Trad v Jones

District Court of NSW|2021-06-18

Solicitors: Applicant: O'Neill Partners Defendants: Ashurst LLP File Number(s): 2018/00145388 & 2018/00145476

The application before the court

These are proceedings for enforcement of costs judgments pursuant to s 135 of the Civil Procedure Act 2005 (NSW).
The applicants ("Turner Freeman") by Notice of Motion filed on 1 March 2021, seek orders as follows: "1. The name of the judgment creditor be amended to Armando Gardiman, Thady Blundell and Terence Goldberg trading as Turner Freeman Lawyers. 2. Leave to enforce the judgment in these proceedings under s135 of the Civil Procedure Act, 2005 and Rule 391(1)(a) of UCPR, 2005."
The defendants oppose the application, arguing the purported assignment by the judgment creditor is ineffective and should be set aside and, alternatively that, if the trustee in bankruptcy did have property to assign, the court should set off or permanently stay enforcement of the costs judgments.
I heard the application this morning. These are my reasons for dismissing the Notice of Motion and granting a permanent stay.

The defendants rely on the affidavit of Kiah Hamilton Officer, affirmed 8 June 2021.

The background to this application

Mr Trad commenced two sets of proceedings in 2009. The first of these was a claim for defamation against the second defendant, in respect to statements made on a radio broadcast, which claim was brought in the Supreme Court of New South Wales. The second was an action brought in the Administrative Decisions Tribunal (ADT), against the first and second defendants, for racial vilification, arising out of statements made by the first defendant on a radio broadcast.
The second defendant was successful in the defamation proceedings. Mr Trad enjoyed qualified success in the racial vilification proceedings. The amount of work involved, and the degree to which the parties were successful or not, is reflected in the costs assessment totals, which were as follows: 1. At the conclusion of the defamation proceedings, the second defendant obtained costs orders assessed at $481,910.34. 2. At the conclusion of the racial vilification proceedings, the defendants obtained costs assessments in their favour totalling $104,596.04. 3. However, at the conclusion of the racial vilification proceedings Mr Trad obtained a costs assessment in his favour of $284,459.67 (an additional sum of $10,028.81 was also awarded, in relation to assessment costs). These are the costs which are the subject of this application.
The affidavit evidence sets out the long history of costs assessments for proceedings between the parties and their earlier registration in the Supreme Court of New South Wales as judgment debts (see the affidavit of Ms Officer at paragraphs 12 to 28). Although the plaintiff, unsuccessfully, sought orders staying the judgment debt in the defamation proceedings (Trad v Harbour Radio Pty Ltd [2016] NSWCA 80), he simply incurred further costs (which have yet to be assessed but which are in the order of $37,764 with an additional $770 for a separate application). In those circumstances, on 6 October 2017, the plaintiff declared bankruptcy by filing a debtor's petition.
On 13 April 2018, while the plaintiff was bankrupt, he obtained a certificate of determination of costs against the defendants for each of the sums referred to in paragraph 8(c) above. On 9 May 2018, these certificates were registered as judgment in the District Court (proceedings number 2018/00145476 and 2018/00145388) for the sums in question.
On 7 October 2020, the plaintiff was discharged from bankruptcy. On 5 November 2020, the plaintiff's trustee in bankruptcy, Mr Michael Gregory Jones, purported to assign to the applicants property defined as follows: 1. Registration of judgment for assessed costs in the District Court in the sum of $284,459.67; 2. Registration of judgment for assessed costs in the District Court of $10,028.81; and 3. Interest under s 101 of the Civil Procedure Act, from the date of each judgment and continuing.
The affidavit of Sally Nash sworn on 3 March 2021 sets out as an annexure, at pp 29 - 32, the deed of assignment signed by the parties. The relevant recitals, at paragraphs F to L, are as follows: "F. The assessments and judgments are attached to this Deed of Assignment. G The Trustee accepts that Turner Freeman are a secured Creditor within the definition of s5(1) of the Bankruptcy Act as that firm has a fruits of the action lien secured in equity over the costs orders made in favour of the Bankrupt against Alan Jones and Harbour Radio Pty Ltd for which the attached Certificates of Assessment and registered judgment relate. H The legal estate in each of the costs orders and certificates of costs and registration vest in the Assignor under s58(1) of the Bankruptcy Act, subject to the equitable security as a fruits of the action lien in equity in favour of Turner Freeman. I The Assignor accepts that pursuant to s58(1) of the Bankruptcy Act, any action he takes for recovery of the amounts of: $284,459.67 and $10,028.81 are subject to the Turner Freeman fruits of the action lien. J. The Assignor has determined that there is no commercial cost benefit to the administration of the bankrupt estate in seeking to recover the amount of $284,459.07 and/or $10,028.81 against Alan Jones and Harbour Radio Pty Ltd when any amount recovered would have to be remitted to Turner Freeman pursuant to their fruits of the action lien. K. The sum of $284,459.07 and $10,028.81 including interest arising under s101 Civil Procedure Act, 2005 (NSW) vests in the Assignor pursuant to s 58 and s116 of the Bankruptcy Act, 1966. L. By reason of the vesting under the Bankruptcy Act referred to in the preceding paragraph, Alan Jones and Harbour Radio Pty Ltd are indebted to the Assignor in the sums of $284,459.07 and $10,028.81"
Turner Freeman assert a lien exists in relation to these judgment debts and seek orders at amending the names of the judgment creditors on the certificate of judgment filed in this court as well as an order granting leave to the applicants to enforce the certificate judgment as amended, an amendment described as being "administrative" in nature
The first issue for determination is whether the trustee's purported assignment of the debt to Turner Freeman was effective.

Was the purported assignment of the debt ineffective?

The nature of the debt purportedly assigned is the key to the effectiveness of the assignment. Where a person enters bankruptcy owing costs to his solicitors, and those unpaid bills of costs are not less than the amount of costs recoverable under a costs order for a third party, then the credit for the third party costs does not vest in the trustee in bankruptcy, as it was never property divisible amongst his creditors.
The reason for this exception is explained by Ward J (as her Honour then was) in Australian Receivables Ltd v Tekitu Pty Ltd (Subject to Deed of Company Arrangement) (Deed Administrators Appointed) (2012) 260 FLR 243 at paragraphs 51 to 52 as follows: "51 The lien that is said to have arisen is that commonly referred to as the "fruits of the action" lien. 52 In Ex Parte Patience; Makinson v Minister (1940) 40 SR (NSW) 96 at 100-101, Jordan CJ gave the classic exposition of a solicitor's equitable right to have his or costs and disbursements paid from money recovered for his or her client: A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client's right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money; and if he gives notice of his right to the person who is liable to pay it, only the solicitor and not the client can give a good discharge to that person for an amount of the money equivalent to the solicitor's costs: Welsh v Hole 1 Doug 238. If the person liable to pay refuses, after notice, to pay the costs of the solicitor, the solicitor may obtain a rule of Court directing that the amount of his costs be paid to him and not to the client; and payment by the judgment debtor to the client after notice of the solicitor's claim is no answer to an application for such a rule: Read v Dupper 6 TR 361; Ormerod v Tate 1 East 464; Ross v Buxton 42 Ch D 190. Further, if the client and a judgment debtor make a collusive arrangement for the purpose of defeating the solicitor's right, the Court will enforce that right against the judgment debtor notwithstanding the arrangement and notwithstanding that no notice of the solicitor's claim had been given to the judgment debtor prior to the arrangement: Ross v Buxton."
The nature of a solicitor's lien over money recovered for the solicitor's client is set out in Firth v Centrelink (2002) 55 NSWLR 451 at [35], where Campbell J set out a series of propositions which included the following: "… (k) Likewise if the client is a natural person who becomes bankrupt, the solicitor is not required to prove in the bankruptcy for the amount of costs incurred, but can recover the costs from the debt which is the result of his efforts: Guy v Churchill (1887) 35 Ch D 489; Worrell v Power & Power (1993) 46 FCR 214. The trustee in bankruptcy takes that debt subject to the equitable right of the solicitor to be paid his costs, and if the amount of the solicitor's costs exceeds the value of the debt, the debt does not vest in the trustee in bankruptcy at all; if the client is discharged from bankruptcy he can sue to enforce the debt as it never was property divisible among the creditors, and any amount that the client then receives is also subject to the solicitor's lien: Kison v Papasian (1994) 61 SASR 567 …" [Emphasis added]
The facts in Kison v Papasian (1994) 61 SASR 567; [1994] SASC 4476 were that, after a judge had reserved judgment, the respondent was made bankrupt. Judgment with an order for costs was then delivered in favour of the respondent. The trustee in bankruptcy declined to take steps to enforce the order for costs, because he took the view that the costs awarded would be held on trust for the respondent's solicitor. Following the respondent's release from bankruptcy, the respondent taxed his costs and sought to recover those costs from the appellant. The appellant applied for a stay of any enforcement of the order on the basis that the right to recover costs was vested solely in the trustee in bankruptcy and could not be enforced by the respondent.
The Full Court declined to grant the stay because (at 568 per King CJ) the amount of the costs ordered to be paid was less than the amount that the respondent owed to his solicitors. On that basis, applying the principle that the solicitors had a lien over the costs ordered to be paid from the date the order was made, the costs order had never vested in the trustee in bankruptcy. That was because the lien in favour of the solicitors sprang into existence the instant that the order for costs was made.
Kison v Papasian has been cited with approval on this issue in Stojanovski v Stojanovski (No 3) [2020] NSWSC 1540 at [223] - [224], and I note the collection of other recent cases by Ward CJ in Eq in Macura v Sarasevic (No 2) [2019] NSWSC 1621 at [11], following the same excerpt from Jordan CJ in Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 at 100.
All the material available in this application points to the solicitor's costs owed by the plaintiff, Mr Trad, to Turner Freeman exceeding the value of the two assigned debts, in which case such debts cannot vest in the trustee in bankruptcy at all. The relevant evidence includes the following: 1. The fact that the entirety of the judgment debt will go to Turner Freeman is indicative that the costs they are owed by Mr Trad are not less than the judgment debt. 2. The sheer number of applications in which Turner Freeman represented the plaintiff, including three hearings in the ADT and the number of hearings and appeals in the defamation proceedings. The costs assessments the subject of this application are all party/party costs, as opposed to solicitor/client costs, which in matters of this kind would be for substantial sums. 3. The operation of the indemnity principle in relation to the preparation of a bill of costs.
If the unpaid bills of costs for Turner Freeman are greater than the amount of costs recoverable pursuant to the costs orders for which enforcement is sought, then the rights to enforce the order for costs, for the reasons explained by Ward J, never vested in the trustee in bankruptcy as these were never property divisible among Mr Trad's creditors.
For these reasons, the trustee in bankruptcy's purported assignment is ineffective. If the trustee in bankruptcy did not have any property to assign, then the Court cannot be satisfied that the applicants are entitled to execution under the costs certificates registered as judgments in these proceedings. The Notices of Motion should be dismissed for this reason.
There is some uncertainty as to the status of the costs assessment as a judgment (Frumar v The Owners of Strata Plan 36957 [2010] NSWCA 172 at [37] - [38]) and, after hearing submissions from the parties, it was agreed that the appropriate order was that the proceedings be permanently stayed
In the event that I have erred in relation to this finding, I set out reasons for the alternative finding I would have made, namely that the application to enforce the judgment should not be granted and a set-off in the form of a permanent stay should be granted.

The defendants' right to a set-off

It is only necessary to consider whether Turner Freeman should be entitled to the lien they claim if a set-off is not available: Aristocrat Technologies Australia Pty Ltd v Allam [2017] FCA 812 at [10]. Is there an entitlement to a set-off?
First, as to this Court's jurisdiction to make orders for a set-off, I note the encouraging words of Robb J in Ventura v Higgins [2018] NSWSC 909 ("Ventura") as to the comprehensive nature of the powers afforded to this court under s 135 of Civil Procedure Act. The discretion to make such an order is to be exercised according to what is equitable in the circumstances, in the manner adopted by Robb J in Ventura at [49] - [54].
In broad terms, Mr Trad owes the defendants an amount double the sum to which he would have been entitled under the costs orders in his favour. In fact, the attraction, in terms of changing the names of the persons claiming those sums from the defendants from the name of Mr Trad to that of Turner Freeman, is to avoid the set-off that would inevitably ensue if Mr Tred remained the costs creditor.
Mr Bailey helpfully drew my attention to the decision of Windeyer J in Akki Pty Ltd v Martin Hall Pty Ltd (1994) 35 NSWLR 470 where his Honour stated at 479: "To an outsider it must seem strange that where B owes A $80,000 and A owes B $20,000 there is not an automatic balancing of accounts so that B is indebted to A for $60,000; to such an outside observer that fact that someone else claims through B to be entitled to the $20,000 would seem irrelevant particularly in a case where the $20,000 was not a fund recovered for the benefit or possible benefit of A but against A's interest. If there were no lien and A (Akki) sue B (Martin Hall) for $90,000 Martin Hall could obtain a stay to enable it to obtain a judgment for the $90,000 to set-off against the claims of Martin Hall. It would be astonishing to ordinary mortals,, who do not know that a barrister's best chance of being constantly briefed by a solicitor is to "always remember the costs" and who are not aware of the statement of Lord Justice James in Attorney-General v Earl of Lonsdale (1870) 23 LTR 794 that he had been told forty years earlier (at 794-795): "… that the questions in respect to the importance attached to them, and the zeal with which they are argued, are in this court in the following ratio - practice first, costs second, and merits third and last"; to know how much time has been spent by lawyers discussing whether or not a solicitor's lien can be defeated by a claim of set-off, or whether a right to set-off is affected by that lien, particularly when most of the cases are of little significance to the actual party who is the solicitor's client but of great significance to the solicitor. And it would probably be more surprising to such a person to be told that although after disputation lasting for many years during which different rules as to set-off prevailed depending upon which court the hapless litigant happened to be attending, the position in England came to rest on reasonably sure foundations, nevertheless it is still said the position is not so certain in New South Wales if one gives full force to certain passages in Ex parte Patience to which I referred in my earlier judgment."
I note in passing that some of Windeyer J's observations on costs may be of interest in terms of hard-fought actions of the kind brought by Mr Trad. More relevantly to this application, however, Windeyer J went on to state (at 483): "It follows from this that I do not consider the Court should make an order which would give the solicitor an advantage which would be inequitable when considered in light of the positions of the respective parties to litigation out of which the claim to the lien arose. In the circumstances which exist in the claim under consideration, a receiver having been appointed to Martin Hall, it is clear no action will be taken by that company to enforce the judgment for costs; but if there were no receiver and such action were taken I consider a stay of execution would be granted to allow the set-off to be maintained. The assistant of the Court to enforce the solicitor's rights ought not, on the factual situation here, be exercised so as to extend those rights to rights to which the client would not be entitled. As I have held Akki's charge has priority it is not strictly necessary to frame the order to so provide; but it can be done by ordering that the equitable charge in favour of the solicitor is subject to the provision that it gives no greater right to the solicitor than is possessed by the client and is subject to any claim of set-off properly maintainable by Akki against Martin Hall. I do not say such an order would be appropriate in all cases but rather it is appropriate here."
A similar view was expressed in Aristocrat Technologies Australia Pty Ltd v Allam at [13] - [14]: "13 Thirdly, the power to order a set-off of costs is certainly discretionary whether the jurisdiction is, as it appears to be, inherent or even if, less likely, it is equitable in nature. Regardless of where individual authorities have ended up on the source of the jurisdiction, they speak with one voice for the proposition that a discretion is involved in its exercise: see, for example in the United Kingdom, Currie; Lockley v National Blood Transfusion Service [1992] 1 WLR 492 ('Lockley') at 497 per Scott LJ; Brookes v Harris [1995] 1 WLR 918 at 925 per Ferris J. In Australia, the discretion is to be exercised 'according to what is equitable in the particular circumstances': Miller v Director of Public Prosecutions (No. 2) [2004] NSWCA 249 ('Miller') at [27] per Young CJ in Eq. And, at least where costs are sought to be set off against costs, this is likely to involve the same kinds of considerations as those which apply under the Court's general discretion to award costs. This may be what Scott LJ said in Lockley at 497. Certainly, that is how Ward J read Lockley in Lahoud and I am inclined to agree with her Honour's parsing of this passage. But even if that is not precisely what Scott LJ said (and one must admit a degree of ambiguity in his Lordship's otherwise limpid prose), it is difficult to see why the discretionary inputs into the question of a costs set-off should differ from those which apply to costs generally. Without becoming enmeshed in the theological niceties of the nature of the discretion, there is much to be said, with respect, for the views of Beazley JA in Miller at [13], who said that the discretion is a broad one under which a variety of factors may be taken into account, including 'the public interest, the efficient administration of justice, and the conduct of the parties'.
When exercising the discretion, a set-off can be made even where there are different parties, as was further noted by Gageler J in Aristocrat Technologies Australia Pty Ltd v Allam at [14]: 14 Fourthly, the jurisdiction to set off costs awards extends to costs awarded in different proceedings (as here, where one set of costs orders is in one court and one set is in another): Miller at [23] per Young CJ in Eq referring to his Honour's own judgment in Wentworth. It also permits, in an appropriate case, set-off between different parties. Authority for this proposition is scarcer. Young CJ in Eq thought the proposition to be correct in Miller (at [24]) and Fryberg J exercised just such a jurisdiction in Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd [2008] QSC 36 at pp 9-10. In Flinn v Flinn [1999] 3 VR 712 at 761 the Victorian Court of Appeal achieved a similar outcome. From a theoretical perspective, it seems to me, as indeed it seemed to Fryberg J, that the jurisdiction is similar to the jurisdiction of a court to order costs against a third party. As indicated above, the principles governing the exercise of the discretion to order a set-off are analogous to those governing the costs discretion itself. If so, there is no reason to think that, in an appropriate case, the Court might not order a set-off even though there was no precise identity of the parties. Further, there is no reason to think that the Court could not, for the purposes of achieving a just set-off, notionally apportion a jointly held right." [Emphasis added]
Similar views were expressed by Robb J in Ventura v Higgins, where Mr Higgins, one of two defendants the subject of the claimed set-off, in fact had no relevant costs orders against him capable of amounting to a set-off. Robb J stated (at [49]) that "the mere fact that in this case no costs order was made in favour of Mr Higgins personally does not prevent the Court from ensuring that overall the conflicting costs orders operate fairly". In circumstances such as the present, the Court may look at the practical reality of the situation, rather than "the precise identity of the parties", when determining whether a set-off should be ordered.
Taking all of the above into account, if I had been satisfied that the trustee did have property capable of assignment, I would have exercised the discretion available under s 135 to order a set-off or, preferably, given the disparity in the sums involved, a permanent stay of enforcement of the judgment under s 135 of the Civil Procedure Act.

Costs and other orders

Costs should follow the event.
I thank Ms Scott and Mr Bailey for their very helpful and informative submissions, both written and oral.

Order: 1. Applicants' Notice of Motion is dismissed; leave to enforce the judgment under s 135 of the Civil Procedure Act 2005 (NSW) (CPA) and Uniform Civil Procedure Rules 2005 (NSW) r 39.1 (1)(a) is refused. 2. Proceedings 2018/145388 and 2018/145476 are permanently stayed under s 135 of the Civil Procedure Act 2005 (NSW). 3. The applicants of the notice of motion are to pay the defendants' costs of the Notice of Motion.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 June 2021

(CPA) and Uniform Civil Procedure Rules 2005(NSW)r 39.1

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