Savage v Australian Unity Funds Management Ltd

Judgment 1YOUNG JA: The present matter arises out of an agreement for the development of a parcel of land in Orange, owned by a company called Forest Road Development Pty Ltd, of which agreement Mr Savage was a guarantor. As a result of default by the principal debtor, Mr Savage was sued in the District Court for some $45,000 liquidated debt, to which were added $234,000 costs which were subject to the guarantee as well. The present applicant obtained a summary judgment in the District Court for $279,431.73. 2Mr Savage filed a notice of appeal. Unfortunately for him, under the District Court Act 1973 s 127(2)(d), where the District Court gives judgment on an application for summary judgment, leave to appeal is required. Mr Savage's appeal was accordingly probably incompetent. On 10 May 2011, the present applicant moved for dismissal on those grounds. 3The response was a summons for leave to appeal which Mr Savage filed on 23 May 2011. 4The summons, and indeed the notice of appeal, contained a note that it was filed by Mr Savage's legal representative, a Mr Niven, of Baldock Stacey & Niven, and the contact solicitor was Justine Ringbauer. An email address was given underneath which it was noted "electronic service address not applicable". 5Mr Savage was made bankrupt on 30 June 2011. On 1 July the applicant's solicitors asked the trustee, pursuant to s 60 of the Bankruptcy Act 1966 (Cth) to elect whether to prosecute or discontinue the action. 6On 29 July the trustee advised that it had not made an election and therefore under s 60(3) of the Bankruptcy Act the action had been deemed to have been abandoned. 7On 5 August the applicant issued the notice of motion which I am currently considering. The orders sought were that the notice of appeal be dismissed or discontinued, likewise the summons seeking leave to appeal, that Mr Savage pay the costs, preferably costs to be fixed by the Court pursuant to s 98(4)(c) of the Civil Procedure Act 2005, and that Mr Savage be restrained from commencing any other proceedings without the leave of the Court until the costs have been paid. 8The notice of motion came before me on 15 August, Ms T Dinh of counsel appeared for the applicant. Mr Savage did not appear. 9The evidence showed that the applicant's solicitor had informed Ms Ringbauer by email of the notice of motion being before the Court on 15 August and there had been a purported service of the affidavits, as attachments to emails to Ms Ringbauer. 10I was disturbed by this for a number of reasons. First, I wonder whether when an action is abandoned under s 60(3) of the Bankruptcy Act the solicitor's retainer comes to an end. Second, although an email address was given in the initiating process in the Court of Appeal, the words "not applicable" occurred after "electronic service address" and I consider that it is more likely than not that the notice of appeal and summons does not advise an address for service which includes an electronic service address. If this is so, then even if the solicitor still had authority to receive documents on behalf of a client in the matter, there was insufficient service. 11At the end of the oral hearing, I reserved and directed that the applicant write to Mr Savage personally (with a copy to his former solicitor), indicating: (a) that the applicant was seeking an order for costs against him personally; and (b) that unless he notified the applicant's solicitors by 29 August, the Court may determine the matter without his input. 12On 30 August, the applicant's solicitor filed an affidavit to the effect that the direction had been complied with and that Mr Savage had not replied. 13I now turn to the substantive matters. 14Section 60 of the Bankruptcy Act 1966 (Cth) provides in subsection 2 that: "An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action." Subsection 3 then says: "If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action." 15There is no definition of "action" in the statute. However, in Daemar v Industrial Commission of NSW (1988) 12 NSWLR 45, 54, this Court, consisting of Kirby P, Samuels and Clarke JJA, held that the word was to be given a very wide interpretation and that case, together with older cases such as United Telephone Company v Bassano (1886) 31 Ch D 630, reinforce this view. 16There are indeed a number of authorities that support the proposition that an appeal is within the term "action" in s 60(3) of the Bankruptcy Act . The High Court so ruled in Cummings v Claremont Petroleum NL [1996] HCA 19; 185 CLR 124, 130 and 142, this Court similarly in Want v Moss (1889) 10 LR (NSW) 274 and more directly in Arnoya Holdings Pty Ltd v Metway Leasing Ltd [1999] NSWCA 120 [14], and the Full Federal Court in Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545 and again in Cole v Challenge Bank Ltd [2002] FCAFC 200 [11]. 17The authorities dealing with first instance cases are to the effect that where an action is abandoned under s 60(3), the Court ought not to dismiss it, because to dismiss it would be to prevent the bankrupt from re-litigating the question once he or she became free to do so: Millane v President of the Shire of Heidelberg [1928] VLR 52; Holmes v Goodyear Tyre & Rubber Co (Aust) Ltd (1984) 73 FLR 88. 18It is arguable as to whether these decisions have any relevance in the Court of Appeal. The mere fact that the appeal is abandoned will mean that the decision below will stand. On the other hand, there is no particular reason for dismissing the appeal or refusing leave to appeal because effectively that has happened with a statutory abandonment. I am not convinced that the Court should, in this present case, actually make an order for dismissal for that reason. 19But is the respondent entitled to costs of the abandoned summons and notice of appeal? 20In Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; 234 CLR 52, the High Court made it clear that it was possible to make an order for costs in the present situation, but any order for costs would be against the bankrupt personally and would not be provable in the bankruptcy because the order was made after the sequestration. 21Ms Dinh, who appeared for the applicant, relied on the decision of the Full Federal Court in Cole v Challenge Bank Ltd. That case involved a suit under the Trade Practices Act 1974 (Cth) which was summarily dismissed at first instance and then the plaintiff lodged a notice of appeal before becoming bankrupt. The trustee wrote in reply to the other side's correspondence that he would simply allow the proceeding to become abandoned by operation of s 60(3) of the Bankruptcy Act . Gray J, who gave the leading judgment, construed the trustee's letter as an election to discontinue the appeal. With great respect, I very much doubt as to whether that was the correct analysis, but if it was, it does not seem to me that it necessary follows that the trustee's communication in the present case was such an election. However, his Honour went on to say that if he was wrong and there had been no election, then the trustee had been deemed to have abandoned the appeal. He found no authority to cover the situation as to costs and simply said at [17] "In my view, the Court should follow the normal practice and costs should follow the event". 22That decision was followed by Gzell J in Voskuilen v Morisset Mega Markets [2005] NSWSC 34. 23In both Cole's case and Voskuilen's case, the appeal or process was dismissed. However, in each case this was because the court construed the trustee's letter as an election to discontinue the appeal or proceedings. 24Where the court does not come to that conclusion, and the process involves an appeal, should the court follow the view of the old cases in Victoria and Queensland to which I referred earlier, or cases like Cole ? 25In my view, so far as an appeal is concerned, there is no reason why the application for leave to appeal and notice of appeal should not be dismissed. The same consideration about the bankrupt after discharge suing again does not apply. 26Accordingly, I consider I should accede to the application that the appeal and notice for leave to appeal should be dismissed. 27So far as costs are concerned, the applicant is entitled to costs, but as pointed out in Foots' case, those costs would be payable by Mr Savage personally and would not be provable in his bankrupt estate. 28Ms Dinh then asks that the Court assess those costs. She submits that the normal process of assessment would be an expensive process which would benefit nobody. The applicant would present its bill to a costs assessor, the likelihood would be that Mr Savage would not put in any objections and the costs assessor would then only make slight adjustments to the bill, and that would be that. However, the process would cost the applicant money. She puts that the probabilities are that Mr Savage would not be paying the bill anyhow. With respect, I doubt that last proposition. Mr Savage became bankrupt through guaranteeing somebody else's debt. There is no reason to suggest that, freed from that obligation, he would not become a prosperous person. 29Ms Dinh puts that the Court has jurisdiction under s 98(4) of the Civil Procedure Act 2005 to make an order that the applicant's costs be paid as a specified gross sum instead of assessed costs. 30Ms Dinh points to the fact that in Harrison v Schipp [2002] NSWCA 213; 54 NSWLR 738, Giles JA held that the power conferred by the rule that was in the same terms as s 98(4) of the Civil Procedure Act is not confined and may be exercised whenever the circumstances warrant its exercise. He said it may appropriately be exercised where the assessment of costs would be protracted and expensive and, in particular, if it appears that a party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment; see [21] p 742. Giles JA said, however, at [22] that: "The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available." In that case, his Honour did fix a sum to cover the costs. 31That decision was followed by Barrett J in Foyster v Foyster Holdings Pty Ltd [2003] NSWSC 135; 44 ACSR 705. Barrett J followed the principle laid down by Giles JA but held in the case before him that there was no material on which he could justly fix the costs, nor did the prime situations covered by the rule subsist in the case before him. 32There have been a number of other cases where s 98(4) has been examined; see in particular Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23 at [9], where Einstein J endeavoured to summarise the guiding principles, and Hamod v State of NSW (No 13) [2009] NSWSC 756 (Harrison J). There is also considerable discussion in the notes to s 98 in Ritchie's Uniform Civil Procedure. 33The decision of Von Doussa J in Beach Petroleum NL v Johnson (No 2) (1995) 57 SCR 119 is frequently cited with approval. Von Doussa J noted that the procedure was particularly useful in complex cases, that the power must be exercised judicially and only after giving the parties an adequate opportunity to make submissions, and that before exercising the power the court should be confident that the approach taken to estimate costs is logical, fair and reasonable. 34I was provided with an affidavit of the supervising partner which was sworn on 10 August 2011 which gave details of his firm's proposed charges. There was no affidavit of service of that affidavit, but in evidence from the witness box, a solicitor produced an email she had sent to the solicitor formerly acting for Mr Savage at 6.45pm on the previous Wednesday. 35Where there is a detailed affidavit such as the present, and the recipient is in a country town, it is extremely doubtful whether an affidavit served two working days before the hearing would be in compliance with the rule (this is assuming that service by email on the former solicitor was sufficient). However, this particular defect will be remedied by the directions I made at the hearing. 36The affidavit annexes 39 pages of what appear to be copy bills or memoranda of fees. The affidavit does not comply with good practice in that the 39 pages of annexures should have been an exhibit to save costs of photocopying. However, looking at the merits of the matter, the affidavit shows four lawyers involved in the relatively simple matter of a probably incompetent appeal from a summary judgment in the District Court. There was the partner in charge, a man of 7 years' experience. His charge out rate was $670 per hour. There was an assistant solicitor admitted in 2007 whose initial charge out rate was $395 an hour, but for some reason or other this was increased by $50 to $445 an hour, a month or so ago. There is nothing to show the client was ever told of this rise. 37Then the third solicitor was a lady whose name does not even appear in the 2011 Law Almanac, whose charge out rate was $280 per hour, $20 an hour more than the barrister who was briefed to take charge of the case in court. 38Some of the entries do not appear to be ones which a cost assessor should allow if there were objection made to them. 39For instance, on 3 May there is an entry by the assistant solicitor that she reviewed the notice of appeal, she reviewed the rules re the entitlement to lodge appeals, she drafted an email and discussed it with the senior solicitor, all of which took her 1.4 hours, and the client was charged $553. Ordinarily, solicitors of four years' standing should have sufficient familiarity with the rules as not to require time to research and why should the client have to spend its money in having two of the solicitors on the team confer with each other. 40Then the same solicitor took almost three hours at the cost of $1,145.50 to prepare a simple notice of motion and to send an email to counsel about it. 41The third solicitor phoned the District Court, evidently because the orders she had filed were wrong, she then amended the orders and attended the District Court and the client was charged $840. However, she did not get it right even then, because four days' later she charged an extra $280 for further looking at the matter and then the assistant solicitor charged a further $118.50 for reviewing what she had done. She charged an extra $504 for doing much the same thing five days' later. 42The bill also includes a considerable amount of charges for the three solicitors conferring with each other about the case. 43The bill appears to be so replete with items which should not be allowed that I would have no confidence in the senior solicitor's assertion in paragraph 17 of his affidavit that the applicant would be likely to recover approximately 70 to 80% of its costs and disbursements if the matter were to proceed to a formal assessment, that is, somewhere about $30,000. 44Accordingly, the matter is not one in which I would feel confident in fixing a gross sum. The authorities say that I cannot just say, well what about $10,000? I must have the material to make a genuine estimate of proper gross fees and that I cannot do. Furthermore, although I agree that the main criteria are not the only matters that would trigger the Court into making a gross fees order, the principal criteria are not there. True it would be a nuisance and would be some cost to prepare a proper bill of costs, but this is not a complex matter and a competent lawyer should be able to do it in a few hours. It may be that Mr Savage will not pay the costs anyhow, but it must be remembered that these costs will be against him personally and it may very well be that some time within the next six years he will be in a position where he can pay and will be made to pay. I will not assume that he is unable to do so. 45Accordingly, whilst I will make an order for costs, I will not make an order for gross costs. 46Finally I should pay tribute to Ms Dinh for the professional way she presented her argument. For every query I had, she had a possible answer, usually supported by authority. Were that every argument proceeded in such a manner. 47Accordingly, I dismiss the appeal and motion for leave to appeal with costs against Mr Savage.