Zegarac v Dellios (No 2) [2007] FCAFC 141

FEDERAL COURT OF AUSTRALIA

Zegarac v Dellios (No 2) [2007] FCAFC 141

BANKRUPTCY - appeal and application for leave to appeal against judgment confirming sequestration order - sequestration order based upon unsatisfied judgment of the Magistrates Court of Victoria - whether Magistrate's judgment obtained by fraud - appellant's failure to appear - whether primary Judge displayed bias in refusing to reopen appeal SLAVICA ZEGARAC v PAUL DELLIOS TRADING AS DELLIOS WEST & CO VID58 OF 2007

NORTH, WEINBERG & JESSUP JJ

3 SEPTEMBER 2007

MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VID58 OF 2007

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: SLAVICA ZEGARAC

Appellant

AND: PAUL DELLIOS TRADING AS DELLIOS WEST & CO

Respondent

JUDGES: NORTH, WEINBERG & JESSUP JJ DATE OF ORDER: 3 SEPTEMBER 2007

WHERE MADE: MELBOURNE

THE COURT ORDERS THAT:

1. The appeal be dismissed. 2. The application for leave to appeal be dismissed. 3. The appellant/applicant pay the respondent's costs, such costs to be costs in the appellant's bankruptcy. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VID58 OF 2007

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: SLAVICA ZEGARAC

Appellant

AND: PAUL DELLIOS TRADING AS DELLIOS WEST & CO

Respondent

JUDGES: NORTH, WEINBERG & JESSUP JJ

DATE: 3 SEPTEMBER 2007

PLACE: MELBOURNE

REASONS FOR JUDGMENT

THE COURT 1 On 18 May 2006, on the petition of the respondent, Mr Paul Dellios (who practises as Dellios West & Co, Solicitors), a Registrar of the Court made a sequestration order against the estate of the appellant, Ms Slavica Zegarac. The act of bankruptcy upon which the respondent relied was the appellant's failure to comply with a bankruptcy notice which was based upon an unsatisfied judgment of the Magistrates Court of Victoria given on 26 April 2005, in the sum of $32,347.86 (including interest and costs) in favour of the respondent. 2 By application dated 8 December 2006, the appellant sought a review of the Registrar's order, pursuant to s 35A(5) of the Federal Court of Australia Act 1976 (Cth). In that application, the appellant sought the following relief: I ask this court to make the following order: a) To set aside Sequestration Order under the Federal Court Rules, Order 35, Rule 7(2)(b) and consequently to that the appointment of the Trustee be set aside. b) That the Court go behind the Judgment and that the Court orders an inquiry and an Investigation into fraud committed by Mr Dellios; c) That Mr Dellios bears all costs (according to the s 51 of the Bankruptcy Act 1966) of this proceeding (including Trustee's Costs) and my costs, as well as costs for my pain and suffering that I had to go through, due to this unjust proceeding instituted against me. d) That all costs against me be dismissed. On 15 December 2006, Marshall J dismissed the appellant's application for review, and made certain other orders to which we shall refer presently. 3 The present proceeding is an appeal, and an application for leave to appeal, from the orders made on 15 December 2006. In order to understand the appellant's case, it is necessary to refer to the events which led to the judgment upon which the respondent's bankruptcy notice was based, and to the course of the hearing before Marshall J. 4 The judgment of the Victorian Magistrate was for legal costs and disbursements, as between solicitor and client, arising in connection with a Supreme Court proceeding in which the appellant had sued her former husband, and in which the respondent had represented her. In that proceeding, the appellant's former husband failed to enter an appearance, and judgment was entered against him, with costs. He then made application to have the default judgment set aside. Apparently that application was at first unsuccessful, but succeeded at the second attempt. There followed a trial of the appellant's claim against her former husband on the merits, in which the appellant prevailed. At no time subsequent to obtaining the original default judgment, however, was the appellant legally represented. She appeared in person in Supreme Court hearings thereafter. 5 For the purposes of the Supreme Court proceeding, the respondent and the appellant had purported to execute a costs agreement in a form approved by the Law Institute of Victoria. That agreement contained statements that the solicitor (ie the respondent): · Shall charge for professional services in accordance with the method of charging set out in the Schedule below if the client's case is successful and a costs order is made against the other party. · Shall not charge an amount for professional services which is higher than the amount recovered by the client for professional services as party and party costs. It seems that the respondent regarded the achievement of the default judgment, and of the costs order which came with it, as activating his entitlement to be paid his normal professional costs and disbursements by the appellant (his client at the time). 6 By complaint dated 23 January 2004, the respondent commenced proceedings against the appellant in the Magistrates Court of Victoria, claiming the sum of $16,109.30 for work and labour done between 10 May and 26 November 2001. The hearing before the Magistrate occupied 13 days or part days. In the course of that hearing, the question of the validity of the costs agreement between the respondent and the appellant arose. The Magistrate held that the agreement was void pursuant to s 102(1) of the Legal Practice Act 1996 (Vic). The respondent then advanced his claim against the appellant upon the proposition that he was entitled to the "reasonable value of the legal services provided" within the terms of s 93(c) of that Act. The Magistrate upheld the respondent's claim and, on 26 April 2005, ordered the appellant to pay $15,382.50 on the claim, together with $2,748.41 by way of interest and $14,216.95 as costs. 7 Pursuant to s 109(1) of the Magistrates Court Act 1989 (Vic), the appellant appealed (on a question of law) to the Supreme Court from the judgment of the Magistrate. On 28 June 2005, that appeal was dismissed: Zegarac v Dellios [2005] VSC 264. The judgment of the Magistrate was then used by the respondent as the basis of his bankruptcy notice. 8 The application for review of the Registrar's sequestration order came before Marshall J at 10.15am on 15 December 2006 (according to the transcript of the hearing that day, his Honour sat at 10.19am). There was no appearance by, or on behalf of, the appellant. Counsel for the respondent, recognising that the proceeding before Marshall J was a hearing de novo, identified the affidavit material upon which she relied for confirmation of the sequestration order made by the Registrar. That included an affidavit filed since the hearing before the Registrar. His Honour identified the material which was thus before him, and noted that the respondent had obtained a final judgment, that a bankruptcy notice had been served and that the appellant had failed to comply with the bankruptcy notice within 21 days. His Honour also observed that the subsequent affidavit material indicated that, at the time of the order made by the Registrar, the appellant was insolvent. He said that there was no material indicating that anything had changed. He ordered that the application to review the Registrar's order be dismissed with costs. According to the transcript, he adjourned at 10.27am. 9 As Marshall J was in the course of leaving the bench, the appellant arrived at court. His Honour subsequently returned to the bench, and entertained an application by the appellant (who appeared in person) for the setting aside of the orders which he had just made, pursuant to O 35 r 7(1) of the Federal Court Rules. Consistently with the relief which she sought in her application for review before his Honour, the appellant sought to establish that the Magistrate's judgment had been obtained by fraud on the part of the respondent. Although embellished at times with additional and subsidiary propositions, the essence of the appellant's case was that the respondent had misled the Magistrate by claiming that he never agreed to act "pro bono" for the appellant. The truth of the matter, according to the appellant, was that the respondent had agreed so to act, in which respect the appellant referred to the written agreement as to costs into which she had entered with the respondent. The appellant did not conduct her case on the basis of some other, oral, agreement between herself and the respondent that the latter would not charge any professional costs or disbursements. 10 There was a second basis upon which the appellant submitted that the Magistrate's order had been obtained by fraud (albeit one that was mentioned to Marshall J only in passing). An extract of that order, certified by a Registrar of Magistrates Court of Victoria, was attached to the respondent's bankruptcy notice. In that extract, the small section headed "remarks" was left blank. The appellant herself, quite independently it would seem, obtained an extract of the same order. In that extract, there was a note under the heading "remarks" to the effect that the appellant had declined to insist on a taxation of the respondent's costs in the Magistrates Court proceedings. The appellant submitted that Marshall J should have inferred that the extract obtained by the respondent, and which he annexed to his bankruptcy notice, had been altered by him by the deletion of the entry under the heading "remarks". 11 Marshall J took the view that the appellant's propositions as to the respondent's denials about his agreement to act "pro bono" were concerned more with contesting the correctness of the Magistrate's conclusions than with culpable non-disclosure or other fraud. In his short reasons for judgment, Marshall J pointed to the distinction between an allegation that the Magistrate had erred in his judgment and an allegation that the judgment had been obtained by fraud. He said that the evidence suggested that there were various versions of the events before the Magistrate, that the appellant had very strong reasons to believe in the correctness of her version, that the respondent had a contrary belief, and that the Magistrate found in favour of the respondent. 12 The orders which Marshall J made on 15 December 2006, as entered on 12 January 2007, were as follows: 1. The application to review the judgment of Mussett R of 18 May 2006 is dismissed. 2. The judgment debtor pay the applicant creditor's and the trustees' costs of the proceeding. Such costs to be costs in the bankruptcy. 3. Leave to re-open the proceeding is refused. The first two orders were those made by his Honour in the absence of the appellant. The third order was that made upon the appellant's application that the first two orders be set aside. The first two orders were final in the sense that they finally determined the rights of the parties. We consider that the appellant had, and has, a right of appeal against the making of those orders, and that her Notice of Appeal filed on 29 January 2007 is, relevantly, competent. However, the third order did not determine, or affect in any way, the rights of the parties, and should be regarded as interlocutory: see Carr v Finance Corporation of Australia Limited (1981) 147 CLR 246. Relevantly to the third order, the appellant's Notice of Appeal is incompetent, but the case has been argued before us upon the basis that we may regard the appellant as seeking leave to appeal pursuant to s 24(1A) of the Federal Court Act. 13 The appellant's Notice of Appeal was prolix, discursive and unnecessarily argumentative. It did not identify, either briefly or specifically as required by O 52 r 13(2)(b) of the Federal Court Rules, the grounds upon which she relied. However, as identified in her written outline and in her oral submissions on the appeal, the appellant's grounds were two: first, Marshall J was in error not to have found that the judgment of the Magistrate was obtained by fraud; and secondly, his Honour was biased. We shall consider those grounds – as applicable both to the appeal and to the application for leave – in turn. 14 Dealing first with the fraud point, it is necessary to consider separately the appeal and the application for leave. The appeal should be approached as though no question of reopening arose before Marshall J. As his Honour pointed out in his reasons for judgment, he had evidence of a judgment debt and of the appellant's failure to comply with the bankruptcy notice. His Honour also had separate evidence of the appellant's insolvency. His Honour had, in other words, conventional and legitimate grounds upon which a sequestration order would normally be made as a matter of course. His Honour knew, from the nature of the application which was before him, that the appellant sought to go behind the judgment, and to impugn it upon the basis of the respondent's fraud. However, the appellant had not arrived at court to present her evidence or to prosecute her case. Although the proceeding before his Honour was brief, there was nothing to suggest impropriety on the part of those representing the respondent, or undue haste on the part of his Honour. In the circumstances, it is manifest that no error accompanied the making of the first two orders on 15 December 2006. To the extent that the appellant has an appeal as of right, and subject only to our consideration below of the appellant's submissions on the bias point, we propose to dismiss that appeal. 15 As to the application for leave to appeal, the approach which the court normally takes upon such an application, and the approach which we propose to take, is to consider whether the third order is attended with sufficient doubt to warrant its being reconsidered by the Full Court, and if so, whether substantial injustice would result if leave to appeal were refused, supposing the decision to be wrong: Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397, 398-399. 16 The written costs agreement between the respondent and the appellant was, originally, the basis of the respondent's claim before the Magistrate. It was in evidence. In so far as that agreement constituted, or contained, an admission by the respondent that he had agreed to act for the appellant "pro bono", there could be no suggestion that he failed to disclose that circumstance from the Magistrate. Neither was it kept secret from the appellant herself, who had every opportunity to submit to the Magistrate that the agreement was inconsistent with the position being adopted by the respondent. In the circumstances, it is impossible to regard the costs agreement as though it provided evidence of an undisclosed inconsistency in the respondent's then case, or of fraud on the part of the respondent. 17 Neither does the certified extract provide support for the proposition that the Magistrate's judgment was obtained by fraud. The extract obtained by the respondent is dated well after the making of the order by the Magistrate, and whatever the respondent did to that extract before he annexed it to his bankruptcy notice is irrelevant to the proposition that the judgment had been obtained by fraud. We would add that there is nothing in the material before us which would provide the slightest support for the inference that the respondent made use of the extract in a form any different from that in which it was provided to him by the Magistrates Court. 18 Having read the transcript of the hearing before Marshall J, and the affidavit material filed in the proceeding, we consider that his Honour correctly identified the nature of the appellant's complaint. There was nothing before his Honour, and nothing to which the appellant has pointed on her application for leave to appeal, which would sustain the proposition that the Magistrates Court orders were obtained by fraud. Far from being attended with sufficient doubt to warrant being reconsidered by a Full Court, we take the view that the judgment of Marshall J was quite obviously the correct one in all the circumstances. 19 The second ground upon which the appellant sought to challenge the judgment of Marshall J was that his Honour was biased against her. She claimed before us that his Honour's bias was evidenced by comments which he made in the course of hearing her application for the first two orders to be set aside which either "twisted" the words that she used or were calculated to "hurry" her through to the conclusion of her submissions. In order to make out a case of apprehended bias, the appellant had to show that a fair minded observer might apprehend that his Honour did not bring an impartial and unprejudiced mind to the determination of her application: Johnson v Johnson (2000) 201 CLR 488 at [11]. We have read the transcript of the hearing before his Honour, and we find that there is no substance in the appellant's serious accusations. We shall refer, as briefly as the circumstances of those accusations permit, to the course of that hearing. 20 At the outset, his Honour invited the appellant to present an outline of her case on the merits, so that he could see whether there was sufficient reason for the orders which he had made to be set aside. The appellant told his Honour that her case was based on the proposition that the order of the Magistrate (although at one point she referred, we believe in error, to the sequestration order) was obtained by fraud. The appellant referred to the blank "remarks" section in the certified extract, and his Honour, appropriately in our view, pressed her to identify how it was that the judgment had been obtained by fraud. The appellant made it clear to his Honour that her proposition was based upon the respondent having conducted his case before the Magistrate on the basis that he did not act for her "pro bono" whereas, according to the appellant, the contrary was the case. She told his Honour, as was the fact, that she had submitted to the Magistrate that the respondent had agreed to act for her "pro bono". She referred to the written costs agreement. Evidently, this did not strike his Honour as constituting fraud, and he pressed the appellant to identify the fraud upon which she relied. The appellant said: Your Honour, that he was not acting for me "pro bono", because if he admitted that he was acting "pro bono" for me, which was the truth, then he would not have [sic – won?] the case and the costs would not have been ordered against me. His Honour asked whether that was the only fraud before the Magistrate. The appellant replied that it was not, and referred to an alleged breach of confidentiality involving the respondent and her former husband. When his Honour asked what that had to do with the question whether the Magistrate should have made the order, the appellant went somewhat into the merits of her dispute with her former husband. There was also a reference to the way the Magistrate dealt with an attempt by the appellant to introduce a counterclaim against the respondent. Not surprisingly, again his Honour asked what that had to do with the question whether the judgment was obtained by fraud. His Honour said: But what you are saying to me at the moment sounds to me a lot like, that you had a very strong case before the Magistrate, you should have won, that the Magistrate got it wrong. The appellant agreed. His Honour pointed out that that did not amount to fraud, and the appellant said: No. Magistrate did this on purpose. He was biased. Magistrate was biased. A lot of things happened at the trial like, for example, Mr Dellios was representing me first then he represented himself, then at the same hearing he asked again to represent me and to go after my ex husband. The exchange between his Honour and the appellant then dealt with the appellant's allegation that the Magistrate had been biased against her, and with whether she might have, and whether she in fact had, relied upon that circumstance in her appeal from the Magistrate to the Supreme Court. 21 It is clear from the transcript of the hearing before Marshall J – as it became clear to us on appeal – that the substance of the appellant's complaint was far removed from a legitimate allegation of fraud in any legally recognised sense. His Honour's interventions were, in our view, both appropriate and necessary, and were calculated to promote the efficient disposition of the application which was before him. Eventually, his Honour allowed the appellant to make her submissions uninterrupted, but it is clear from a reading of those submissions that the appellant was not making out a case of fraud at all. Then his Honour asked the appellant whether she had completed her submissions, and she replied that she had not. There followed a series of interchanges between the appellant and his Honour, in which the appellant was either drifting wide of the mark apropos the matter of fraud, or repeating herself, or both. At one point, his Honour observed that "we don't want to go around in circles". He asked the appellant whether she had "anything new to put". She said that the respondent had given false evidence in the Federal Magistrates Court (ie in a hearing which had nothing to do with, and came much later than, the hearing in the Magistrates Court of Victoria). In a series of short exchanges, his Honour was obliged to point out to the appellant the distinction between error on the part of the Magistrate and fraud in the obtaining of the Magistrate's orders. 22 The appellant's submissions continued in a way which was, on our reading of it, manifestly unhelpful to his Honour. Eventually he asked the appellant whether she had any other submission that she had not already put. She did, and the exchanges with his Honour resumed, but in a similarly unhelpful vein. The appellant referred to all manner of issues which she had with the respondent, none of which came close to dealing with her allegation of fraud. She pointed out to his Honour that the Magistrate's judgment "should not have ever been made and Mr Dellios' evidence contributed to that judgment", to which his Honour responded: "Alright. Is there anything else?" Again, the appellant said that there was, but made another submission which did not deal with the matter of fraud. His Honour said: "Yes, look, I have heard that before", to which the appellant replied that she did not believe that she owed the respondent any money. His Honour then said: "Alright. Anything else?" The appellant responded: So that is the question of law whether I am liable to pay according to the agreement, or whether I promised anything to pay or whether I broke my promise to pay, if I did promise. That was the conclusion of the appellant's submission before His Honour. 23 It should be apparent from the brief summary which we have provided above that there is no foundation for the appellant's contention that his Honour was twisting her words, or was inappropriately hastening her to get to the end of her submissions. To the contrary, his Honour was concerned to hear what the appellant had to say on the point by reference to which she sought to have the first two orders set aside. In the face of the appellant's digressions, his Honour showed, if we may say so with respect, rather more patience than the occasion demanded. 24 The other indication of bias upon which the appellant relied was the circumstance that, as she arrived late for the hearing on 15 December 2006, his Honour left the bench, notwithstanding that it must have been obvious to him that she had in fact arrived and was wanting to participate. We did not require the appellant to establish an evidentiary basis for the order of events upon which she relied in this respect. Accepting what she says to have been true, we would nonetheless regard the conduct of his Honour as unexceptionable. As his Honour said in his reasons for judgment, he did notice the appellant's arrival as he was leaving the bench. By then, the court had been adjourned. The appellant had not appeared. His Honour's departure from the bench followed exactly the normal course of events for the circumstances which then obtained. It is, we consider, almost bizarre to suggest that his having done so in those circumstances tended to indicate a bias against the appellant. 25 We reject the appellant's case on bias. Having also held that there is insufficient doubt as to his Honour's conclusion on the fraud point to warrant that point being reconsidered by the Full Court, we propose to dismiss the application for leave to appeal. 26 If, contrary, to the view we have expressed, the appellant had an appeal as of right against the order refusing leave to reopen, we would, for the same reasons, dismiss the appeal. 27 The respondent sought his costs, and we can think of no reason why costs should not follow the event. Because of the appellant's status as a bankrupt, we think it appropriate to make a costs order in the same terms as made by Marshall J. I certify that the preceding twenty seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice North, Weinberg & Jessup JJ.