Scott v NIMLAW Pty Ltd

1. The application accepted for filing on 1 December 2023 is dismissed.
2. The applicant is to pay the respondent's costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MCELWAINE J: 1 Dr Scott is a self-represented litigant. She is in dispute with her former solicitor, an incorporated legal practice: NIMLAW Pty Ltd, which is the respondent to the present application. The core of the dispute is a contest about the liability of Dr Scott to pay for legal services provided by the respondent to her. Dr Scott does not dispute that the respondent competently performed legal work pursuant to a retainer agreement, which is in writing. Dr Scott did not pay the respondent for services performed. A proceeding was commenced by the respondent to recover professional costs and disbursements claimed to be owing to it culminating in a judgment being entered against Dr Scott in the District Court of South Australia on 5 June 2023 in the sum of $20,312.98. Dr Scott did not pay that amount. Nor did she appeal the entry of that judgment. I refer to this as the judgment debt. 2 On 20 July 2023, the respondent caused to be issued a bankruptcy notice which required Dr Scott to pay the judgment debt, plus an amount for interest - in total $20,446.82. The bankruptcy notice was served on Dr Scott on 27 July 2023. Dr Scott did not pay the amount claimed. Rather, on 8 August 2023, she commenced an originating proceeding in this Court to set aside the bankruptcy notice on the basis that Dr Scott claimed the benefit of a counter-claim, set-off or cross demand of the type referred to at s 40(1)(g) of the Bankruptcy Act 1966 (Cth). That is proceeding SAD 104/2023. 3 On 15 November 2023, Charlesworth J dismissed the originating application: Scott v NIMLAW Pty Ltd [2023] FCA 1420. Her Honour dismissed each ground relied on by Dr Scott in admirably succinct reasons at [18]-[23] as follows: First, she alleges that NIMLAW is not a company to which she owes a debt. In that respect, she made submissions about the sale of the business previously operated by the Firm with which she originally dealt. I accept that a submission of that kind may form the basis of a defence to an action in debt brought by a debtor. However, I am not satisfied that it is a defence that could not have been set up in the action or proceeding in which the judgment was obtained. It does not constitute a defence, counter-claim or set-off within the particular meaning of s 40(1)(g). For present purposes it matters not whether the defence was in fact raised or, if raised, whether the judge in the debt action provided the correct answer to the question. The next submission, as I understand it, is that the debt forming the subject matter of the bankruptcy notice is one that is secured in the sense that there are caveats lodged on Dr Scott's property in respect of it. The lodging of a caveat, in and of itself, does not demonstrate that the Firm may exercise the rights of a secured creditor. Much would depend on the existence and terms of any underlying security that the caveat may be there to protect. In any event, the submission that a debt is secured is no answer to a demand for payment. Even if I am wrong about that, the circumstance that there may exist a security interest in relation to the debt does not constitute a defence, counter-claim or set-off that could not have been set up in the action or proceeding in which the judgment or order was obtained; that is, in the proceeding in the District Court of South Australia. The third submission was to the effect that circumstances exist that give rise to a promissory estoppel such that she was not presently obliged to pay the debts. The principles of promissory estoppel may well form the basis of a counter-claim, set-off, cross demand or defence in answer to a claim founded in debt. However, once again, I am not satisfied that a defence of that kind could not have been set up in the action or proceeding in which the judgment or order was obtained. Fourthly, Dr Scott's oral and written submissions primarily focused on a series of injustices that she alleges have occurred in her dealings with the justice system more generally, and especially in her pursuit of justice with respect to wrongs that she alleges have been committed in connection with her mother's treatment, her mother's death, and the administration of her mother's deceased estate. That sense of grievance is a genuine one and occupied much of the time of the hearing before the Court. When I say it is a genuine one, it is one that I understand Dr Scott to hold bona fide and to be pursuing on the basis of her understanding of the operation of the law. However, the grievances to which Dr Scott refers are not grievances that affect the private rights and obligations as between her and the Firm. It is not being shown, for example, that the retainer was subject to any clause that the debts would not be due and payable until Dr Scott was finally vindicated in the pursuit of her rights in actions relating to her mother. They do not give rise to a counter-claim, set-off, cross demand or defence vis-à-vis Dr Scott and the Firm in relation to the debt stated on the bankruptcy notice. For the purposes of s 41(7) of the Act I am not satisfied that Dr Scott as the debtor has the counter-claim, set-off or cross demand of the kind referred to in s 40(1)(g). She has not satisfied me that the bankruptcy notice should be set aside on that basis. 4 Dr Scott does not accept the correctness of her Honour's decision. On 19 November 2023, she lodged a notice of appeal against the dismissal of her originating application. That is proceeding SAD 169/2023. The appeal has not been determined. 5 Separately, on 19 November 2023, Dr Scott filed an interlocutory application in proceeding SAD 104/2023 which in substance sought a stay of the bankruptcy notice until determination of her appeal in SAD 169/2023. The interlocutory application was dismissed by O'Bryan J, also for admirably succinct reasons, on 24 November 2023: Scott v NIMLAW Pty Ltd (No 2) [2023] FCA 1472. Although his Honour expressed some difficulty in comprehending what Dr Scott sought in her originating application, nonetheless he dealt with the substance of her contention that she should receive the benefit of a stay pending determination of her appeal. O'Bryan J referred to and followed the leading authority which guides the exercise of the discretion to grant a stay pending an appeal: Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 694-5, but concluded on the material before him that Dr Scott "has not advanced any sound basis for the grant of a stay of the orders made by Charlesworth J": [13]. 6 Relevantly, his Honour reasoned at [16]-[18]: The grounds of appeal in the applicant's proposed notice of appeal are lengthy. Most of the grounds are incoherent and most do not relate to Charlesworth J's judgment. By way of preliminary assessment for the purposes of this stay application (which has been brought on urgently), I consider that the proposed grounds of appeal do not identify any error in the judgment of Charlesworth J and have no prospect of success. In stating that conclusion, I emphasise that it is a conclusion reached for the purpose of this stay application, and is not a conclusion for the purposes of the application for leave to appeal. It is possible that, in a future hearing of the application for leave to appeal, the applicant may advance different arguments with respect to the grounds of appeal. On the arguments presented before me on this urgent stay application, I consider that the grounds have no prospect of success. Further, the applicant has not satisfied me that she will suffer material prejudice if the stay is refused and the appeal succeeds. Nor will the appeal be rendered nugatory unless a stay is granted. If the stay is refused, the applicant will have to elect whether to comply with the bankruptcy notice. If the applicant does not comply with the bankruptcy notice, the respondent may file a creditor's petition under s 43 of the Act. The applicant is entitled to oppose any such creditor's petition on numerous grounds, including the conditions specified in ss 44 and 52 of the Act. Any such opposition will require a hearing in the court in which the creditor's petition is filed. It is only at the conclusion of that hearing that a sequestration order could be made against the applicant and the applicant would become a bankrupt. There is no realistic possibility that the application for leave to appeal, and the appeal if leave is granted, will not be heard and determined before any sequestration order is made. If (contrary to the views I have expressed earlier) the applicant were to succeed on the appeal and the bankruptcy notice were set aside, any creditor's petition founded upon the bankruptcy notice would become invalid. The respondent would bear the risk of that outcome and any cost consequences. In my view, the respondent is entitled to the benefit of the judgment of Charlesworth J and there is no reason for the grant of the stay sought by the applicant. 7 Being dissatisfied with the decision of O'Bryan J, on 30 November 2023, Dr Scott lodged an originating application in proceeding SAD 177/2023 pursuant to which she seeks leave to appeal the orders made by O'Bryan J. Separately, the respondent presented a creditors petition in the Federal Circuit and Family Court of Australia on 1 December 2023, which is listed for hearing on 6 February 2023. I made orders at a case management hearing on 13 December 2023 for determination of the leave application on the papers and for the filing of affidavits together with written submissions. That material has been filed and considered by me. 8 Dr Scott's application fails to identify error in the reasoning of his Honour which led to dismissal of the interlocutory application. Dr Scott relies on her affidavit made on 30 November 2023. I proceed on the basis that this document summarises the contentions of Dr Scott as to why O'Bryan J erred. In summary, those contentions amount to: prejudgment by his Honour evidenced by the fact that he stated to Dr Scott at the hearing that he had read the relevant materials, misconception as to the asserted basis for a set-off or cross demand sufficient to engage the jurisdiction to set aside the bankruptcy notice and a generalised, and quite inappropriate, contention that his Honour's expertise in the area of bankruptcy was not only superfluous but a source of bias. There is no merit in any of those contentions. 9 There is a further affidavit of Dr Scott made on 18 December 2023 which, in some little detail, sets out various other contentions (generally in the form of submissions) which, with respect to Dr Scott, lacks coherence. There are generalised complaints of fraudulent conduct on the part of the respondent, an asserted failure to disclose that the respondent held security for the whole, or part of, the judgment debt, an asserted cross-claim based on a wrongful act causing death (apparently connected with Dr Scott's deceased mother) and various appeals to "the rule of law in South Australia". Dr Scott's written submissions range across many topics including the lawfulness of the judgment debt and an appeal to an asserted "inherent power" of this Court under the "common law" to set aside the judgment as irregularly or illegally entered. None of this makes any sense. More particularly, these contentions do not identify why O'Bryan J erred in his reasoning. 10 I am not persuaded in these circumstances that Dr Scott has established any basis for the exercise of my discretion pursuant to r 35.11 of the Federal Court Rules 2011 (Cth) to grant leave to appeal the interlocutory orders made by O'Bryan J. The principles that guide the exercise of my discretion are settled: Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397. In short, I am not satisfied that sufficient doubt attends the reasoning of O'Bryan J so as to warrant reconsideration by the Full Court. Nor am I satisfied that substantial injustice would be caused to Dr Scott in that it remains open to her to resist the making of a sequestration order upon the creditor's petition, by inviting this Court to go behind the judgment debt, if she is able to adduce admissible evidence in support of her various contentions that the judgment debt was irregularly entered: s 52 of the Bankruptcy Act, Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 27; 261 CLR 132. 11 For these reasons, the application is dismissed. There is no reason why costs should not follow the event. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine.