets amongst creditors there is a natural presumption that the only creditors in contemplation are those who, by the operation of the relevant statute in the particular case, are denied a right they would otherwise have had to sue for their debts by action or suit under the general law and are given instead a right to participate in the distribution. . . . It is a necessary corollary that a person is not a creditor in the relevant sense if, at the time when a right to come in to receive payments under an official administration of the debtor's assets supersedes an existing right of action or suit, his right of enforcement by action or suit is barred by the Statute of Limitations (if the debt is legal), or would be denied by a Court of Equity on the analogy of the Statute (if the debt is equitable)." Hill J expressed his conclusions in the following terms, with which I respectfully agree: "In the present case, it is clear that at no relevant time (and the reference to "relevant time" includes the time at which the act of bankruptcy is said to have been committed) could Ms Gurnsy be described as a person having a right to sue, such that her right would by a sequestration order be converted to a right to prove in the estate. Her right to sue had been removed by statute and would arise only when a bill in proper form had been sent and the time in which a request to tax that bill had passed. Accordingly, I am of the view that she has not established that she is a creditor with a liquidated debt which is payable either immediately or at a certain time in the future. The most that can be said is that she had a debt which could become payable at an uncertain time in the future, dependent upon whether she presented a bill, and either that bill was taxed or the time within which taxation could be requested had passed." His Honour dismissed the petition. In this matter, although it is not necessary to decide the point, it may well also be the case that Mr Mitchell is precluded by the provisions of s 198 of the Legal Profession Act from filing and proceeding with a creditor's petition. In Jarena, in the context of setting aside a statutory demand, Heerey J (at p 6) said: "I think it would be wrong if that protection [the protection provided by a similar provision in s 61 of the Supreme Court Act 1986 (Vic)] could be effectively bypassed by utilising winding-up proceedings." I do not consider that there was sufficient evidence of any waiver by the appellants of the requirements of s 198 of the Legal Profession Act either before the bankruptcy notice was issued or the petition was filed. In my opinion, the appeal should be allowed and the sequestration orders set aside. The respondent should pay the appellants' costs at first instance and of the appeal. I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment of Justice Carr A/g Associate: Date: 28 November 1997 Counsel for the Appellant: P.E. King with D.R. Alexander

Solicitors for the Appellant: David Bell & Associates

Solicitors for the Respondent: Borthwick Wilson Mitchell