IN THE FEDERAL COURT OF AUSTRALIA) ) SOUTH AUSTRALIA DISTRICT REGISTRY) ) GENERAL DIVISION ) No. SP 32 of 1994 ) BANKRUPTCY DISTRICT OF THE ) ) STATE OF SOUTH AUSTRALIA ) Re: STANLEY DALAYA Debtor Ex Parte:STANLEY & PARTNERS Petitioning Creditor EX TEMPORE REASONS FOR JUDGMENT CORAM: Branson J. PLACE: Adelaide DATE: 30 May 1995 In this case the petitioning creditor, a firm of solicitors, seeks a sequestration order against the estate of the debtor on the basis that the debtor is indebted to the petitioner in the sum of $2543.77 pursuant to a judgment of the Supreme Court of South Australia. The judgment results from a taxation of legal costs, the petitioner having for a period of time acted for the debtor in a personal injuries claim. The debtor has been an invalid pensioner for some years and suffers from dyslexia. His personal injuries claim related to a motorbike accident in which he had been involved. Initially the debtor instructed a firm of solicitors other than the petitioner to act on his behalf in respect of his personal injuries claim. In December 1991 the debtor judged that there had been undue delay in his proceedings and he contacted the petitioner to see if that firm could bring his claim to a more speedy resolution. The petitioner consented to act for the debtor. Shortly thereafter it was learned that a pre-trial conference had been listed with respect to the debtor's proceedings. On 22 April 1992, prior to the time of the pre-trial conference, the debtor terminated the instructions of the petitioner and returned to his original solicitors - who then apparently handled his claim to its completion. The petitioner rendered an account to the debtor for costs and disbursements in the total sum of $3070.50. The debtor considered this figure to be too high. The petitioner issued proceedings out of the Adelaide Magistrates Court seeking payment of its account in full. Apparently after discussing the matter with the other solicitors who had acted on his behalf the debtor paid into court the sum of $1500. The matter came on for trial on 14 January, 1994. The solicitor employed by the petitioner who had earlier acted on behalf of the debtor appeared at the trial on behalf of the plaintiff and gave evidence on behalf of the plaintiff. In an affidavit filed in these proceedings this solicitor confirms the evidence of the debtor that he (i.e. the solicitor) during an adjournment of the Magistrates Court proceedings advised the debtor that he was: "Confident that liability would be established and that in [his] opinion the only question was one of quantum which could be resolved on a taxation in a Supreme Court." The solicitor further confirms in his affidavit that he spoke to the debtor of the petitioner's intention to seek to recover from the debtor the additional costs of the Magistrates Court proceedings should the petitioner be successful in those proceedings. By affidavit and orally before me the debtor makes, as I understand him, four principal complaints with respect to the petitioner. They are:- (a) that the petitioner ought not to have accepted his instructions without better inquiry as to the state of his proceedings; (b) that it was agreed between him and the petitioner that his costs would be deducted from his compensation settlement and that he would not have to meet any claims for moneys earlier than that time. He says that when the petitioner pressed him to deposit moneys in its trust account to ensure payment of disbursement the debtor felt obliged to return to his original solicitor who had not required the payment of disbursements before finalisation of his claim; (c) that the petitioner made a written offer of settlement of the debtor's claim without his knowledge or instructions; and (d) the petitioner charged excessively for work, much of which had already been done by other solicitors. As to the first of these complaints I accept the evidence given on behalf of the petitioner that the debtor approached the petitioner on the basis that he was dissatisfied with the delay in the handling of his case and because of the difficulties which he experienced in contacting his solicitor and that he requested the petitioner to assume the conduct of his claim. This evidence is in important respects confirmed by the evidence of the debtor in his affidavit of 23 February, 1995. The debtor states that he was anxious that his case was taking so long and that he asked the petitioner whether they could finalise the matter quickly for him. I am not satisfied that the debtor asked the petitioner to act for him only if inquiries revealed undue delay on the part of his previous solicitors. As to the last of the above complaints, I do not think it appropriate for this Court to consider the appropriateness of the charges made by the petitioner. The question of those charges has been before the Supreme Court on a taxation at which the debtor was represented. I am, however, satisfied that it was the debtor's understanding that he would not be required to make any payments to the petitioner prior to the finalisation of his claim. It seems that this was a matter of importance to the petitioner who was an invalid pensioner who did not have significant means at his disposal. It was apparently the basis upon which the other firm involved was acting for him. Evidence has been given on behalf of the petitioner that it is not the general practice of the petitioner to agree that disbursements for items such as medical reports and upfront fees need not be paid prior to finalisation of proceedings. The evidence given on behalf of the petitioner is that the debtor was advised that the petitioner: "Usually required payment of disbursements such as medical reports and upfront fees." Such advice is, of course somewhat equivocal. I have not heard oral evidence or cross-examination of either the debtor or the solicitor. I am not in a position to reach a final conclusion as to the terms of the contract of engagement between the petitioner and the debtor. I am satisfied, however, that at the time of the Magistrates Court hearing the debtor wished to deny liability, at least in part, to the petitioner on the basis that the petitioner had not acted in accordance with the terms of the agreement between them. It is submitted to me on behalf of the petitioner that, even if a breach of contract by the petitioner is assumed, the petitioner's claim could be supported as a quantum merit claim. In my view it cannot be assumed that any amount which the debtor might be required to pay on a quantum merit claim would be equivalent to the amount of the judgment held by the petitioner. On a quantum merit claim the proper approach is based upon restitution and unjust enrichment. I refer to the case of Pavey and Matthews Proprietary Limited v Paul 1987 162 CLR 221. Moreover, the basis of the judgment held by the petitioner is not that of a quantum merit. I am also not in a position to determine as a matter of fact whether the petitioner made an offer of settlement on behalf of the debtor without his instructions. This allegation is denied on behalf of the petitioner. I note, however, that no note of the debtor's instruction has been placed in evidence - although the hearing of this matter was adjourned to allow the petitioner to place further evidence before the Court. Nor has the petitioner applied to cross-examine the debtor on this or any issue. I am satisfied that at the time of the Magistrates Court hearing the debtor wished to deny, either wholly or in part, his liability to the petitioner on this basis. I do not mean to imply by these reasons that the debtor had or has a clear understanding of the law - but rather that his concerns at the time of the Magistrates Court hearing were those which I have raised. It is submitted to me on behalf of the petitioner that the claim made on behalf of the debtor that an offer of settlement was made without his instructions or knowledge is irrelevant in view of his failure to lodge a counter-claim in the Magistrates Court proceedings. I do not consider that this is so. The debtor is not here claiming damages from the petitioner. He challenges the judgment requiring him to pay its account for legal costs. On the evidence before me it seems likely that the contract between the petitioner and the debtor was an entire contract. If it could be established that the petitioner breached an essential term of the contract the debtor would have been justified in terminating the contract. In such circumstances it can not be assumed that the debtor would be obliged to pay the petitioner's costs of the work actually done by it. I am satisfied that the debtor was persuaded not to press his concerns before the Adelaide Magistrates Court by advice given to him by the solicitor who was representing the plaintiff before that court - who was, in fact, the very solicitor whose conduct Mr Dalaya sought to challenge. The debtor had no independent advice available to him at that time nor is it suggested that the impact on the taxation process of any admission of liability was explained to him. The debtor says:- (1) that he agreed to admit liability before the Adelaide Magistrates Court in the belief that the issues of concern to him could be raised by him in the Supreme Court on the taxation of the petitioner's bill of costs; and (2) that he subsequently found that his admission of liability in the Adelaide Magistrates Court resulted in his being prevented from pursuing such issues on the taxation. In the circumstances I conclude that no hearing on the merit of such issues has ever been conducted. I am not satisfied the judgment in this case is founded on a real debt, nor am I satisfied that any amount which might be owing by the debtor to the petitioner arose on the basis upon which the judgment in this case was obtained (Corney v Brien (1951) 84 CLR 343). The petition is dismissed. I certify that this and the preceding pages are a true copy of the Ex Tempore Reasons for Judgment of Justice Branson. Associate: Dated: Counsel for the Petitioning Creditor : Mr T Cogan Solicitors for the Petitioning Creditor : Stanley & Partners Debtor (in person) : Mr S Dalaya Hearing Date : 30 May 1995