Lowbeer v De Varda

Federal Court of Australia (Full Court)|2018-07-24|Before: Colvin JJ

Re Goldring; Ex parte Harper (1888) 22 QBD 87 Re Vassis; Ex parte Leung (1986) 9 FCR 518 Robinson Helicopter Company Inc v McDermott [2016] HCA 22 Saraceni v Mentha [No 2] (2012) 269 FLR 12; [2012] WASC 336 Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd (2009) 226 FLR 306; [2009] WASCA 31 Starkey on behalf of the Kokatha People v State of South Australia [2018] FCAFC 36 State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228 Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15 Tov-Lev v Lowbeer (No 2) [2014] FCA 379 Workcover Queensland v Seltsam Pty Ltd (2001) 53 NSWLR 518; [2001] NSWCA 457 Wren v Mahony (1972) 126 CLR 212 Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391; [2009] HCA 50

National Practice Area: Commercial and Corporations

Counsel for the Appellant: Dr RP Austin & Mr DE Thomas

Counsel for the Respondents: Mr F Asaaf & Mr PR Gaffney (Pro Bono)

JUDGES: REEVES, FARRELL AND COLVIN JJ DATE OF ORDER: 24 JULY 2018

The appeal be dismissed.
The appellant do pay the respondents' costs of the appeal, confined to those costs which may be recovered by a litigant in person.
There be liberty to apply within 14 days to vary the order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT: 1 Mr Lowbeer sought sequestration orders against Rabbi Tov-Lev and Mr De Varda on the basis that they had not paid two certificates of taxation quantifying an order for costs. The order was made by Rares J in Mr Lowbeer's favour on 11 March 2014. The certificates were for an aggregate amount of $75,950. The Federal Circuit Court dismissed the petitions upholding what the primary judge described as the principal ground of opposition. The principal ground was that the costs the subject of the 2014 costs order had been paid by the Strathfield and District Hebrew Congregation (Congregation) and therefore there was no debt that was due and payable. 2 Mr Lowbeer now appeals against the dismissal of each of the creditor's petitions. The appeals concern only matters relating to the principal ground. 3 In the Federal Circuit Court, it was common ground that the costs that were the subject of the 2014 costs order and taxation certificates had been met by the Congregation. However, for Mr Lowbeer, it was said that the Congregation had paid the costs in recognition of an obligation to indemnify Mr Lowbeer. On that basis, it was submitted that the Congregation was subrogated to the rights of Mr Lowbeer and there was still a debt due by Rabbi Tov-Lev and Mr De Varda to Mr Lowbeer. 4 The primary judge found that there were substantial reasons to question whether the certificates of taxation represented a true debt due to Mr Lowbeer. His Honour then found that in truth and reality there was no debt due to Mr Lowbeer because the costs had been incurred by the Congregation and not Mr Lowbeer. 5 For the following reasons, it has not been demonstrated that the decision by the Federal Circuit Court was in error. The appeals should be dismissed.

Previous sequestration proceedings 6 There have been two sequestration proceedings involving the present parties. Prior to the petition that was dismissed by the primary judge (the subject of the present appeal), there were earlier proceedings in 2013 in which sequestration orders were made against Rabbi Tov-Lev and Mr De Varda. Those proceedings were based upon an unpaid costs order in proceedings in the Supreme Court of New South Wales. In those Supreme Court proceedings, Rabbi Tov-Lev, Mr De Varda and David Cliffe were among the unsuccessful plaintiffs in claims against the directors of the Congregation and Mr Lowbeer (its auditor). A costs order was made in Mr Lowbeer's favour. It was assessed in an amount of $48,212.62 and the assessment was entered as a judgment of the Supreme Court on 24 April 2013. Based on their failure to comply with the costs order of the Supreme Court, Mr Lowbeer filed three creditor's petitions. Sequestration orders were made against Rabbi Tov-Lev, Mr De Varda and Mr Cliffe on 20 December 2013: Lowbeer v Tov-Lev [2013] FCCA 1813. 7 Rabbi Tov-Lev, Mr De Varda and Mr Cliffe appealed that decision and applied to have the sequestration orders annulled. That appeal and the application were dismissed by Rares J and the 2014 costs order was made: Tov-Lev v Lowbeer (No 2) [2014] FCA 379. 8 On the appeal, Rares J noted that in opposing the petitions, Rabbi Tov-Lev and Mr De Varda claimed, amongst other things, that Mr Lowbeer had been paid his costs by the Congregation so that the debt arising from the Supreme Court costs order had been satisfied: at [37]. 9 Rares J considered an exchange of emails between Mr Neumann (on behalf of the Congregation) and Mr Lowbeer in relation to payment of Mr Lowbeer's defence costs in the Supreme Court proceedings. Some of the emails were copied to Mr Austin of Austin Legal who had been the solicitor for the Congregation (but not Mr Lowbeer) in those proceedings. 10 At [50]-[51] Rares J made the following findings concerning the payment of the costs the subject of the order made in favour of Mr Lowbeer by the Supreme Court: Mr Lowbeer then tendered correspondence entered into between himself and Mr Neumann in early May 2013. Mr Lowbeer wrote, in an email of 2 May 2013, that he was very disappointed that the old board had not sent a cheque for the whole of the legal costs that Caunt and Lowbeer had incurred, having previously been advised that the old board had approved full payment of those costs. He inquired whether Mr Neumann would give Mr Austin instructions to commence bankruptcy proceedings since no one had responded to letters of demand for the payment of the 2013 costs order sent to "everyone (except the Rabbi ???) [sic]" so that the appellants could be made bankrupt as soon as possible. Mr Neumann responded the next day saying that he had not been able to get consensus without a face to face board meeting, other than to pay the difference between the party/party and solicitor/client costs, being $13,635.12. He observed that, since Mr Austin was acting for Mr Lowbeer in the enforcement of the 2013 costs order and the time given in the letters of demand had expired, Mr Lowbeer could instruct Mr Austin to commence bankruptcy proceedings against such persons as Mr Lowbeer chose to sue, whom he said should include Mr de Varda and Mr Cliffe. Mr Neumann wrote that Mr Lowbeer could then look to the company for the costs that had not been recovered and that Mr Austin would be put in the funds necessary for issuing and serving bankruptcy notices. On 6 May 2013, Mr Lowbeer responded, voicing his disappointment, but accepting the interim payment. He noted that Caunt and Lowbeer did not have any cost agreement with Mr Austin, and sought confirmation that the company would cover the costs of recovery from all the people that his company decided to sue. Mr Lowbeer gave evidence that he had not been paid any money, and that Caunt and Lowbeer had only received the $13,635.12 in respect of the costs. He understood that Caunt and Lowbeer, from which he had retired in mid-2011, had incurred all of the legal costs the subject of the assessment under which the 2013 costs order had been assessed. I accept Mr Lowbeer's evidence. 11 It can be seen that Rares J found that $13,635.12 of Mr Lowbeer's costs had been paid by the Congregation and the assessed amount of the Supreme Court costs order had not been reimbursed by anyone. Therefore, on those findings, the costs claimed in the bankruptcy notice had not been paid by the Congregation and were still outstanding. No issue was raised before Rares J concerning the arrangements whereby Caunt and Lowbeer (as distinct from Mr Lowbeer personally) had paid the costs of the Supreme Court proceedings. 12 The same email correspondence was again in evidence before the Federal Circuit Court on the hearing of the creditor's petitions the subject of the present appeal. Its relevance in the present proceedings is considered below. 13 The 2014 costs order made by Rares J against Rabbi Tov-Lev and Mr De Varda simply followed from his conclusion that the appeal and the application for annulment should be dismissed: at [88]. There was no consideration as to whether Mr Lowbeer had a liability to pay costs to Austin Legal being the firm of solicitors on the record for Mr Lowbeer in the proceedings. It would not be usual for the Court in dismissing an application to make any inquiry as to whether this was the case. That is because, in the absence of proof of an agreement to the contrary, a solicitor who acts on instructions for a party on the record is taken to be entitled to look to that party for costs, even if the instructions have come to the solicitor from another party or from some non-party interested in the litigation: Marsh v Baxter [No 2] [2016] WASCA 51 at [37]. On that basis, the requirements of the indemnity principle whereby a party who does not have a liability to the solicitor on the record for costs cannot recover costs against the unsuccessful party (Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495) may be presumed to have been met. 14 It was common ground in the appeal that the assessed amount of the Supreme Court costs order was paid out of the bankrupt estates of Mr De Varda and Mr Cliffe. It appears that further sequestration orders are sought because the 2014 costs orders were made after the sequestration orders in respect of the estates of Rabbi Tov-Lev, Mr De Varda and Mr Cliffe.

Sequestration orders sought in Federal Circuit Court based on 2014 costs orders 15 As already noted, the costs that were the subject of the orders made by Rares J were assessed at $75,590. (It appears that the costs of the appeal and the application to annul were assessed separately, but the total of the two certificates of taxation in respect of the single costs order was $75,590). 16 Mr Lowbeer applied in the Federal Circuit Court for sequestration orders on the basis that there was a debt due to Mr Lowbeer because Rabbi Tov-Lev and Mr De Varda did not pay the assessed amount of the 2014 costs order. 17 At the hearing, Rabbi Tov-Lev and Mr De Varda appeared in person. They said that there was no outstanding debt owed to Mr Lowbeer because the assessed amount of the 2014 costs order had been paid by the Congregation. Counsel for Mr Lowbeer explained his position as being that the payment by the Congregation had been made "by way of indemnity" and was "subject to equitable subrogation and a right of recoupment". 18 The reliance upon principles of equitable subrogation gave rise to a need to establish a basis for the application of the doctrine. Where a claim is made on the basis of a right to subrogation it is important to be precise as to the nature of the claim because subrogation is not a cause of action and the relevant equitable considerations respecting a claim to subrogation may differ depending upon the basis upon which subrogation is said to arise: Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [6] and [90]-[94]. 19 It has been recognised that an indemnifier has a right to reimbursement of all monies paid under an indemnity and a right of subrogation to all the rights and remedies of the party indemnified: Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15 at [50]. 20 Importantly, in the absence of a contractual right to exercise a right of subrogation in respect of a partial indemnity, there is no right to subrogation until the obligation to indemnify has been performed by paying the indemnified amount: AFG Insurance Ltd v City of Brighton (1972) 126 CLR 655 at 663; Halliday v High Performance Personnel Pty Ltd (in liq) (formerly Sacs Group Pty Ltd) (1993) 113 ALR 637 at 640; Linsley v Petrie [1998] 1 VR 427 at 440; Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd (2009) 226 FLR 306; [2009] WASCA 31 at [32] (McLure JA), [182]-[211] (Beech AJA) (an appeal against the decision was dismissed by the High Court in Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391; [2009] HCA 50 (where the subrogation question was not considered). 21 Where the right of subrogation is said to arise by reason of a contract (such as in the case of a contract of insurance), the terms of the contract may waive or limit the circumstances in which a right of subrogation may arise: Midland Banking Co v Chambers (1869) LR 4 Ch App 398; O'Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200 at 219-220 (Dixon J, Rich J agreeing), 221-222 (Evatt J), 223 (McTiernan J); and Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 at 675 (Brennan J, with Gibbs CJ, Murphy and Wilson JJ agreeing). Further, the contract itself may confer a right to take over the conduct of litigation in the name of the insured. So, costs incurred in the exercise of such a contractual right may be incurred on behalf of the insured: Halliday at 40. 22 However, it must be noted that subrogation necessarily involves multilateral, rather than bilateral, relationships: Bofinger at [97]. Therefore, although it may arise in circumstances where there is a contractual relationship, the extent of the application of the doctrine is not determined solely by contractual terms. 23 For all these reasons, it was important to know the precise basis upon which the alleged obligation of the Congregation to indemnify Mr Lowbeer was said to arise in order to determine whether the doctrine of subrogation applied. 24 The importance of identifying the precise nature of the circumstances in which a payment was made in determining whether there is a right to subrogation is illustrated by the cases concerned with whether there is a subrogated claim to a secured interest where money is advanced to a party to pay off a mortgage: see the review of the authorities by Corboy J in Saraceni v Mentha [No 2] (2012) 269 FLR 12; [2012] WASC 336 at [240]-[245]. 25 The fact that the application for sequestration orders based on the assessed amount of the 2014 costs order was said to be brought in the exercise of a right of subrogation or recoupment necessarily required a consideration of whether there were circumstances that gave rise to such a right. 26 Notably, the claim made as to why there was a debt due to Mr Lowbeer even though the costs had been paid by the Congregation was of a kind that depended upon (a) an obligation to indemnify Mr Lowbeer by reason of a provision in the articles of association of the Congregation; (b) the existence of a liability on the part of Mr Lowbeer for the costs of Austin Legal; and (c) payment of the costs by the Congregation in discharge of the obligation to indemnify.

Issues in the Federal Circuit Court as to subrogation 27 On appeal, counsel for Mr Lowbeer contended that there had been no issue in the Federal Circuit Court concerning the existence of a retainer between Mr Lowbeer and Austin Legal. It is true that Rabbi Tov-Lev and Mr De Varda, appearing in person, did not raise such a claim in terms. However, that did not mean that it was not an issue. The position of Rabbi Tov-Lev and Mr De Varda was that the 2014 costs order had been paid and they opposed the sequestration order. There was no concession by them of any matter that had to be established in order for the sequestration orders to be made. Therefore, there was only a proper basis for the sequestration orders if Mr Lowbeer could demonstrate that there was still a debt due to him by Rabbi Tov-Lev and Mr De Varda even though the Congregation had paid the assessed costs under the 2014 costs order to Austin Legal. 28 Further, for the following reasons, the significance of the precise arrangements between Mr Lowbeer and Austin Legal as well as the provisions in the articles of association of the Congregation was recognised by counsel appearing for Mr Lowbeer in the Federal Circuit Court. 29 In written submissions filed for Mr Lowbeer in the Federal Circuit Court, the position of Rabbi Tov-Lev and Mr De Varda was described in the following terms: … The Respondents say that no debt is owing in respect of the costs orders upon which the Applicant relies, because Mr D Austin's legal fees have been met by the … Congregation pursuant to an indemnity in clause 116 of the Articles of Association of [the Congregation] … . 30 The submissions then set out a response to that contention in the following terms: The Applicant replies to these contentions of the Respondents as follows: (a) in principle, as costs are awarded by way of indemnification, a party who does not have a legal liability to their solicitors for costs cannot recover costs against an unsuccessful party to litigation (Marsh v Baxter [No 2] [2016] WASCA 51 … at [31], citing cases including Cachia v Hanes (1994) 179 CLR 403, at 410); (b) however, in a case such as the present case, it is necessary to investigate whether a successful litigant's liability to pay his solicitor's costs has truly been extinguished when a third party pays the litigant's solicitor; (c) the pertinent facts in the present case are as follows: (i) [the Congregation] is a company limited by guarantee … ; (ii) article 116 of the Constitution of the Congregation says: Every member of the Board of Management or officer of the Association, or any person (whether an officer of the Association or not) employed by the Association as Auditor shall be indemnified out of the funds of the Association against all liability incurred by him as such member or officer or Auditor in defending proceedings whether civil or criminal in which judgement is given in his favour or in which he is acquitted or in connection with any application under Section 361 of the Companies Act 1936 in which relief is granted to him by the Court [emphasis in original]; (iii) the Applicant was the Auditor appointed by the Congregation at the time of the facts and circumstances that gave rise to the proceedings brought against him in the Supreme Court of New South Wales, … ; (iv) accordingly, the Congregation was liable under article 116 to indemnify the Applicant in respect of his liability to pay Mr D Austin's legal costs of the Respondents' unsuccessful appeal against, an application for annulment of, the sequestration orders made against them; (v) the Congregation discharged that liability to the Applicant by paying those costs … ; (vi) the Applicant also says that the Congregation became liable to indemnify him in respect of Mr D Austin's legal costs and disbursements of the Proceedings because of the express and implied terms of his contract of retainer as Auditor of the Congregation and the instructions he received by an authorised agent of the Congregation with respect to his involvement in the Proceedings … ; (vii) there is no evidence to suggest any agreement between the Applicant and his solicitor Mr D Austin, or between the Congregation and Mr D Austin, to the effect that in no circumstances would Mr D Austin be entitled to recover his costs from the Applicant; 31 The written submissions then dealt in some detail with the decision in Marsh v Baxter [No 2] stating, amongst other things, the following propositions as being established by that decision: (i) where it is established that the solicitors for a litigant are acting with the knowledge and assent of the litigant, the litigant becomes liable to the solicitors for costs, and that liability is not excluded merely because a third party has also undertaken to pay the costs; it is necessary to go a step further and prove that there was a bargain, either between the third party and the solicitors, or between the litigant and the solicitors, that under no circumstances was the plaintiff to be liable for costs …; (ii) … the indemnity principle … will permit recovery of costs by a successful party who is under legal liability to his solicitors to pay them even though the likelihood of being called upon to do so is remote …; (iii) the position is no different when, at the time the costs order is sought, the costs of the successful party have already been paid by a third party …; (iv) the onus of establishing that a litigant has no liability to his solicitors for their costs, and hence no entitlement to an order for costs, rests upon the party seeking to resist compliance with the costs order …; (v) in the absence of proof of an agreement to the contrary, a solicitor who acts on instructions from a party on the record is taken to be entitled to look to that party for costs, even if the instructions have come to the solicitor from another party or from some non-party interested in the litigation … 32 It was then submitted that Marsh v Baxter [No 2] was indistinguishable from the facts in the present case and "this Court should find that the Applicant has at all relevant times remained legally liable to pay the legal costs incurred by Mr D Austin … notwithstanding the Applicant's indemnity arrangements with the Congregation". 33 Further, in the course of oral submissions for Mr Lowbeer, counsel referred to the written submissions described above and then said: In a case such as the present case it's necessary to investigate whether a successful litigant's liability to pay his solicitor's costs has truly been extinguished when a third party pays the litigant's solicitor. 34 A submission was then advanced that there was no evidence in the case that there was a bargain that Mr Lowbeer would under no circumstances be liable for the costs. Then, later, the following submission was advanced after referring to Marsh v Baxter [No 2]: The onus of establishing that a litigant has no liability to his solicitors for their costs and hence no entitlement to an order for costs rests upon the party seeking to resist compliance with the costs order, and, of course, we say that the respondents here have gone nowhere near discharging that onus. In fact, there's really no evidence on it at all. In the absence of proof of an agreement to the contrary a solicitor who acts on instructions from the party on the record is taken to be entitled to look to that party for costs even if the instructions have come to the solicitor from another party or from some non-party interested in the litigation. 35 Then reliance was placed upon the written submissions to the effect that an agreement that in no circumstances could the solicitor look to the litigant for its costs would be most unusual and there was nothing to that effect in the evidence and, in particular, cl 116 of the articles of association which would affect the liability of Mr Lowbeer to the solicitor Mr Austin. 36 Two matters of significance emerge from these submissions. 37 First, they demonstrate that there was an issue before the primary judge as to the nature of the arrangements between Mr Lowbeer and Mr Austin of Austin Legal. The submissions advanced by Mr Lowbeer recognised that there was such an issue and addressed it in some detail. They sought to persuade the Court to conclude that in truth and reality there was a debt due to Mr Lowbeer because he had incurred a liability for the costs of the proceedings before Rares J. 38 Therefore, the submission advanced in support of the appeal that "nothing happened at the hearing presently under appeal that would have suggested to a reasonable observer that Mr Austin's retainer by [Mr Lowbeer] was a contested fact" should be rejected. 39 Second, before the primary judge the case advanced relied significantly upon the proposition that in the absence of proof of an agreement to the contrary, a solicitor who acts on instructions from the party on the record is taken to be entitled to look to that party for costs. The submission was not advanced on the basis of evidence from Mr Lowbeer or Mr Austin as to what had been agreed between them. Indeed, there was no evidence of that kind led for Mr Lowbeer. 40 Mr Austin was cross-examined by Mr De Varda. He was asked whether Mr Austin was working for Mr Lowbeer or the Congregation. The answer given by Mr Austin was: The true answer is that I'm acting for Mr Lowbeer as trustee for the [C]ongregation. That's the legal analysis. If you want it. 41 Mr De Varda then asked how Mr Lowbeer could be a trustee to the Congregation if he is no longer working for the Congregation. Mr Austin answered: That's because what has happened to your debt is what's called an equitable assignment. But we're really not talking about matters of evidence. I don't know if his Honour wants me to carry on like that. 42 These answers do not cast any light on the actual arrangements that were made concerning the legal representation of Mr Lowbeer in the proceedings before Rares J. They appear to be attempts by Mr Austin to place a legal characterisation on those arrangements. 43 The language used by Mr Austin in his answers is not consistent with the language of subrogation. Subrogation is not an assignment by operation of equity. In England, it has been described by Lord Diplock as a transfer "by operation of law", without "assignment or assent of the person from whom the rights are transferred": Orakpo v Manson Investments Ltd [1978] AC 95 at 104. The essence of subrogation in equity is that a party has a right in equity to stand in the shoes of another party and to enforce the rights of another party in the name of that party. This might be described as a form of transfer by operation of law, but the essential character of subrogation is that it does not depend upon an assignment. Further, as the High Court has said in Bofinger at [97], it does not depend upon the bilateral dealings between the party indemnifying and the party being indemnified. Subrogation will even operate in equity to revive a right that has been extinguished (such as a right to a security discharged by payment): Saraceni v Mentha [No 2] at [238]. Therefore, it is not properly characterised as a form of assignment. It is a right to enforce that which might have been enforced by the indemnified party if there had been no performance of the obligation to indemnify. 44 The essence of subrogation is that the rights that were held by the indemnified party may be enforced by the subrogated party in the absence of an assignment: DiMella v Rudaks (2008) 102 SASR 582; [2008] SASC 345 at [20]-[34]. It is a right to have the benefit of the rights of the indemnified party in respect of the subject matter of the payment made under the indemnity: State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228 at 240-243. For that reason, "it is a matter to the core of a right of subrogation that a person exercising that right must sue in the name" of the person who has been indemnified: Workcover Queensland v Seltsam Pty Ltd (2001) 53 NSWLR 518; [2001] NSWCA 457 at [19] applying Esso Petroleum Co Ltd v Hall Russell & Co Ltd [1989] AC 643. 45 Therefore, to the extent that the evidence of Mr Austin indicates anything about the nature of the arrangements that were made as to his engagement, it points to the Congregation being involved in some way other than in the exercise of a right of subrogation. It suggests that there has been some other arrangement made with the Congregation by which it took over the claim to costs as assignee or beneficiary.

The process of reasoning by the Federal Circuit Court 46 The following facts were found by the Federal Circuit Court: (1) Mr Lowbeer incurred legal costs and disbursements of $61,847.74 in defending proceedings brought in the Supreme Court of New South Wales by Rabbi Tov-Lev, Mr De Varda and six others as plaintiffs against the Congregation and Mr Lowbeer; (2) Mr Lowbeer had been sued on the basis that he was the auditor of the Congregation; (3) Mr Lowbeer's solicitor in the Supreme Court proceedings was Mr Peter Arnott; (4) Caunt and Lowbeer, a company of which Mr Lowbeer was a director, paid legal costs of some $61,847.74 to Mr Peter Arnott; (5) Mr Lowbeer sought reimbursement from the Congregation of the amount of $61,847.74 on the basis of a provision in the constitution of the Congregation to the effect that there was an obligation to indemnify an auditor of the Congregation out of the funds of the Congregation against all liability incurred by him as auditor in defending proceedings; (6) On 2 May 2013, Mr Lowbeer wrote to Mr Neumann (a representative of the Congregation) expressing disappointment about the costs not being paid by the Congregation and asking whether Mr David Austin (a solicitor who had acted for the Congregation in the Supreme Court proceedings) had been given instructions to commence the bankruptcy process so those who were liable to pay the costs could be made bankrupt as soon as possible; (7) On 3 May 2013, Mr Neumann responded (and copied in Mr Austin): I have not been able to get consensus without a face to face meeting (which now does not seem likely until 2 June 2013) except in respect of the difference between the costs awarded and your actual costs being $13,635.12. Since David is acting for you in the enforcement of the costs order and the time given has expired you can instruct him to institute bankruptcy proceedings against those you determine (and we agree de Varda and Cliffe should be included) and then look to the [Congregation] for costs not recovered. Alf is sending David an advance against your costs of issuing and serving Notices. (8) On 6 May 2013, Mr Lowbeer responded (and copied in Mr Austin): I am again disappointed in how this is going but it seems I have no choice but to wait till the 2 June 2013. In the meantime, we will accept $13635.12 as part payment ... As Caunt and Lowbeer nor I have any cost agreement with David, would you please confirm that you, [the Congregation], will cover all costs of recovery of all the people we determine to claim against. Do you require us to make a claim against everyone and bankrupt everyone, before you will comply with your constitution and pay out the balance of our costs or are there a minimum number of people ... (9) On 10 May 2013, Mr Neumann responded: "I confirm [the Congregation] will meet the costs of recovery action. We have sent the cheque for the difference out to you today"; and (10) The legal costs of the proceedings before Rares J were paid by the Congregation. 47 On the basis of these facts the Federal Circuit Court found at [18]-[19]: … The substance of the agreement [with Mr Austin] was that [the Congregation] would engage Mr Austin to recover the Supreme Court Assessed Costs (namely, $48,212.62) by commencing bankruptcy proceedings in the name of Mr Lowbeer, but at the cost of [the Congregation]; and that [the Congregation] would pay to Mr Lowbeer out of its own funds so much of the $48,212.62 as would not be recovered as a consequence of the contemplated bankruptcy proceedings against the plaintiffs in the Supreme Court proceedings, including Mr De Varda and Rabbi Tov-Lev (Costs Recovery Agreement). Pursuant to the Costs Recovery Agreement Mr Austin took steps in the name of Mr Lowbeer to enforce the Supreme Court Assessed Costs by commencing bankruptcy proceedings that resulted in the making of the Sequestration Orders (Bankruptcy Proceedings). There is no direct evidence of the person or entity to whom Mr Austin issued invoices for the work he performed in the Bankruptcy Proceedings or the [proceedings heard by Rares J]. Given, however, that in his email of 6 May 2013 to Mr Neumann Mr Lowbeer noted Caunt and Lowbeer did not have a costs agreement with Mr Austin, and it is acknowledged [the Congregation] paid Mr Austin's costs, it is reasonable to infer, and I do infer, that Mr Austin issued to [the Congregation] rather than Mr Lowbeer invoices for work Mr Austin performed in the Bankruptcy Proceedings and in the [proceedings heard by Rares J]. 48 It is evident that the finding as to the substance of the agreement made between the parties concerning the costs of the bankruptcy proceedings the subject of the 2014 costs order made by Rares J was based on inferences from the facts as found. 49 In subsequent reasoning, the Federal Circuit Court found that there were substantial reasons for questioning whether behind the certificates of taxation in respect of the 2014 costs order there was in truth and reality a debt due to Mr Lowbeer: at [47] and [58]. The primary judge dealt with the evidence in the emails (quoted above). In particular, reliance was placed on the evidence that it was the Congregation's lawyer, Mr Austin (who the primary judge described as the person with whom Mr Lowbeer did not have a costs agreement) who was retained and it was the Congregation who retained Mr Austin to provide the relevant legal services (reflecting the finding that had been made earlier): at [48]. 50 The primary judge then found that the petitioning creditor, in this case Mr Lowbeer, bore the legal burden of demonstrating that he was entitled to the 2014 costs order: at [55]-[56]. However, his Honour found that the case did not turn on burden of proof: at [57]. Rather, he found affirmatively that Mr Austin and the Congregation agreed that Mr Austin would look to the Congregation and only the Congregation for payment of the legal costs of recovering the assessed amounts of the Supreme Court costs order: at [57]. Therefore, the amount in the certificates of taxation for the 2014 costs order did not represent a true debt: at [58]. Mr Lowbeer and Mr Austin did not agree that Mr Lowbeer would have some liability, however remote or contingent, to pay Mr Austin's legal costs for work he was to perform in the proceedings heard by Rares J: at [56].

The grounds of appeal 51 The submissions for Mr Lowbeer on the appeal identified four issues (each corresponding with a ground of appeal). The fourth issue only arises for consideration if Mr Lowbeer is otherwise successful in the appeal. The other issues were expressed by counsel for Mr Lowbeer in the following terms: 1. Whether the primary judge erred by making a finding that the appellant did not assume any potential liability for Mr Austin's costs of acting for him in two Federal Court proceedings which the appellant brought against the respondent. 2. Whether the primary judge erred in law in holding that the appellant bore the onus of proving that he and Mr Austin did not reach an agreement that he would not, in any circumstances, become liable to pay Mr Austin's fees in the proceedings the subject of the certificates of taxation issued by the Federal Court of Australia (Certificates of Taxation). 3. Whether the primary judge erred in law in finding that there were substantial reasons for questioning whether the Certificates of Taxation represented a true debt and the amounts recorded in the Certificates did not represent a true debt. (Footnotes omitted) 52 In considering the merits of these grounds, it is important to bear in mind the nature of the task before the Federal Circuit Court on the hearing of the creditor's petitions, particularly in relation to the debt upon which the petitions were based.

General principles concerning proof of petitioning creditor's debt 53 On the hearing of a creditor's petition, the court has a statutory duty to be satisfied for the purposes of s 52 of the Bankruptcy Act 1966 (Cth) as to the existence of the petitioning creditor's debt. Therefore, on such an application, a judgment or order is never conclusive of the existence of a debt. Rather, the court must decide whether to accept the judgment or order as proof of the debt or to go behind the judgment or order (sometimes described as a discretion). Usually, a determination after a contested hearing will provide a practical guarantee of reliability that will mean that the court will not go behind the judgment or order. The court looks with suspicion on consent judgments and default judgments. However, all depends upon the circumstances. If the court is persuaded to go behind the judgment or order then it will investigate the debt upon which the creditor's petition is based. For a creditor's petition to be dismissed on the basis that in truth and reality there is no debt behind the judgment, there must first be a proper basis to exercise the discretion to go behind the judgment and then an assessment that, in truth and reality, there is no debt. These are separate questions that might be determined separately. As to these matters, see the judgment of Kiefel CJ, Keane and Nettle JJ in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28 at [16], [37]-[38], [65]-[71]. 54 The test or standard to be applied in deciding whether to accept a judgment order as proof of the debt for the purposes of a petition for sequestration orders has been variously expressed. 55 In Petrie v Redmond [1943] St R Qd 71 at 75-76, Latham CJ (with whom Rich and McTiernan JJ agreed) said that "special circumstances" must be established. In Corney v Brien (1951) 84 CLR 343 at 347, the plurality quoted with approval a passage in In re a Debtor [1929] 1 Ch 125 at 127 in which it was said that the court may, "upon a prima-facie case being shown, go behind a judgment for the purpose of satisfying itself" that there was a real debt (see also Fullager J in Corney v Brien at 356-357). In Ramsay Health Care at [20], the plurality quoted with apparent approval a passage from Wren v Mahony (1972) 126 CLR 212 at 224-225 in which Barwick CJ said that the discretion to accept the judgment as proof is not well exercised where there are "substantial reasons" to go behind it, but in an earlier passage (also quoted in Ramsay Health Care at [42]), Barwick CJ referred to going behind a judgment "where reason is shown". 56 The plurality in Ramsay Health Care accepted the argument for the respondent that the Court should go behind a judgment where "sufficient reason is shown for questioning whether behind the judgment there is in truth and reality a debt due to the petitioning creditor": at [37]-[38]. Edelman J in a separate judgment supporting the result referred to authorities where courts exercising bankruptcy powers had been "extremely cautious" before going behind a common law judgment: at [108]-[109]. His Honour said that "in the absence of some evidence of fraud, collusion, or miscarriage of justice, a court exercising bankruptcy jurisdiction will rarely have substantial reasons to investigate whether the debt which merged in the judgment is truly owed": at [111]. 57 However, there appears to be no magic in any of these formulations. As Fullager J said in Corney v Brien at 356, "[n]o precise rules exist as to what circumstances call for an exercise of the power". That is because in each case there must be a contextual consideration as to whether, for the purposes of s 52 of the Bankruptcy Act, the debt has been proven. In all cases, it must be borne in mind, as was stated by the plurality in Ramsay Health Care at [55], that: The scrutiny required by s 52 as to whether there is, in truth and reality, a debt owing to the petitioning creditor serves to protect the interests of third parties, particularly other creditors of the debtor. It is of critical importance to appreciate that such persons were not parties to the proceedings that resulted in the judgment debt. It has long been recognised that their interest in being paid their debts in full should not be prejudiced by the making of a sequestration order in reliance on a judgment debt which does not reflect the true indebtedness of the debtor to the petitioning creditor … 58 The three issues raised seek to challenge findings made by the Federal Circuit Court to support the conclusion that in truth and reality there was no debt due by Rabbi Tov-Lev and Mr De Varda to Mr Lowbeer in respect of the 2014 costs order because Mr Lowbeer had no liability to pay those costs.

Issue 1: The finding that Mr Lowbeer was not liable for Mr Austin's costs 59 The first issue concerns a challenge to the factual finding by the primary judge that Mr Austin was engaged by the Congregation and Mr Lowbeer had no liability, however remote or contingent, to pay Mr Austin's legal costs. 60 An appeal to this Court is by way of rehearing. Within the constraints marked out by the nature of the appellate process, there must be real review: Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at [25]. The task of this Court is to correct error. Where factual findings are challenged, they must be demonstrated to be wrong: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 at [22]-[30]. 61 Where the relevant facts are incontrovertible facts or are the subject of uncontested testimony then an appeal court may interfere with findings that have been shown to be contrary to those facts. The court may also intervene if the factual findings at first instance were "glaringly improbable" or "contrary to compelling inferences": Robinson Helicopter Company Inc v McDermott [2016] HCA 22 at [43]. The quoted phrases are from the reasons of Gleeson CJ, Gummow and Kirby JJ in Fox v Percy at [28]-[29] where their Honours were dealing with those instances where there was a contest between performing the function of undertaking a real review, on the one hand, and recognising the limits of the appellate process, on the other. In such instances, the court in dealing with challenges to factual findings below will need to evaluate the extent to which the finding depends upon an advantage enjoyed by the trial judge: Aldi Foods Pty Ltd v Moroccanoil Israel Ltd [2018] FCAFC 93 at [2]-[10] (Allsop CJ) and [45]-[54] (Perram J), both of with whom Markovic J agreed. Where the advantage is considerable, the court will generally confine any interference with those findings to cases where the findings are glaringly improbable or contrary to compelling inferences. 62 As we have noted, the factual finding as to the terms of the engagement of Mr Austin was made by inference. The inference was drawn from facts that were not really in contest. The relevant facts were of narrow compass. Therefore, it may be accepted that this is a case where the primary judge had no special advantage over this appeal court in drawing inferences from those facts. In the language used by Gleeson CJ, Gummow and Kirby JJ in Fox v Percy, in this case there are no "constraints" as to the review of the factual findings that arise from the nature of the appellate process. So, issues of the kind considered in Starkey on behalf of the Kokatha People v State of South Australia [2018] FCAFC 36 at [13]-[31], [355], [402] do not arise here. 63 For the following reasons, it has not been demonstrated that there was error in the factual finding by the primary judge as to what was agreed concerning the engagement of Mr Austin. 64 Much of the argument advanced in support of the appeal on issue 1 was to the effect that there was no issue before the primary judge as to whether there was a valid costs agreement between Mr Lowbeer and Mr Austin. For reasons already given, we do not accept that was the case. 65 Otherwise, the submissions for Mr Lowbeer relied upon the fact that Mr Austin was on the record for Mr Lowbeer in the proceedings determined by Rares J and the costs order was made in favour of Mr Lowbeer. 66 However, the arrangements that had been made concerning the legal costs of those proceedings were not scrutinised by Rares J. As we have explained, Rares J proceeded on the usual basis in making such costs orders, which is to assume the existence of a retainer unless an issue is raised. Therefore, there was no forensic inquiry or determination of the issue as to who was liable for those costs. In those circumstances, the 2014 costs orders did not reflect a determination after a considered hearing of a kind that provides a practical guarantee of reliability. 67 Then it was submitted in support of Mr Lowbeer's appeal that the content of the email communications was explained by the Congregation's obligation to indemnify. However, there are a number of difficulties with that submission given the terms of the emails and the state of the other evidence. 68 First, the Congregation was not acting as an indemnifying party because it was not agreeing to pay all the costs that had been incurred in the Supreme Court proceedings. Rather, it was seeking to make a different arrangement whereby action would be taken against Rabbi Tov-Lev, Mr De Varda and others at the Congregation's cost to enforce the Supreme Court costs order and Mr Lowbeer would be paid out of the monies recovered from that action. 69 This was not the exercise of a right of subrogation. Further, as already noted, a party who has not paid the amount required by the indemnity is not subrogated. 70 Second, Mr Austin had acted for the Congregation in the Supreme Court proceedings and Mr Lowbeer had been represented by other lawyers. This historical context supported an inference that Mr Austin was engaged by the Congregation. 71 Third, it was a simple matter for Mr Austin to give evidence as to the actual arrangements made concerning his engagement and to produce any agreement and any invoices, but he did not do so. 72 Fourth, when questioned by Mr De Varda, Mr Austin did not say that he had been engaged by Mr Lowbeer. Rather, he said that he was acting for Mr Lowbeer "as trustee for" the Congregation and there had been an equitable assignment of the debt. Of course, an equitable assignment of the right to recover the costs would mean that it was the Congregation that was ultimately entitled to the monies paid under those orders and that the liability, at least in equity, was to the Congregation, not Mr Lowbeer. 73 Fifth, in the email exchange set out at [46] above there was first an inquiry as to whether the Congregation had given instructions to Mr Austin to commence bankruptcy proceedings (2 May 2013). Then there was a response from the Congregation saying that as Mr Austin was acting for Mr Lowbeer in the enforcement of the order, then Mr Lowbeer may instruct him and then look to the Congregation for the amount not recovered (3 May 2013). Mr Lowbeer then sought confirmation that as neither he nor Caunt and Lowbeer had any costs agreement with Mr Austin, the Congregation would cover all costs of recovery (6 May 2013). There was a response that the Congregation "will meet" (emphasis added) the costs of the recovery action (10 May 2013). In those circumstances, taking account of the other evidence, it was open to infer that the result was that the Congregation agreed that it would engage Mr Austin and that is what happened. 74 Sixth, to the extent that submissions were advanced to the primary judge that the payment by the Congregation of the 2014 costs order made by Rares J in favour of Mr Lowbeer gave rise to a "right of recoupment", an indemnifying party has a right to reimbursement: Stewart v Atco Controls Pty Ltd (in liq) at [50]. Though not amplified in any real way before the primary judge, the claim to recoupment would appear to be of that character. However, a claim of that kind would have to be brought by the Congregation against Rabbi Tov-Lev and Mr De Varda. 75 If the claim to recoupment be a separate expression of the basis for subrogation, the concept of unjust enrichment is not to be seen as supplying a sufficient application of the doctrine of subrogation in any particular case: Bofinger at [85]. Views to the contrary in Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 should not be applied: Bofinger at [96]-[98]. 76 Outside the emails, it was separately submitted that it should be inferred from the existence of cl 116 of the articles of association of the Congregation that the proceedings before Rares J had been pursued by the Congregation as a subrogated party. If that was the case then there would be a liability on the part of Mr Lowbeer for the costs, but they had been paid by the Congregation as an indemnifying party. In those circumstances, the payment under the indemnity would not mean that there was no liability on the part of the indemnified party to meet the costs. Rather, the situation would be of the kind explained in Coshott v Woollahra Municipal Council [2008] NSWCA 176 at [11]. 77 However, there are a number of difficulties with this submission. 78 First, it disregards the other evidence, particularly, the email exchange and the oral evidence of Mr Austin. 79 Second, it disregards the significance of the failure to lead evidence about what was actually agreed as to the engagement of Mr Austin, the terms of engagement and the accounts rendered in respect of the legal work relating to the proceedings heard by Rares J. Where material is peculiarly within the knowledge of a party then it may be sufficient for the opposing party to adduce slight evidence of a matter in issue. If a decision not to call the evidence is then made by the party with the knowledge then that party bears the risk that the court may draw inferences contrary to its interests: Gerrard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453 at [26]. 80 Third, when the proceedings were heard by Rares J, the Congregation had not indemnified Mr Lowbeer in respect of his defence costs of the Supreme Court proceedings. Instead of the Congregation acknowledging that obligation and paying all the costs incurred by Mr Lowbeer (or Caunt and Lowbeer) in the Supreme Court proceedings, it proposed an arrangement whereby it would not pay the assessed amount of the Supreme Court costs order. Rather, it would pay immediately $13,635.12 (being the costs actually incurred by Mr Lowbeer over and above that assessed amount), and the Congregation's lawyer in the Supreme Court proceedings would be engaged to pursue bankruptcy proceedings for the assessed amount. The costs of those enforcement proceedings would be paid by the Congregation. Payment to Mr Lowbeer of any unrecovered amounts would only occur after those steps had been taken. These are not the actions of a party accepting an obligation to indemnify. 81 Fourth, the terms of cl 116 of the articles of association provide for an auditor (amongst other persons) of the Congregation to be indemnified out of the funds of the Congregation against all liability incurred as auditor (amongst other roles) "in defending proceedings". The bankruptcy proceedings were proceedings commenced by Mr Lowbeer, not proceedings defended by him. Confronted with that aspect, counsel appearing for Mr Lowbeer submitted that cl 116 "was the source of the obligation which then became a positive obligation through arrangements between the Congregation and Mr Lowbeer". These arrangements were then described as contractual and, by implication, were covered by the indemnity rights originally established as relating to the Supreme Court proceedings. These submissions expose the difficulties in reaching any conclusions from the terms of cl 116 as to what the arrangements may have been between Mr Austin and the Congregation concerning the costs of the proceedings before Rares J. 82 For these reasons, issue 1 should be determined adversely to Mr Lowbeer and ground 1 should not be upheld.

Issue 2: The onus of proof of the existence of a debt on a creditor's petition 83 Before the primary judge and on appeal, the submission made for Mr Lowbeer was that even though there was no evidence in the proceedings before the primary judge as to whether there was or was not a costs agreement, where a solicitor is on the record for a party then, in the absence of proof to the contrary, there is a presumption that the solicitor can look to the party for costs. There was no suggestion that the presumption might not be rebutted by evidence. Therefore, it is a point that only has significance if there is no evidence upon which the Court could base a finding as to whether there was a liability on the part of Mr Lowbeer as to the costs charged by Mr Austin for the conduct of the proceedings before Rares J. 84 The primary judge did not dismiss the creditor's petition on the basis of onus of proof. His Honour made an affirmative finding that in truth and reality there was no debt because Mr Lowbeer did not incur any liability to Mr Austin: at [56]-[57]. In dealing with issue 1, we have found that there was no factual error in that finding. Therefore, there is no need to deal with issue 2. 85 Nevertheless, had the issue been determinative, we would not have upheld the submission advanced as to issue 2 in support of the appeals. 86 There is support for the view that there is a presumption of the kind alleged which is applied in the context of the making of costs orders: Marsh v Baxter [No 2] at [37]; Halliday and Ernst & Young (Reg) v Tynski Pty Limited (2003) 47 ACSR 433; [2003] FCAFC 233 at [35]. In Noye v Robbins [2010] WASCA 83 at [300]-[303], Owen JA cited authority to the effect that it was a matter to be inferred in the absence of evidence when making costs orders. 87 However, in considering whether to make sequestration orders, the primary judge was not exercising a costs jurisdiction by reference to common law principles. Rather, the Federal Circuit Court was required to consider whether the statutory requirement in s 52(1) of the Bankruptcy Act had been met. Section 52 requires proof of the fact that the debt upon which the petitioning creditor relies is still owing. As already noted, there is considerable jurisprudence to the effect that the Bankruptcy Court must consider whether to proceed on the basis of a judgment or order as proof of the debt and in appropriate circumstances may go behind the judgment or order. In any case, proof is expressly required. 88 In our view, the statutory requirement for proof does not import common law principles whereby there may be a presumption or inference even though there be no proof. We agree with the approach of Moshinsky J in Cheung v Burness (Trustee) [2016] FCA 1381 at [79], applying Fullager J in Corney v Brien. The trial judge was correct in so holding and issue 2 should be so determined. It follows that ground 2 should not be upheld.

Issue 3: Substantial reasons for question whether there was in truth and reality a debt 89 There are two main reasons why the primary judge was correct to find that there were substantial reasons to question whether there was in truth and reality a debt due to Mr Lowbeer in respect of the amounts that had been assessed to be payable under the 2014 costs order made by Rares J. 90 First, in making the 2014 costs order Rares J was not asked to consider whether Mr Lowbeer had any liability for the costs of the proceedings that might support the costs order. He did consider the email exchange, but only for the purpose of considering whether the Congregation had paid the costs that constituted the debt on which the earlier sequestration proceedings were based. In those circumstances, it may be inferred that Rares J proceeded on the basis of the usual presumption in making those orders. The sequestration proceedings before the primary judge were the first occasion upon which there was any scrutiny as to the actual arrangements made with Mr Austin as to who was liable for the payment of his fees in acting in the proceedings before Rares J. 91 Second, the evidence before the primary judge raised serious issues as to whether Mr Lowbeer had any liability to Mr Austin for his costs in the proceedings before Rares J.

Issue 4: Order dispensing with rule 4.06(2) of Bankruptcy Rules 92 Had the appeals been upheld, then Mr Lowbeer sought an order dispensing with compliance with r 4.06(2) of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) which was not complied with before the primary judge. The respondents to the appeals accepted that there would be no prejudice if such an order was made. The failure to comply was explained by affidavit. If the appeals had been successful we would have granted the orders sought to rely on the affidavit and dispense with compliance with r 4.06(2).

Procedural fairness 93 At some points in oral argument the submissions advanced for Mr Lowbeer had the character of a claim that the primary judge had not provided procedural fairness. In particular, it was said that it would not have been apparent to a reasonable person in the position of Mr Lowbeer as the petitioning creditor that there was an issue as to whether Mr Lowbeer had any liability to Mr Austin in respect of fees. Counsel appearing for Mr Lowbeer in the appeal was given an opportunity during the course of the appeal to consider whether to seek leave to raise a procedural fairness ground. The Court adjourned for that purpose. After the adjournment, the Court was informed that leave was not sought. Nevertheless, submissions in relation to that issue have been dealt with insofar as they were relevant to issue 1.

Subrogation and petitions for bankruptcy 94 The Bankruptcy Act confers jurisdiction to make sequestration orders. Relevantly for present purposes, it provides that where a debtor has committed an act of bankruptcy, the Court may, in certain circumstances on a petition presented by a creditor, make a sequestration order against the estate of the debtor: s 43(1). 95 As we have noted, the subrogation claim advanced by Mr Lowbeer depends upon the application of an equitable doctrine. It is a claim of a kind that acts upon the conscience of both the party to an indemnity arrangement and a third party. Although subrogation has been held to confer all the rights and remedies of the party indemnified, it does so by operation of equitable principles. There remains a question of statutory construction as to whether the relevant provisions in the Bankruptcy Act include a party seeking to exercise the statutory right to present a creditor's petition by invoking the equitable doctrine of subrogation and standing in the shoes of a creditor who has been indemnified. 96 An assignee of a debt can bring a creditor's petition: Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCACF 18 at [21]-[22]. However, for reasons we have given, a right of subrogation does not involve an assignment. Further, the Congregation did not bring the petition as assignee. 97 In Re Vassis; Ex parte Leung (1986) 9 FCR 518, the debt relied upon was a claim arising from a breach of trust by a solicitor. The claim was found to create a debt in equity that was provable under s 44 of the Bankruptcy Act. The creditor was the receiver of a legal practice appointed by the court under legislation regulating the legal profession. Under that legislation, where a person who had suffered loss through the defalcation of a solicitor had been paid statutory compensation, the receiver had all the rights and remedies of the person against the solicitor. The creditor was seeking to petition for the bankruptcy of the solicitor, Mr Vassis, in such circumstances. The court found that the statutory provision subrogated the creditor as receiver to the equitable debt owed to the person who had been paid compensation. On the basis of that subrogated position, Burchett J held that the creditor could bring the petition: at 527. 98 However, in the present case, the act of bankruptcy relied upon was a failure to comply with a bankruptcy notice issued in respect of a judgment for costs in favour of Mr Lowbeer. It was foundational to the submissions advanced in support of the appeal that the Congregation could cause the issue of the bankruptcy notice in the name of Mr Lowbeer in the exercise of its rights of subrogation. As we have noted, subrogation operates to allow an indemnifier who has performed the obligation to indemnify to stand in the shoes of the indemnified party. 99 Historically, an assignee of a judgment debt by operation of law could not cause a bankruptcy notice to issue: Re Goldring; Ex parte Harper (1888) 22 QBD 87. The bankruptcy legislation was amended to provide that any person entitled to enforce a final judgment shall be deemed to be a creditor and is entitled to issue a bankruptcy notice (see s 40(3)(d)). However, that change in the law does not mean that a party exercising a right of subrogation (in this case the Congregation) can issue a bankruptcy notice in the name of the indemnified party (Mr Lowbeer) and seek sequestration orders on the basis of a failure to comply. It may be entitled to proceed in its own name to obtain a sequestration order based upon a failure to comply with a bankruptcy notice in respect of the judgment. However, that would depend upon whether it was entitled to enforce the judgment even though it was given in favour of Mr Lowbeer: Abigroup Ltd v Abignano (1992) 39 FCR 74 at 87. 100 These are matters on which argument was not heard in the appeal and in respect of which an opportunity would need to be extended for further submissions if they were to be dealt with in the appeal. 101 However, as Mr Lowbeer has not succeeded in the present appeal it is not necessary to reach a final view on the jurisdictional issue whether the Congregation can issue a bankruptcy notice and obtain sequestration orders based upon a failure to comply with the notice in the exercise of a right to subrogate.

Conclusion and costs 102 For the above reasons, the appeals should both be dismissed with an order for costs. Rabbi Tov-Lev and Mr De Varda acted on their own behalf in the appeals. Counsel prepared written submissions and appeared for them at the hearing of the appeals in response to a pro bono reference. The Court is most grateful for their assistance. In the circumstances, the order for costs will be confined to those costs that may be recovered by litigants in person with liberty to apply within 14 days for any variation to the costs orders based upon any matters not apparent to the Court from the record on appeal. I certify that the preceding one hundred and two (102) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Reeves, Farrell and Colvin.

Bankruptcy Act 1966(Cth)ss 43(1), 52

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