Franks v Warringah Council, in the matter of Franks

A certificate as to the determination of costs issued under s 208J of the Legal Profession Act is annexed to the bankruptcy notice. The certificate sets out a determination made on the application of the Council. It records that the application was determined by assessing a fair and reasonable amount of costs to be paid to the applicant in the sum of $17 592.32. Notes to the certificate disclose that the amount assessed includes a fee of $213.12 paid for the application and the sum of $630.00 being costs of the costs assessor.

STATUTORY PROVISIONS 6 Section 40 of the Bankruptcy Act relevantly provides: '(1) A debtor commits an act of bankruptcy in each of the following cases: … (g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia … a bankruptcy notice under this Act and the debtor does not: (i) where the notice was served in Australia - within the time specified in the notice; or (ii) … comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained; … (3) For the purposes of paragraph (1)(g): … (b) a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action shall be deemed to be a final judgment so obtained and the proceedings in which, or in consequence of which, the judgment or order was obtained shall be deemed to be the action in which it was obtained; …' 7 Section 69 of the Land and Environment Court Act 1979 (NSW) ('the L & E Court Act') relevantly provides: '(1) In this section, "costs" includes: (a) costs of or incidental to proceedings in the Court, (b) in the case of an appeal to the Court, the costs of or incidental to the proceedings giving rise to the appeal, as well as the costs of or incidental to the appeal, and (c) in the case of proceedings transferred or remitted to the Court, the costs of or incidental to the whole proceedings, both before and after the transfer or remittal. (2) Subject to the rules and subject to any other Act: (a) costs are in the discretion of the Court, (b) the Court may determine by whom and to what extent costs are to be paid, and (c) the Court may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on an indemnity basis.' 8 Interest payable on orders made by the Land & Environment Court for the payment of money is governed by s 69A of the L & E Court Act. Section 69A relevantly provides: '(1) If an order is made by the Court for the payment of money, interest is payable at the prescribed rate from the date the order takes effect on so much of the money as is from time to time unpaid, unless the Court otherwise orders. (2) This section does not apply in the case of money ordered to be paid as a penalty. ….' 9 Division 6 of Part II of the Legal Profession Act, which is comprised of ss 199-208V, is headed Assessment of Costs. Section 202 authorises, amongst other things, a person who is entitled to receive costs as a result of an order for the payment of an unspecified amount of costs made by a court to apply to the Manager, Costs Assessment for an assessment of the whole of, or any part of, those costs. Section 206 requires the Manager, Costs Assessment to refer each application for assessment to a costs assessor to be dealt with under Division 6. 10 Sections 208F, 208J and 208K of the Legal Profession Act provide: '208F (1) When dealing with an application relating to costs payable as a result of an order made by a court or a tribunal, the costs assessor must consider: (a) whether or not it was reasonable to carry out the work to which the costs relate, and (b) what is a fair and reasonable amount of costs for the work concerned. (1A) An assessment must be made in accordance with the operation of the rules of the relevant court or tribunal that made the order for costs. (2) A costs assessor is to determine the costs payable as a result of the order by assessing the amount of the costs that, in his or her opinion, is a fair and reasonable amount. (3) If a court or a tribunal has ordered that costs are to be assessed on an indemnity basis, the costs assessor must assess the costs on that basis, having regard to any relevant rules of the court or tribunal. (4) The costs assessed are to include the costs of the assessment (including the costs of the parties to the assessment, and the costs assessor). The costs assessor may determine by whom and to what extent the costs of the assessment are to be paid. (5) The costs of the costs assessor are to be paid to the Manager, Costs Assessment.' '208J (1) On making a determination, a costs assessor is to issue to each party a certificate that sets out the determination. (1A) A costs assessor may issue more than one certificate in relation to an application for costs assessment. Such certificates may be issued at the same time or at different stages of the assessment process. (2) In the case of an amount of costs that has been paid, the amount (if any) by which the amount paid exceeds the amount specified in any such certificate may be recovered as a debt in a court of competent jurisdiction. (3) In the case of an amount of costs that has not been paid, the certificate is, on the filing of the certificate in the office or registry of a court having jurisdiction to order the payment of that amount of money and with no further action, taken to be a judgment of that court for the amount of unpaid costs, and the rate of any interest payable in respect of that amount of costs is the rate of interest in the court in which the certificate is filed. (4) For this purpose, the amount of unpaid costs does not include the costs incurred by a costs assessor in the course of a costs assessment. (4A) To avoid any doubt, this section applies to or in respect of both the assessment of costs referred to in Subdivision 2 of this Division (practitioner/client costs) and the assessment of costs referred to in Subdivision 3 of this Division (party/party costs). (5) If the costs of the costs assessor are payable by a party to the assessment (as referred to in section 208JA), the costs assessor may refuse to issue a certificate relating to his or her determination under this section until the costs of the costs assessor have been paid. (6) Subsection (5) does not apply: (a) in respect of a certificate issued before the completion of the assessment process under subsection (2), or (b) in such circumstances as may be prescribed by the regulations.' '208K A costs assessor's determination of an application is binding on all parties to the application and no appeal or other review lies in respect of the determination, except as provided by this Division.' 11 Part 44 r 7(1) of the Supreme Court Rules 1970 (NSW) provides: '(1) A person requiring the issue of a writ of execution shall ‑ (a) produce to the registrar a form of the writ; (b) file a copy of the writ; and (c) where the writ is to enforce a judgment for the payment of money, file an affidavit, sworn not more than 14 days before the requirement, containing and verifying a statement of: (i) the date of taking effect of the judgment; (ii) the amount of money originally payable under the judgment; (iii) the date and amount of each payment made on account of the judgment; (iiiA) the date and amount of each payment made on account of costs or expenses recoverable under section 107(1) of the Service and Execution of Process Act; (iv) the interest (if any) due on the date of swearing of the affidavit; (v) such other particulars as are necessary to calculate the amount payable under the judgment on the date of swearing of the affidavit; (vi) the amount payable under the judgment on the date of swearing of the affidavit; and (vii) the daily amount of interest (if any) which (subject to any future payment on account of the judgment) will accrue after the date of swearing of the affidavit, and containing and verifying a statement ‑ (viii) that the judgment was not entered as a result of the filing of a certificate under section 208J(3) or section 208JA(4) or section 208KF(2)(b) or section 208KH(6) of the Legal Profession Act 1987; or (ix) that the judgment was entered as a result of the filing of a certificate under section 208J(3) or section 208JA(4) or section 208KF(2)(b) or section 208KH(6) of the Legal Profession Act 1987 and that the determination which the certificate sets out is not subject to any suspension under: (A) section 208N(1) of that Act which has not been ended under section 208N(2), or (B) section 208KE(1) of that Act which has not been ended under section 208KE(2).'

Final Judgment or Final Order 12 The Bankruptcy Act provides that a bankruptcy notice must be in accordance with the form prescribed by the regulations (s 41(2)). The form prescribed by the regulations requires the creditor relevantly to specify the amount of the debt that is due to the creditor 'as shown in the Schedule' and to attach to the notice a copy of the judgment or order relied upon (see regulation 4.02 of the Bankruptcy Regulations 1996 and Form 1). 13 The Schedule to Form 1 allows for the specification of three separate sums: (a) the amount of the judgment or order; (b) the legal costs if ordered to be paid and a specific amount was not included in the judgment or order; and (c) if claimed, interest accrued since the date of the judgment or order.

'If legal costs are being claimed in this Bankruptcy Notice, a certificate of taxed or assessed costs in support of the amount claimed must be attached to this Bankruptcy Notice.' 14 As is mentioned above, each of the three bankruptcy notices has attached to it a certificate issued by a costs assessor pursuant to s 208J of the Legal Profession Act. Each certificate sets out the determination of the costs assessor as to the costs payable as a result of the order of the Land & Environment Court upon which that bankruptcy notice is based. None of the bankruptcy notices discloses whether the certificate so issued has been filed in the office or registry of a court having jurisdiction to order the payment of the amount of the determination of the costs assessor (see s 208J(3)) of the Legal Profession Act). Mr Franks, however, has placed in evidence a copy letter from the Council's solicitors to the Registrar of the Local Court which states: 'We act for the Applicant and we enclose for filing a Certificate as to Determination of Costs in the sum of $17,592.32. Please confirm that the certificate is registered as a Judgment and advise of the relevant number. We enclose a cheque in the sum of $51.00 being the filing fee of the certificate.'

I conclude on the balance of probabilities, having regard to the reference in the letter to the sum of $17 592.32, that the certificate as to determination of costs annexed to the bankruptcy notice the subject of the application in N 7024 of 2003 has been filed in a court of competent jurisdiction. There is no evidence before me as to whether the certificates annexed to the other bankruptcy notices have respectively been filed in courts of competent jurisdiction. I am therefore unable positively to be satisfied that these respective certificates either have been or have not been filed in a court of competent jurisdiction.

15 It was submitted by Mr Franks that neither an order of the Land & Environment Court requiring one party to pay the unquantified costs of another party, nor a certificate issued by a costs assessor under s 208J of the Legal Profession Act, is a final judgment or a final order within the meaning of s 40(1)(g) of the Bankruptcy Act. 16 It was submitted by the Council that the argument that it could only recover its costs by filing in a court of competent jurisdiction a certificate issued pursuant to s 208J of the Legal Profession Act was contrary to established authority and the proper construction of the relevant legislation. The Council submitted that in respect of each order of the Land & Environment Court, having received the determination of the costs assessor, it had two options open to it for the purpose of the Bankruptcy Act. The first option, it argued, was the option of filing the certificate issued under s 208J of the Legal Profession Act in a court of competent jurisdiction and issuing a bankruptcy notice on the judgment thereby deemed to have been obtained. The second option, it argued, was the option which it in fact adopted; that is, the option of issuing a bankruptcy notice founded on the order of the Land & Environment Court supported by the certificate issued under s 208J. The Council contended that the second of these options remained open to it even after it had filed in a court of competent jurisdiction the certificate issued by the costs assessor. 17 The authorities on which the Council placed principal reliance were Stec v Orfanos [1999] FCA 457 (FC); Commonwealth Bank of Australia v Horvath (Junior) (1999) 161 ALR 441; In re A Debtor; Ex parte The Debtor v Scott [1954] 1 WLR 1190; Kerin v Deputy Commissioner of Taxation [2001] FMCA 128; (2001) ATR 423 and In re Cartwright; Ex parte Cartwright v Barker [1975] 1 WLR 573. Consideration of these authorities discloses the importance, so far as the law of bankruptcy is concerned, of the particular regime in force in the relevant jurisdiction for the assessment and recovery of legal costs. 18 Stec v Orfanos concerned an order for costs made by the Supreme Court of South Australia. Attached to the bankruptcy notice in that case was an order of a Judge of the Court, which reinstated an order for costs made by a Master of the Supreme Court which had earlier been set aside, and a signed and sealed allocatur issued by the Registrar of the Supreme Court. As in the case of each of the bankruptcy notices before me, the judgment or order relied upon in Stec v Orfanos was itself an order for the payment of costs. The Rules of the Supreme Court of South Australia at the relevant time provided that, when duly signed and sealed, an allocatur has the effect of, and is enforceable in the same manner as, a judgment of the Court for the amount of the allocatur. At [18] the Full Court said: '…The allocatur determined in a final manner Mr Stec's liability for costs. It is thus a final judgment or final order for the purposes of s 41(3) of the Act.' 19 The reference in [15] of the judgment in Stec v Orfanos to the order of the Judge of the Supreme Court being '… the source of the obligation to pay those costs …' was not, in my view, intended to derogate from what was said by the Court at [18]. The order of the judge was the ultimate source of the obligation on the debtor to pay the costs, but that obligation having become reflected in the allocatur, it was the allocatur itself which determined finally the debt due to the creditor. The allocatur itself was enforceable as a judgment of the Supreme Court. 20 In Commonwealth Bank of Australia v Horvath (Junior) Finkelstein J considered the validity of a bankruptcy notice which claimed as a debt the amount at which a taxing officer of the Supreme Court of Victoria had assessed the creditor's legal costs pursuant to an order for costs made by a Judge of the Supreme Court. The Rules of the Supreme Court of Victoria provided that where a taxing officer assessed costs the result were to be stated in the form of an order. However, the Rules of the Supreme Court of Victoria contained no equivalent provision to that considered in Stec v Orfanos. His Honour held that, in the circumstances of that case, the order of the taxing master could not alone be enforced as an order for the payment of money. For that reason his Honour at [7] concluded that the bankruptcy notice was defective in that there was not attached to it copies of the final orders which were the foundation for the debt described in the notice. The only relevant 'order' attached to the bankruptcy notice was that of the taxing officer. 21 In re A Debtor; Ex parte The Debtor v Scott involved a complicated factual situation which it is not necessary to set out. The decision turned on the failure of the creditor to establish that the debt on which the creditor's petition was founded was a debt presently payable at the date of the act of bankruptcy. As at that date, the legal costs which the debtor had been ordered by a judgment of Queen's Bench Division to pay to the creditor had not been finally taxed. Once the costs had been finally taxed, the Rules of the Supreme Court allowed the amount allowed by the taxing officer's certificate to be inserted into the original judgment itself which included the necessary blank spaces to allow the insertion to be made. So completed, the judgment then became the final order which could found a bankruptcy notice claiming the payment of the costs. However, before the costs were taxed, the order could not found a valid bankruptcy notice. 22 Kerin v Deputy Commissioner of Taxation for present purposes adds nothing to Stec v Orfanos which it followed. In Kerin v Deputy Commissioner of Taxation, where there were two judgments of the court but a single allocatur, the learned Federal Magistrate rejected an argument that a bankruptcy notice was invalid as relying on two separate judgments. The Magistrate concluded that the bankruptcy notice was founded on the single allocatur. 23 In re Cartwright; Ex parte Cartwright v Barker is another authority holding that a certificate of a taxing master is not a final judgment or order. Although not explicitly mentioned in the report of the judgments of the Chancery Division, it may be assumed that the Rules of the Supreme Court dictated this decision as they did the decision in In re A Debtor; Ex parte The Debtor v Scott. 24 The above authorities illustrate that the status of an order or certificate of an officer of a court, or other person, authorised to assess the amount payable under an order of a court which requires the payment of unquantified legal costs is dependent on the terms of the statutory instrument governing the relevant order or certificate. Unlike the allocatur considered by the Full Court in Stec v Orfanos, neither a determination made by a costs assessor nor a certificate that sets out a determination made by a costs assessor is itself expressly made enforceable by either the Legal Profession Act or the Supreme Court Rules (NSW). 25 It is uncontroversial that a certificate issued by a costs assessor under s 208J of the Legal Profession Act, upon its filing in a court of competent jurisdiction, is taken to be a judgment of that court for the amount of unpaid costs (s 208J(3)). If the judgment deemed to be obtained by the filing of the certificate is, for the purposes of the Bankruptcy Act, 'a judgment or order the execution of which has not been stayed', it will suffice to found a bankruptcy notice (Stec v Orfanos at [18]). 26 As the Full Court (Lockhart, Morling and Gummow JJ) made clear in Abigroup Limited v Abignano (1992) 39 FCR 74 at 80 a judgment will be treated as stayed for the purposes of the Bankruptcy Act where a creditor is not able, because of the particular circumstances of the case, to proceed to execution. Part 44 r 7 of the Supreme Court Rules (NSW) prevents the issue of a writ of execution in respect of a judgment entered as a result of the filing of a certificate under s 208J(3) of the Legal Profession Act where the determination which the certificate sets out is subject to a suspension under that Act which has not ended. Plainly, for the purposes of the Bankruptcy Act, the judgment so entered would, during the life of any suspension of the determination, be treated as a judgment the execution of which has been stayed. Absent suspension, however, a certificate issued by a costs assessor under s 208J of the Legal Profession Act, upon its filing in a court of competent jurisdiction, may, as it is conceded, found a bankruptcy notice. 27 The above conclusion suggests against a finding that, for the purposes of the Bankruptcy Act, a certificate that sets out a determination of a costs assessor can without being filed in a court of competent jurisdiction found a bankruptcy notice. If an unfiled certificate can found a bankruptcy notice, whether alone or together with the court order which made the costs payable, there will be two possible foundations for a bankruptcy notice in respect of the one debt; the unfiled certificate and the certificate filed in the court of competent jurisdiction. The notion that there may be two final judgments or final orders the execution of which have not been stayed creating the one obligation to pay money is contrary to legal principle. 'When a judgment is recovered in respect of a debt any other personal remedy for the debt is extinguished or merged in the judgment' (Economic Life Assurance Society v Usborne [1902] AC 147 at 152 per Lord Davey). Two judgments in respect of the same debt or obligation to pay is thus, at least at common law, an impossibility. Nothing in the Legal Profession Act discloses an intention to change the common law in this regard. Further, if it were intended that a certificate that sets out a determination of a costs assessor could, without being filed in a court of competent jurisdiction, either alone or together with a court order for the payment of an unquantified amount, support a writ of execution, one would expect the requirements of Part 44 r 7(1)(c)(viii) and (ix) to reach to a person seeking the issue of a writ of execution based on the unfiled certificate. They do not. 28 It is important to note that Pt 44 r 7 of the Supreme Court Rules is no longer in the form that it was when Beaumont J observed in Wilmot v Buckley (1984) 2 FCR 540 at 543: '… where a formal judgment expressing the order of dismissal has been drawn up, sealed and entered, entry of a judgment for costs is not required: when the certificate of taxation has issued, upon the filing of an affidavit under Pt 44, r 7 of the Supreme Court Rules, a writ for levy may issue for the amount of the taxed costs (see Ritchie's Supreme Court procedure New South Wales at p 3124).'

The procedure for the assessment of costs by costs assessors has replaced the procedure whereby certificates of taxation issued.

29 Another factor suggesting against the validity of the submission advanced by the Council (see [16] above) relates to the accrual of interest on the amount of unpaid costs. The Council accepted that if, as could be the case, the rate of interest prescribed for the purpose of s 69A of the L & E Court Act were not the same rate as that payable in the relevant court of competent jurisdiction, the actual indebtedness of the debtor at the date of the bankruptcy notice could vary depending upon whether the creditor chose to rely on the certificate issued under s 208J of the Legal Profession Act as filed in the court of competent jurisdiction or the order of the Land and Environment Court as supported by an unfiled certificate. An ability in the creditor to affect the amount of the debtor's total indebtedness by choosing one enforcement method over another seems inconsistent with the certainty required by the Bankruptcy Act. Further, the difficulties that attend identifying the date from which interest may accrue on the costs to the parties to the assessment are reduced if an unfiled certificate cannot found a bankruptcy notice. Interest payable on a filed certificate is governed by s 208J of the Legal Profession Act. 30 The submissions of the Council identified in [16] above are, in my view, unsustainable. Section 40(1)(g) does not, as it seems to me, admit of the possibility that a creditor may have obtained against a debtor more than one final judgment or final order in respect of the one debt, or perhaps more accurately, sourced from the same obligation. Further, s 40(1)(g) of the Bankruptcy Act refers only to final judgments and final orders that can be enforced by a writ of execution (Re Pannowitz; Ex parte Wilson (1975) 38 FLR 184 at 198 per Riley J). I incline to the view that Pt 44 r 7 of the Supreme Court Rules (NSW), as presently worded, does not allow a writ of execution to issue in respect of the orders of the Land & Environment Court on which reliance is here placed. It seems to me to be implicit in Pt 44 r 7, as presently worded, that a writ of execution may only issue in respect of costs determined under the Legal Profession Act to enforce a judgment entered as a result of the filing of a certificate under the Legal Profession Act. . 31 I do not intend by the above to suggest that the orders of the Land & Environment Court did not take effect when the orders were respectively made. Plainly they did; their effectiveness did not depend on the quantification of the costs thereby ordered to be paid (see Minister Administering the Environmental Planning and Assessment Act 1979 v Carson (1994) 35 NSWLR 342). However, as the Council impliedly conceded, none of the orders of the Land & Environment Court could alone found a bankruptcy notice. In each case the amount of the costs which the order required Mr Franks to pay needed first to be quantified. It may well be, but I have no need to determine, that in the case of each order Mr Franks became liable to pay the costs upon the issue of the certificate, provided the determination was not suspended. However, there may exist a genuine debt in respect of which no valid bankruptcy notice can issue (Croker v Commissioner of Taxation [2003] FCAFC 23; (2003) 52 ATR 226). 32 I conclude that each of the bankruptcy notices should be set aside on the basis that it is fatally flawed because the judgment or order upon which it is founded, and which is attached to it as required by Form 1, is not 'a final judgment or final order, being a judgment or order the execution of which has not been stayed' within the meaning of s 40(1)(g) of the Bankruptcy Act.

Counter-claim, set‑off or cross demand 33 The contention of Mr Frank that he has a counter-claim, set‑off or cross demand of the kind referred to in s 40(1)(g) of the Bankruptcy Act in respect of each of the asserted judgment debts could only be considered if I were to grant him dispensation from the requirement to comply with O 77 r 13(3) of the Federal Court Rules. The affidavits filed by Mr Franks in support of his applications to set aside the bankruptcy notices do not comply with the requirement of that subrule. No evidence was given by Mr Franks to explain the deficiencies in his supporting affidavits or to support his oral applications for dispensation. Having regard to my conclusion that each of the bankruptcy notices is invalid, the better course would seem to be to leave the issue of whether Mr Franks has counter‑claims, set‑offs or cross demands of the kind referred to in s 40(1)(g) of the Bankruptcy Act to another day. I decline to grant the dispensations necessary to allow Mr Franks' applications to be pressed on this ground.

Other Matters 34 I consider it appropriate to deal with the other objections to the bankruptcy notices relied upon by Mr Franks in a summary way. 35 In the case of each of the bankruptcy notices the attached copy order of the Land & Environment Court has typed on the top right‑hand corner of the first page (or in the case of two of the orders, the only page) 'This is the judgment or order relied upon by the creditor'. Mr Franks argued that in each case this annotation, which it is accepted was plainly added to the copy order by the creditor or on its behalf, constituted an illegitimate amendment of the order of the Land & Environment Court. I reject this argument. The annotation is plainly intended to assist the debtor in identifying, and understanding the significance of, the copy orders in the context of the bankruptcy notice. It does not present to the eye as part of the order of the Land & Environment Court. If, contrary to my view, the annotation results in a bankruptcy notice that is not in compliance with the prescribed form, I am satisfied that the defect or irregularity is one of form and not of substance and incapable of misleading or embarrassing a debtor (s 306 of the Bankruptcy Act). Further, it does not affect any requirement made essential to the Bankruptcy Act (Australian Steel Company (Operations) Pty Ltd v Lewis [2000] FCA 1915; (2000) 109 FCR 33 per Black CJ, Heerey and Sundberg JJ at [38]). 36 In the case of the bankruptcy notices in N 7022 of 2003 and N 7023 of 2003 interest is claimed. In each case the provision under which the interest is claimed is identified as s 69A(1) of the L & E Court Act. In each case the interest is calculated from the date of the relevant order of the Land & Environment Court. In neither case is allowance made for the fact that the determination of the costs assessor included fees paid in respect of the application for the assessment of costs (s 208F(4) of the Legal Profession Act). The conclusion that I have reached in [32] above dictates the conclusion that the bankruptcy notices in N 7022 of 2003 and N 7023 of 2003 do not identify the provision under which interest could appropriately be claimed. In the circumstances I do not consider it appropriate to determine the interest that might validly have been claimed had the creditor claimed interest in reliance upon s 208J(3) of the Legal Profession Act.

conclusion 37 On each application there will be an order that the bankruptcy notice be set aside. The respondent must pay the applicant's costs of the applications. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Solicitor for the Respondent: Wilshire Webb Solicitors