Symes v Holbrook

Application for annulmenT 16 In Symes v Holbrook (No 1) the learned Magistrate dismissed an application by the appellant for annulment of his bankruptcy and expungement of a proof of debt in an amount of $12 744.81 in respect of the respondent's fees. His Honour said as follows in respect of the credit card debts contested by the appellant: '11. … It is clear from the evidence that of the 26 credit cards only two could be verified as being legitimate and doubts arose as to the authenticity of the applicant's signature on applications in relation to the other credit cards. It is now evident and seems to be accepted by the parties and indeed creditors that the applications for credit cards were the subject of forged signatures of the applicant and have ultimately been regarded as not his responsibility given the fraudulent circumstances in which the cards were issued.' 17 At the conclusion of his reasons his Honour stated: '58. I am satisfied on the material before me that at the time when the applicant consulted the respondent advice was given which with hindsight the applicant may have chosen not to accept. However I am also satisfied that this was a particularly traumatic and upsetting time for the applicant and in those circumstances I prefer the evidence of the respondent who in part relies upon memory and in part relies upon contemporaneous records which accurately reflect the true state of affairs which were then relevant in considering the issue of whether the applicant by his own petition should seek a sequestration order. 59. I do not believe on the material presently before me that there is any basis upon which it could be said that the respondent has acted in a manner which would be considered to be unprofessional or irresponsible. I do accept however that the applicant's dealings with the respondent have caused the applicant and his family great stress though in the circumstances that would appear to be inevitable given the extraordinary financial circumstances and the tragic death of the applicant's wife.'

18 An appeal from Symes v Holbrook (No 1) was allowed by this Court and the orders of the Federal Magistrates Court were set aside: (Symes v Holbrook [2003] FCA 96). Nicholson J held that in determining whether in all the circumstances solvency at the date of bankruptcy had been established, the learned Magistrate had erred in law, first by failing to take into account a material fact found by the Magistrate, namely, that applications for credit cards on behalf of the appellant had been made fraudulently, and second, by failing to remove from the appellant's indebtedness debts fraudulently incurred on those cards. Furthermore, the learned Magistrate had erred in failing to address a conflict of evidence that had arisen in respect of the amount due under the mortgage secured against the family home. The matter was remitted to the Federal Magistrates Court for further determination.

rehearing of application for annulment 19 On 8 January 2004 the Federal Magistrates Court, constituted by the same Magistrate, annulled the appellant's bankruptcy pursuant to s 153B of the Act: (Symes v Holbrook (No 2) [2004] FMCA 6). 20 The appellant submitted to his Honour that the credit card debts in the name of the appellant had been incurred fraudulently and that he had no knowledge of them or of the accounts to which they related until after his wife's death, nor did he authorise the debts or sign documentation relating to them. Consistently with his finding in Symes v Holbrook (No 1) his Honour accepted that the amounts owing on credit cards and other debts, in total $92 725.71, were not debts due by the appellant but were prima facie debts fraudulently incurred in the name of the appellant. 21 His Honour rejected a submission from the respondent that the power of the Court to make an order under s 153B of the Act annulling a bankruptcy was dependent upon the requirements of s 153A being satisfied, in particular, by payment in full of the trustee's remuneration. His Honour did so on the basis that s 154 of the Act provided sufficient protection for the respondent's fees and expenses if an annulment were ordered. He said 'it is not for this Court to speculate as to the prospects of those fees being recovered and it is relevant to take into account that there is some challenge made in relation to those fees which should properly be the subject of another hearing before another Court'. Earlier his Honour stated that it was a separate issue whether the appellant should be liable for the respondent's fees and that it should be left to the respondent, if he so wished, to utilise the procedure under s 154(2) of the Act to recover his charges. 22 The respondent also sought an order that the appellant pay the respondent's costs of and incidental to the application for annulment. On the basis that further submissions would be made in relation to that issue, the annulment order was made.

costs order 23 On 4 February 2004, his Honour made an order that the respondent's costs of the proceedings in Symes v Holbrook (No 2) be an expense recoverable by the respondent pursuant to s 154 of the Act, such costs to be taxed in default of agreement: (Symes v Holbrook (No 3) [2004] FMCA 71). 24 In the course of his reasons, his Honour stated that the appellant had submitted that, first, the respondent should not have advised him to present a debtor's petition for bankruptcy and, second, that in the circumstances rather than adopt a neutral role, the respondent had effectively opposed and continued to oppose the application for annulment: (See [3].) In the latter respect, reliance was placed on McKay v Mobil Oil Australia Ltd [1999] FCA 1124 at [10] per Einfeld J. 25 His Honour referred again to what he had stated at [58]-[59] of his reasons in Symes v Holbrook (No 1) set out above and then said (at [9]): '… On a proper assessment of the facts which were then available to the trustee, I cannot see anything in the conduct of the trustee which would lead the court to conclude that there is some culpability to liability on the part of the trustee in terms of giving what might be described as improper advice. In my view it is clear that what has occurred in the application both at first instance and on the remitted matter, and indeed on my reading of the material and the judgment of his Honour Nicholson J before the Federal Court on the material presented to that court, that throughout the trustee had indeed not opposed the application.' His Honour regarded himself as strengthened in that conclusion by the fact that an application was made by the appellant to adduce and rely upon further affidavit material resulting in the annulment order and that such material was not opposed by the respondent before the Federal Court.

'… In my view, having heard the submissions and considered the material, I cannot see anything in the conduct of the trustee which would support the view that at the relevant time advice to present a debtor's petition should not have been given, nor can I see on the material before me anything which would lead me to conclude that the trustee in this application has not acted in a neutral or bipartisan manner.'

application by trustee for orders for payment of costs and expenses and sale of property 27 On 15 March 2004, the respondent commenced a fresh proceeding in the Federal Magistrates Court ('Holbrook v Symes') seeking an order that the appellant pay to the respondent such costs, charges and expenses as were recoverable by the respondent first as controlling trustee and, second as trustee of the bankrupt estate whether before or after annulment of the bankruptcy and interest thereon and an order for sale of the appellant's family home the proceeds thereof to be applied to payment of the amount due to the respondent. The amount claimed by the respondent appeared to be in excess of $50 000.00 and included the costs of solicitors instructed by the respondent in the annulment proceedings.

Appellant's points of defence and counter-claim 28 In a defence to the application for payment of costs, fees and charges the appellant stated that the respondent knew or should have known that the appellant's financial circumstances were not such as to require his affairs being dealt with under Pt X of the Act or a controlling trustee being appointed in respect of his property. He denied any entitlement in the respondent to apply his property and any liability by the appellant to pay. Further, he asserted that he is entitled to offset any sums due by him to the respondent against damages due to him pursuant to his counter-claim. 29 In the counter-claim it was asserted that the respondent owed the appellant contractual, statutory and common law duties to exercise the care and skill of a specialist professional advisor in giving financial advice. It was pleaded further that the conduct of the respondent as trustee was in breach of these duties and that the respondent had no reasonable grounds for making two representations pleaded. The first alleged representation was that the appellant would be liable for the contested debts 'if the matter went to court'. The second alleged representation was that the appellant had no option but to declare himself bankrupt.

Trial of preliminary issues 30 By orders made on 19 July 2004, the Registrar of the Federal Magistrates Court ordered that three issues be tried as preliminary issues. The first was whether the appellant was estopped from proceeding with his counter-claim against the respondent on the grounds that the issues of the respondent's alleged conduct and breaches of duty raised had previously been decided in the prior litigation between them or, alternatively, should have been raised by the appellant in those proceedings. The second was whether the appellant's counter-claim should be permanently stayed as an abuse of process. The third was whether the appellant's points of defence and counter-claim should be struck out. 31 In written submissions to his Honour concerning the preliminary issues, the respondent conceded that issue estoppel did not arise and that, therefore, determination of the first preliminary issue was not necessary. It is to be noted that no concession was made that Anshun estoppel did not apply. 32 In reasons delivered on 12 November 2004 to which further reference will be made below, his Honour concluded that the counter-claim was an abuse of process 'to the extent that it seeks to re-agitate issues of the Trustee's alleged conduct and claimed breach of duty which has been previously decided by this Court in the earlier proceedings': (Holbrook v Symes [2004] FMCA 798). On 8 December 2004 his Honour ordered that the counter-claim be permanently stayed and that the points of defence and counter-claim be struck out. It is against those orders that this appeal is brought. 33 In his reasoning, his Honour concluded that the findings in Symes v Holbrook (No. 3), on the issue of costs had required the Court to consider as a substantive issue a question of whether or not the respondent as trustee had been negligent in advising the debtor (the appellant) to lodge a petition. He accepted that he had already found in substance that there was no culpability or liability on the part of the respondent as trustee in terms of any improper advice, especially the advice to present a debtor's petition. He said the only outstanding issue was that of quantum of the trustee's claim, a matter which he considered should be the subject of mediation. 34 His Honour added that in the event of the counter-claim being upheld, there would be a clear inconsistency having regard to the earlier findings he had made in dealing with the costs issue (on the annulment) in Symes v Holbrook (No 3). He therefore concluded the counter-claim was an abuse of process and made the orders previously referred to.

appellant's contentions 35 At the commencement of the hearing of this appeal the Court granted leave, by consent, to the appellant to amend the grounds of appeal. Those grounds assert in a variety of ways that the learned Magistrate erred in law in concluding that the counter-claim was an abuse of process. 36 In the course of oral argument, counsel for the appellant asserted three bases on which that would be the case. The first was that dicta in Miller v University of New South Wales (2003) 132 FCR 147 had the consequence that an abuse of process cannot be found upon the ground of re-litigation where absence of issue estoppel has been conceded. The relevant passage appears in the judgment of Ryan and Gyles JJ (at [81]) and reads: 'In our opinion, there is considerable difficulty in finding a proper basis for the concept of staying proceedings as an abuse of process upon the ground of relitigation in the case of proceedings between the same parties which goes beyond the effect of res judicata, issue estoppel and Anshun estoppel (incorporating the English Henderson v Henderson estoppel); (see the illuminating discussion of the broad topic by the learned author of The Doctrine of Res Judicata (3rd ed, 1996), Ch 26). Indeed, if the principle is so broad, it is difficult to understand why the various kinds of estoppel are maintained at all. In our view, near enough to an estoppel is not good enough to establish abuse of process between the same parties without some other element being present. There is the danger that persistent or unattractive litigants with awkward cases might be refused access to the courts if there is a broad and imprecise discretion to stay actions which are somewhat like a previous proceeding.' 37 The second contention was that the doctrine of abuse of process is only applicable in respect of ultimate issues. In this respect reliance is placed on Rogers v The Queen (1994) 181 CLR 251 at 290 per McHugh J where he stated that an abuse of process could only be applicable when there was an attempt to re-litigate an issue which from a practical point of view was determinative of the ultimate issues. 38 The appellant's third principal contention was that examination of the nature of the proceeding in Symes v Holbrook (No 3) and the proceeding in Holbrook v Symes shows that there is not any foundation for the application of the doctrine in any event because there is no congruity between them in relation to the question and the facts at issue.

trustee's entitlement to costs 39 It is of relevance to the recovery by a trustee of costs, charges and expenses to have regard to s 154 of the Act which relevantly reads: '154 (1) If the bankruptcy of a person (in this section called the former bankrupt) is annulled under this Division: (a) … (b) the trustee may apply the property of the former bankrupt still vested in the trustee in payment of the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee; and (c) subject to subsections (3), (6) and (7), the remainder (if any) of the property of the former bankrupt still vested in the trustee reverts to the bankrupt. (2) If the property of the former bankrupt referred to in paragraph (1)(b) is insufficient to meet the costs, charges and expenses referred to in that paragraph, the amount of the deficiency is a debt due by the former bankrupt to the trustee and is recoverable by the trustee by action against the former bankrupt in a court of competent jurisdiction. (3) … (4) … (5) … (6) … (7) …' (emphasis in the original) 40 It is also relevant that s 210 provides that: 'Part VIII, with any modifications prescribed by the regulations, applies in relation to the controlling trustee in relation to a debtor as if: (a) the debtor were a bankrupt; and (b) the controlling trustee were the trustee of the estate of the bankrupt debtor.' Part VIII of the Act relates to trustees. Division 2 includes sections relating to remuneration and costs. Those provisions apply in respect of a controlling trustee as a consequence of s 210. This is relevant to the controlling trustee's entitlement to recover that portion of outstanding costs, charges and expenses as was allegedly incurred prior to the appellant's act of bankruptcy.

41 Notwithstanding the terms of s 154(1)(b) the respondent sought a court order to remove any doubt as to his entitlement to sell the appellant's property to recover costs, charges and expenses in the amounts claimed.

42 It may be that as a matter of construction, the reference to costs, charges and expenses of administration of the estate, including remuneration of the trustee, should be treated as amounts 'reasonably' incurred in the administration of the estate. This point would require consideration in the event that the appellant's counter-claim does survive for litigation on the basis that the section could not be intended to confer on a trustee a right to apply a former bankrupt's property to costs, charges and expenses arising from activities the trustee should not have engaged in as part of the proper administration of the bankrupt's estate: cf Maxwell-Smith v S & E Hall, in the matter of Maxwell-Smith [2004] FCA 840 at [27] per Moore J.

doctrine of abuse of process 43 It is appropriate to examine the authorities which describe the parameters of the doctrine of abuse of process when sought to be applied in respect of the litigation of an allegedly similar or identical issue to that previously tried. 44 In Walton v Gardiner (1993) 177 CLR 378 at 393, Mason CJ, Deane and Dawson JJ said: 'Yet again, proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of for earlier proceedings (see, e.g., Reichel v. Magrath (1889), 14 App. Cas. 665, at p. 668; Connelly v. Director of Public Prosecutions, [1964] A.C. 1254, at pp. 1361-1362). The jurisdiction of a superior court in such a case was correctly described by Lord Diplock in Hunter v. Chief Constable of the West Midlands Police [1982] A.C. 529, at p. 536 as "the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people".' Their Honours stated that proposition in the context of preceding words that the power to stay proceedings on grounds of abuse of process was part of the inherent jurisdiction of a superior court and extended to all those categories of cases 'in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness' (392 - 393).

45 In support of the proposition their Honours cited Reichel v Magrath (1889) 14 App. Cas. 665 at 668 and Connelly v Director of Public Prosecutions [1964] AC 1254 at 1361 - 1362. Reichel has been described by McHugh J in Rogers v The Queen at 287 as the paradigm case of that referred to in the above quotation from Walton v Gardiner. There a clergyman sought to re-litigate the ultimate issues which he had lost in an earlier action that he had brought against his Bishop and others. As the parties were different, no estoppel could arise. However, because the appellant was seeking to re-litigate the very issues on which judgment had been given against him, the House of Lords held that his statement of defence was an abuse of process. Connelly was described by Ryan and Gyles JJ in Miller v University of New South Wales as one of a line of cases, including Hunter v Chief Constable of the West Midlands Police [1982] AC 529 and Rogers v The Queen,which deal with issue estoppel and abuse of process in relation to criminal proceedings and which were therefore 'of little direct assistance in relation to the present problem'.

46 There are, however, some dicta in Rogers v The Queen which was relied upon by both parties in contentions on the hearing of this appeal and which are relevant to the consideration of the doctrine. Mason CJ, at 255, in his judgment in Rogers v The Queen said that 'the circumstances in which abuse of process may arise are extremely varied and it would be unwise to limit those circumstances to fixed categories', citing Hunter v Chief Constable at 536 per Lord Diplock. In his dissenting judgment in Rogers v The Queen at 287, McHugh J described Hunter v Chief Constable as a 'case of an abuse of process arising from civil proceedings being commenced for the improper purpose of putting pressure on the Home Secretary to review an appellant's criminal convictions'. At 286, he accepted that the categories of abuse of procedure remain open but stated that they usually fall into one of three categories, namely: 47 '(1) the court's procedures are invoked for an illegitimate purpose; (2) the use of the court's procedures is unjustifiably oppressive to one of the parties; or (3) the use of the court's procedures would bring the administration of justice into disrepute.' It was in that context that his Honour made his statement at 290 that the doctrine was applicable in relation to the determination of the ultimate issues. It is that statement on which the appellant relies in support of his second principal submission.

48 In the course of submissions on this appeal, reference was made to statements by appellate courts in recent years in DA Christie Pty Ltd v Baker [1996] 2 VR 582 and in Nominal Defendant v Manning (2000) 50 NSWLR 139. Reference was also made to Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198. There Handley JA referred to State Bank of New South Wales Limited v Stenhouse Ltd (1997) Aust Torts Reports 81-423 where Giles CJ Comm D stated in relation to abuse of process:

'The guiding considerations are oppression and unfairness to the other party to the litigation and concern for the integrity of the system of administration of justice, and amongst the matters to which regard may be had are- (a) the importance of the issue in and to the earlier proceedings, including whether it is an evidentiary issue or ultimate issue; (b) the opportunity available and taken to fully litigate the issue; (c) the terms and finality of the finding as to the issue; (d) the identity between the relevant issues in the two proceedings; (e) any plea of fresh evidence, including the nature and significance of the evidence and the reason why it was not part of the earlier proceedings; … (f) the extent of the oppression and unfairness to the other party if the issue was relitigated and the impact of the relitigation upon the principle of finality of judicial determination and public confidence in the administration of justice; and (g) an overall balancing of justice to the alleged abuser against the matters supportive of abuse of process.' The respondent relied upon these considerations in particular to support the Magistrate's decision to which this appeal relates.

Application of the doctrine 49 In relation to the first of the appellant's principal contentions - reliance on the foregoing passage extracted from the reasons of Ryan and Gyles JJ in Miller - the respondent contends that this has not been applied or followed and should not be accepted by the Court. On the appellant's reading of the relevant passage, the words 'without some other element being present' were intended by their Honours to be confined to other evidence of abuse of process. On the respondent's submission those words should be read more broadly. While the words of their Honours are not to be construed as if enacted by a statute, we consider they must take their meaning from the broad context of the authorities to which we have referred and that they should not be given any particularly narrow meaning. What is required in accordance with the dicta is consideration of whether there is 'some other element present' that points to an abuse of process notwithstanding that the doctrines of res judicata, issue estoppel, or Anshun estoppel do not apply to the relitigation being conducted between those parties. 50 There were opposing submissions on whether the passage quoted formed part of the ratio or was obiter dicta. In our view, that issue need not be decided, given that the only other elements present in the circumstances before the Magistrate pointed decisively against an abuse of process. 51 Those elements comprise the following. First, at [9] and [12] in Symes v Holbrook (No 3) on which the respondent particularly relies, the Magistrate made the linchpin of his observations 'the conduct of the trustee'. However, his reasons are devoid of any findings of fact as to what that conduct was. On no occasion did he analyse the nature of the conduct and make findings on it, so far as even the limited evidence before him would have enabled him to do so. 52 Second, the absence of such findings becomes particularly important in the context of the breach of contractual, statutory and common law duties pleaded in the counter-claim. In Symes v Holbrook (No 3) there was no attempt by the Magistrate to address the issues later raised by the points of defence and counter-claim. Indeed, it would not have been possible for him to have properly proceeded further in that respect without the issues having been pleaded out. None of that was before him. He had, therefore, no full understanding of what conduct was in issue on this second occasion of his addressing the respondent's conduct. Examination of the points of defence and counter-claim show the substantial difference between the case there pleaded and the issues which the Magistrate was required to consider in relation to costs of the annulment proceeding in Symes v Holbrook (No 3) or on the occasion of his passing references in Symes v Holbrook (No 1) at [58] and [59]. 53 Turning to the items identified in Stenhouse, it is our view that the issue sought to be litigated in the points of defence and counter-claim is a much more sophisticated and developed issue than that which was before the Magistrate on the application for costs of the annulment proceeding. The issue now before the Court was not only not fully pleaded in Symes v Holbrook (No 3) but was not spelt out in any way to the same extent. On the first occasion as in the points of defence and counter-claim delivered in Holbrook v Symes there was no attempt and no possibility of the issue of the conduct of the respondent as trustee being approached with the necessary specificity. The character of the negative finding made on that occasion exemplified the type of decision that was being made. There is not, therefore, the necessary identity between the relevant issues in the two proceedings. The more extensive nature of the issue before the Court in Holbrook v Symes will result necessarily in evidence being adduced to cover a much wider base than evidence relevant to the issues that arose in relation to costs. In circumstances where the first decision was limited to the exercise of a discretion in relation to costs, there will be no oppression or unfairness to the respondent in the issue now before the Court in the form of a counter-claim being litigated. 54 We are, therefore, of the opinion that the issues raised by the defence and counter-claim are quite clearly a different issue from that which was before the Court in the most limited way in Symes v Holbrook (No 3) concerning the exercise of a discretion for costs. We are of the opinion, therefore, that the Magistrate erred in law when he concluded that there was an abuse of process and made the order striking out the points of defence and counter-claim.

additional considerations 55 We are concerned at the history of this litigation. It clearly has imposed, and continues to impose, considerable burdens on both parties, in particular the appellant. In our view, it should be capable of resolution by mediation and each party should give serious consideration to that course. 56 We consider that in the circumstances it may be appropriate for the parties to consent to the proceeding to be transferred to this Court. It would then be for a judge of this Court to make appropriate directions in respect of mediation and, should mediation fail, to proceed to determine the issues raised in the proceeding.

costs 57 In our view costs must follow the event; that is, the respondent will be ordered to pay the costs of the appellant on this appeal and of the proceeding in the court below. 58 The orders will make apparent that any costs payable by the respondent are not to be paid out of the estate of the appellant as a former bankrupt.

conclusion 59 For these reasons we consider that the appeal must be allowed, the orders made by the Federal Magistrates Court on 8 December 2004 be set aside; and the respondent ordered to pay personally the appellant's costs of this appeal and the costs of the proceeding below. I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Lee, Moore and Nicholson.

Associate: Dated: 24 October 2005 Counsel for the Appellant: AO Karstaedt