The issue was considered in New South Wales in Re Neville; Ex parte Pike (1896) 17 NSWR (Bankruptcy and Probate Cases) 24 where Manning J said at 26:
"[A] barrister is by law incapacitated from entering into a contract of any kind, either with solicitor or client, in respect of fees, for, at all events, litigious work as a barrister."
The basis of the rule that a barrister cannot sue for his fees has been put by the authorities on different grounds. First, it has been said that a barrister's inability to sue for his fees is needed to maintain a barrister's immunity from negligence action. This proposition has been questioned in more recent times. In Giannarelli v Wraith (1988) 165 CLR 543 it was held by the High Court that there is no immunity from suit for a barrister or solicitor for work done out of court that is unconnected with work done in court. The High Court applied Rondel v Worsley [1969] 1 AC 191 and Saif Ali v Sydney Mitchell & Co [1980] AC 198.
The second basis of the rule rests on a barrister's status. It was expressed by Kindersley VC in Re May 4 Jur NS 1169, in these terms:
"I hope the time will never come when such a rule is established [ie that a barrister is entitled to sue for his fees]. I will never make a precedent. If you bring me precedents I must make the order, but I will never willingly derogate from the high position in which a barrister stands and by which he is distinguished from an ordinary tradesman."
As recently as Rondel v Worsley [1969] 1 AC 191 Lord Upjohn said at 278 concerning the proposition that counsel cannot sue for his fees:
"This has been established for nearly two hundred years and it is usually put upon the ground that a barrister is of too high an estate to condescend to the common arena to sue his client. Fees must be regarded as pure honoraria."
The view of Kindersley VC in Re May was considered in the First Report of the Law Reform Commission on the Legal Profession, General Regulation and Structure, Government Printer, 1982 where at para 6.51 it is stated:
"This argument is unrealistic and inappropriate in modern times."
A third basis on which the doctrine has been based is that barristers should be rendered independent of the verdict so that no temptation may induce them to endeavour to obtain a verdict which in their consciences they are not entitled to have: Morris v Hunt [1819] 1 Chit 544 at 554.
The Legal Profession Act of New South Wales, as amended in 1994, though not expressly stating that a barrister may sue for the recovery of fees, plainly impliedly assumes this right: see, for example, ss 184, 191 and 192. A "barrister" by definition under s 3 means "a legal practitioner who holds a current practising certificate as a barrister".
It is a long established principle of bankruptcy law that a bankrupt is entitled to retain out of his personal earnings a sufficient amount for the support of the bankrupt and his family. Two schools of thought led to two streams of authority about the basis of this principle. One view was that personal earnings of the bankrupt did not vest in the trustee of his estate; the trustee's only right in respect thereof was to obtain an order under the relevant section of bankruptcy legislation to take from the bankrupt so much of his personal earnings as were not required for the support of himself and his family, if any. The other view, which is favoured in the United Kingdom was that personal earnings of the bankrupt did vest in the trustee (that is the Official Receiver) on his estate except to the extent to which they were required for the support of the bankrupt and his family. See In Re Roberts [1900] 1 QB 122; In Re Walter; Slocock v Official Receiver [1929] 1 Ch 647. I must confess the first view seems to me to be the more logical and sensible view.
In Nette v Howarth (1935) 53 CLR 55 Dixon J referred to "the rule long established in bankruptcy, that the personal earnings of a bankrupt do not pass to his trustee except to the extent that they are not required for the support of himself and his family" at 65. See also Federal Commissioner of Taxation v Official Receiver (1956) 95 CLR 300 per Williams J at 312-314 and Fullagar J at 318-320.
The distinction between these views is not of particular practical importance today. It is important, though, to examine certain provisions of the Bankruptcy Act.
"Property" is defined in s 5 of the Bankruptcy Act as meaning:
"Real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property."
"The property of the bankrupt" in relation to a bankrupt means relevantly: "The property divisible among the bankrupt's creditors" (s 5).
Considered in isolation, the wide definition of property in s 5 of the Bankruptcy Act would seem to me to include fees due to a bankrupt upon his bankruptcy as property available for payment of his debts within Part VI Division 3 of the Bankruptcy Act. However it is necessary to consider Part VI Division 4B of the Bankruptcy Act.
The Bankruptcy Act was amended on 1 July 1992 by the introduction of Division 4B which introduced a mechanism for requiring a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate and to enable the recovery of certain money and property for the benefit of the bankrupt's estate (s 139J). The former s 131 was repealed. In my opinion the scheme of Division 4B of the Bankruptcy Act proceeds on the assumption that after acquired income of a bankrupt does not vest in the trustee of the bankrupt's estate. Although the after acquired property to which ss 58 and 116 of the Bankruptcy Act apply are sufficiently widely defined to include income of the bankrupt, Division 4B establishes a comprehensive scheme of dealing with after acquired income of the bankrupt. Where it is inconsistent with sections such as ss 58 and 116, provisions of the division must be taken to apply. See Re Gillies; Ex parte Official Trustee in Bankruptcy v Gillies (1993) 42 FCR 571 at 577; Re Connie Hawkins; Ex parte Ivor Worrell, Spender J, unreported, 20 December 1996.
Income for the purposes of Division 4B bears its ordinary meaning subject to certain qualifications which are not relevant for present purposes (s 139L). If income according to ordinary concepts is "derived" by a bankrupt it will be assessed as income for the purposes of Division 4B. "Derived" is defined by s 139K as meaning "earned, derived or received from any source, whether within or outside Australia". An important provision is s 139M(3) which states:
"A reference in this Division to income derived by a bankrupt during a contribution assessment period includes a reference to income so derived in respect of work done or services performed by the bankrupt before that period or work to be done or services to be performed by the bankrupt after that period."
The expression "contribution assessment period" in relation to a bankrupt is defined by s 139K as meaning a period that in effect subsists during the period of the bankruptcy.
Section 139M(3) is applicable to the present case. A barrister assessed to income tax upon a cash basis derives income from fees from his professional activity in the year of income in which those fees are received or deemed to be received, but not necessarily the year in which those fees were earned. Further, the unpaid fees of the Bankrupt are in respect of work done by the Bankrupt before the contribution assessment period.
In my opinion it follows that the Trustee is not entitled to treat the unpaid fees as after acquired property of the Bankrupt available for payment of his debts within Division 3 of Part VI of the Bankruptcy Act. It does not seem to me to matter whether the memoranda of fees rendered by the Bankrupt before the date of his bankruptcy were rendered before or after 1 July 1994 (being the date of the relevant amendments made to the Legal Profession Act 1987 (NSW)). Nor does it matter whether the brief (I have in mind the requirements of the Legal Profession Act 1987) was marked or whether a "fees, disclosure and retainer" contract was entered into or whether the fees had been assessed.
This application for directions by the Trustee was properly brought and raises questions of importance to the administration of the Bankrupt's estate.
The Court gives directions to the trustee as follows:
Question 1
Fees which are the subject of memoranda of fees issued by the Bankrupt and outstanding at the date of his bankruptcy are not property available for payment of his debts within Part VI Division 3 of the Bankruptcy Act. They constitute income within Part VI Division 4B of the Bankruptcy Act.
Question 2
The fees are not property available for payment of the Bankrupt's debts. It is, therefore, unnecessary to answer this question.
Question 3
The Trustee should treat memoranda of fees rendered by the Bankrupt before the date of his bankruptcy, whether rendered before or after 1 July 1994, as income derived by the Bankrupt after commencement of his bankruptcy and as capable of inclusion in the calculation of income contribution assessments under Division 4B of Part VI of the Bankruptcy Act.
The Trustee is entitled to the costs of the proceeding in the usual way which does not need an order of the Court. The costs of the Deputy Commissioner of Taxation and of the Bankrupt should each be allowed out of the Bankrupt's estate in the usual order of priority.