Maxwell-Smith v S & E Hall, in the matter of Maxwell-Smith

REASONS FOR JUDGMENT 1 This is an application to annul the bankruptcies of Mr Eugene and Mrs Inge Maxwell-Smith ("the applicants"). A Registrar of this Court made the sequestration orders on 15 September 2003. I will refer to the events immediately preceding the hearing before the Registrar in more detail later in this judgment. On 10 September 2003 I gave judgment in an appeal against a judgment of a Federal Magistrate ("the appeal") dismissing an application by the applicants to set aside a bankruptcy notice (Maxwell-Smith v S & E Hall Pty Ltd [2003] FCA 953). It is convenient to set out some of the relevant history by repeating an account given in that judgment. It was to the following effect. 2 The Federal Magistrate gave judgment in relation to the application to set aside the bankruptcy notice on 22 April 2003. Revised reasons for judgment were published on 5 May 2003. The bankruptcy notice was issued on 4 December 2002 and was served on the applicants on 13 February 2003. The notice was based on a judgment of the Local Court of 20 May 1999 which was, in turn, based on a certificate assessing costs arising from orders made by the Supreme Court of New South Wales on 8 December 1998 and entered 19 May 1999. In the Supreme Court, the applicants sought a declaration that they had been denied natural justice by the Consumer Claims Tribunal ("the Tribunal") when acting as the Building Disputes Tribunal. The grounds on which a decision of the Tribunal can be challenged by way of appeal or judicial review were very limited under the Consumer Claims Tribunal Act 1987 (NSW). The applicants were unsuccessful and were ordered to pay the defendant's costs. 3 In its decision of 29 August 1997, the Tribunal dealt with a dispute between the applicants and the respondent, S & E Hall Pty Ltd ("the builder") who had built a home for the applicants at Tura Beach, Merimbula. The bankruptcy notice (with which the Federal Magistrate was dealing) was served by the builder. The builder ultimately became the petitioning creditor. Part of the case of the applicants before the Tribunal was that some of the building work was defective. This was accepted by the Tribunal (at least as to some of the work) and it allowed a sum of $596.50 for the work to be rectified. This sum was offset against an amount the Tribunal assessed was due to the builder. One feature of the building that the applicants said was not built satisfactorily was a skylight. 4 The essence of the complaint made by the applicants in the appeal was that the defective work had, since the Supreme Court proceedings, been assessed as costing, and in fact had cost, considerably more than the amount determined by the Tribunal. The work had cost $9,590. This was said to be illustrated by a report prepared by the Department of Fair Trading dated 4 August 1999 ("the Departmental report"), which, for example, had accepted that the rectification of the skylight would require reconstruction of a complete new skylight, which had been quoted as costing $4,500. It also had accepted, by way of further example, that patching up and re-painting a kitchen ceiling adjacent to the skylight damaged by water would cost $610. The Departmental report had accepted that both these matters (and other matters) were justified as general defects. I should note that the applicants complained in the appeal (perhaps with some justification on the material furnished in the appeal which includes video footage of the damage which was presented to the Tribunal) that the repair of the water-damaged ceiling had not been a matter addressed by the Tribunal and no allowance (by way of offset) had been made. 5 On the applicants' analysis, because it emerged that the cost of rectifying the defective work considered by the Tribunal exceeded (by a significant margin) the allowance the Tribunal made, it was apparent that the Tribunal's decision was fundamentally flawed. Accordingly, had these matters been known to the Supreme Court, it could have and perhaps would have reached a different conclusion with the result that the costs order would not have been made. I should make it plain in this judgment, that when I made the same observations (in the preceding two sentences) in the appeal judgment of 10 September 2003, I was not expressing my own conclusions about the Tribunal's decision and what had happened in the Supreme Court. Rather, I was only setting out the analysis of the applicants and the conclusions they had reached. 6 The applicants submitted in the appeal that in these circumstances, the Federal Magistrate should have gone behind the judgment debt and, in particular, should have done so on the footing that to leave the judgment untouched would cause a substantial miscarriage of justice: Corney v Brien (1951) 84 CLR 343. In the appeal judgment of 10 September 2003, I dealt with this submission in the following way at [7] and following: The power to set aside a bankruptcy notice is a discretionary one: see, for example, Farrugia v Farrugia (2000) 99 FCR 16 at 23-24. The principles which apply in an appeal from the exercise of a discretionary power are well settled: see, for example, House v R (1936) 55 CLR 499. It is clear to me from paragraph 9 of his reasons for decision, that the Federal Magistrate was aware of, and dealt appropriately with, the point that the [applicants] were making. His Honour said: It is possible that the Tribunal was mistaken in its assessment of the cost of the rectification work. However, the fact that the Tribunal may have been in error in assessing that cost is not a reason to go behind the judgment of the Supreme Court, let alone the subsequent costs determination enforced in the Local Court. The Supreme Court found that there was no legal error in the proceedings before the Tribunal justifying that Court in interfering with the decision of the Tribunal. Nothing that has been advanced before me today by Mr Maxwell-Smith supports a conclusion that I should go behind the decision of the Supreme Court, or the Local Court. Mr Maxwell-Smith cannot in these proceedings re-open the issue dealt with in the Tribunal. In my opinion, the approach taken by the Federal Magistrate was an approach open to his Honour and is not attended by error of the type discussed in House v R (above) at 504-555. That is, his Honour did not act on a wrong principle, did not allow extraneous or irrelevant matters to guide or effect him, did not mistake the facts and did not fail to take into account some material consideration. In any event, the underlying approach of the [applicants] in inviting the Federal Magistrate to go behind the judgment founding the bankruptcy notice is almost certainly misconceived. The costs order was made in the administrative law proceedings brought by the [applicants] in the Supreme Court. A process of assessment of the costs payable under the order was undertaken under the Legal Profession Act 1987 (NSW) resulting, it can be inferred, in the filing of a certificate of an assessor in a Local Court. By operation of s 208J of that Act, the certificate (once filed) can be taken to be a judgment of that Court. There is, in effect, nothing to go behind insofar as the Local Court is concerned. Indeed the [applicants] appeared to disavow any interest in the process of certification and filing when I raised it with them, even though that process has the appearance of converting an order of the Supreme Court into an order of the Local Court. Insofar as the Supreme Court order is concerned, it was an order requiring the payment of an unspecified amount as costs. It is not an order for the payment of a sum arising from a contested hearing (or even a consent order) where the underlying legal or factual foundation (or both) for the order might, in an appropriate case, be scrutinised by a court exercising bankruptcy jurisdiction to determine whether the sum was, in truth (as a matter of fact and law), owing. It was that type of case that was considered by the High Court in Corney v Brien (involving a default judgment for an amount allegedly due for the sale of a tractor). A court exercising bankruptcy jurisdiction does not have a general power to consider the "fairness" of the liability on which the bankruptcy notice is founded. In the present case the Supreme Court determined the proceedings brought by the applicants on the material before it (as it was duty bound to do). Because, by reference to the material, the [applicants] failed to obtain the orders they sought, they were ordered to pay the defendant's costs. Again there is really nothing, in substance, to "go behind" in relation to the costs order in the Supreme Court. The [applicants], in their written submissions, also alleged bias on the part of the Federal Magistrate on the basis that his Honour, before the parties had put their submissions, said words to the effect that he gave the [applicants] very little chance of success with their application. While the comment (accepting for present purposes it was made) may have been taken to indicate a predisposition on the part of the Federal Magistrate, it would not have been taken by a fair-minded observer to evidence a closed mind. The [applicants] have not established a ground for setting aside the judgment of the Federal Magistrate. Accordingly the appeal should be dismissed with costs. However I also propose to ascertain whether I should make an order requiring the parties to mediate. The [applicants] believe they have been, in effect, the victims of a gross unfairness. Not only do they complain about what happened in the Tribunal, but they also point to their liability under costs orders in this Court in relation to proceedings concerning (as I understand it) the legal efficacy of a bankruptcy notice which was ultimately not relied upon in a later application for sequestration orders based on a creditor's petition because the notice was viewed by the petitioning creditor (the respondent) as defective. Whether the [applicants'] complaints are justified or (scilicet) not is not a matter about which I should express a view. However the applicants presently appear to be heading down a path of further litigation in which liability for costs may arise which they have no capacity to manage or meet. Indeed that point may have already been reached. They also face the possibility of sequestration orders being made. The [applicants] informed me that their only significant asset was their retirement home (the building of which was the subject of the dispute before the Tribunal), they are pensioners and their income is thus limited. It would be unfortunate if some further attempt were not made to resolve all issues between the parties. However, it would probably not be productive to order mediation in this matter unless the parties agreed to engage in the process. It is for this reason I have made orders requesting the parties to advise whether they agree to mediation, and generally restricted the entry of these orders until this position is made clear. 7 It can be seen that, in the appeal judgment, I intended to dismiss the appeal of the applicants to set aside the bankruptcy notice but to put in train a procedure which, if agreed to by the parties, might have resulted in a settlement of the dispute between them through mediation. 8 The orders I made were in the following terms: