CATCHWORDS BANKRUPTCY - review of sequestration order - whether debt on which bankruptcy notice based existed. RETAINER - nature of solicitor's retainer. BILL OF COSTS - whether use of wrong scale of costs invalidated bill of costs. Legal Profession Act 1987 - s 198, s 199 Supreme Court Act 1970 (NSW) ANGELA LIATI v CHRISTOPHER RONALD FITZSIMONS No. NG 552 of 1996 CORAM: FOSTER, von DOUSSA and MADGWICK JJ DATE: 13 SEPTEMBER 1996 PLACE: SYDNEY IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. NG 552 of 1996 ) GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: ANGELA LIATI Appellant AND: CHRISTOPHER RONALD FITZSIMONS Respondent JUDGES MAKING ORDERS: FOSTER, von DOUSSA and MADGWICK JJ DATE: 13 SEPTEMBER 1996 PLACE: SYDNEY MINUTE OF ORDERS THE COURT ORDERS THAT: 1. The appeal be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. NG 552 of 1996 ) GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: ANGELA LIATI Appellant AND: CHRISTOPHER RONALD FITZSIMONS Respondent CORAM: FOSTER, von DOUSSA and MADGWICK JJ DATE: 13 SEPTEMBER 1996 PLACE: SYDNEY REASONS FOR JUDGMENT (Extempore) THE COURT: This is an appeal from a decision of Finn J dismissing an application for review of a sequestration order made against the appellant by a Registrar in Bankruptcy on 23 February 1996. The act of bankruptcy on which the order was based was failure to comply with a bankruptcy notice which was itself based on a default judgment obtained in the Local Court by the respondent. The judgment was in the amount of $4015.67, being for services rendered by the respondent as the appellant's solicitor. The background to this appeal may be shortly stated. The appellant, Ms Liati, retained Mr Fitzsimons in May 1993, to advise her on a property settlement with her defacto spouse. In relation to this retainer, and pursuant to s 198 of the Legal Profession Act 1987, as it then was, ("the Act"), Mr Fitzsimons sent a total of three itemised bills of costs to Ms Liati. Ms Liati did not seek to have these bills taxed pursuant to her rights under s 199 of the Act. They were not paid, and some time in mid-1994 Mr Fitzsimons terminated the retainer, and instituted proceedings in the Local Court to recover his costs under the bills. He obtained the default judgment in his favour on 27 January 1995. Ms Liati took no steps in relation to the setting aside of that judgment until the sequestration order was made. On 16 February 1995 Mr Fitzsimons caused a bankruptcy notice to be issued, founded on the judgment debt. The appellant took no steps to have this notice set aside. The notice was not complied with, and a creditors petition was served on the appellant on 20 December 1995. The Registrar made the subject sequestration order on 23 February 1996. Ms Liati was not present at that hearing. The appellant made application to this Court for the setting aside of the Registrar's order. When the application came before Finn J, his Honour, correctly in the Court's view, treated the proceedings as a hearing de novo. Prior to this, however, and in accordance with directions given by Hill J, the appellant had filed affidavits particularising the objections that she wished to take to the making of the sequestration order. Those objections were four in number, and were described by Finn J in his judgment in the following terms:- "(i) that there was not personal service of the bankruptcy notice as required by the Bankruptcy Rules, r 15; (ii) that two of the bills of costs were not delivered to Ms Liati and costs included in the third are contested by her with the consequence that she disputes the debt relied upon and she has instituted proceedings in the Local Court at North Sydney to have the default judgment on 27 January 1995 set aside; (iii)that Mr Fitzsimons agreed or undertook not to proceed with the creditors petition, at least on 23 February 1996 which was the date on which the sequestration order was made; and (iv)that Ms Liati was not insolvent." His Honour rejected each of these objections. In doing so his Honour noted that Miss Liati in her evidence "appears to have constructed or perceived some events in ways favourable to the protection of her own interests". It has not been contested before this Court that his Honour correctly rejected the claim that there was no service of the bankruptcy notice upon the appellant. It has also been conceded that, on the evidence before his Honour, the appellant appeared to be insolvent. The Court has been informed that the appellant asserts that she is not in fact insolvent. This matter, however, has proceeded as an appeal on the basis of the material that was before the learned primary judge. As to the second objection, it has not been argued that the bills were not delivered to her. However it has been argued before the Court, as it was before Finn J, that there was not in truth a debt upon which the judgment of the Local Court could have been founded. His Honour went behind the judgment, and on the material before him held that the debt was established in the amount claimed. This finding has been contested on grounds that do not appear in the notice of appeal, and which do not appear to have been raised in any precise way before Finn J, it being noted that the appellant then appeared before his Honour in person. There has, however, been no objection by counsel for the respondent to the Court dealing with these arguments in this appeal. The appellant's submissions in this respect are as follows. (1) The nature of the respondent's retainer. The appellant submitted that the respondent's retainer was in the nature of a contingency retainer. She claimed that the parties agreed that the respondent should be paid out of moneys received by way of settlement or verdict by her against her defacto spouse, and/or that his fees should not be payable unless such moneys were in fact received. These contingencies did not occur before judgment, with the result that no relevant debt existed. This claim was based upon certain evidence, given in cross-examination by the respondent, to which we have been taken in argument. No evidence was given before his Honour by the appellant as to the nature of the respondent's retainer. Indeed it would appear that this issue was barely raised at all. His Honour made findings in this regard as follows:- "Ms Liati retained Mr Fitzsimons in May 1993 to advise her concerning a property settlement with her de facto spouse under the De Facto Relationships Act 1984 (NSW). The original retainer was, on Mr Fitzsimons' evidence, an oral one on terms that payment would only be made on finalisation of the property matter. This arrangement was later changed - I have no clear evidence as to Ms Liati's part in agreeing the change - to a situation which resulted in the preparation of bills of costs from time to time. Again it is Mr Fitzsimons' evidence that he indicated that his charges would be only on the appropriate Supreme Court scale." The conciseness of these findings, in the Court's view, is illustrative of the fact that this question of the nature and extent of the retainer in no way achieved the significance in the hearing before his Honour that it has been accorded in this appeal. Indeed, it is at least strongly possible that his Honour's reference to there being no clear evidence from Ms Liati as to agreeing the change points to the fact that she gave no evidence on the topic at all. In the Court's view, a consideration of the evidence to which it has been taken, which it is not necessary to set out in these reasons, does not support the submission that the respondent had accepted a retainer in a form which is sometimes described as being on a "no win no pay" basis, nor that he had undertaken, in an immutable fashion, not to require payment until the appellant's proceedings had been finalised. Nor does the Court read his Honour's finding, quoted above, as supporting the existence of any such arrangements. On the contrary, the evidence indicates that the original retainer was altered to enable the respondent to seek payment at an earlier time for work done for the appellant, and that this alteration was with her acquiescence. A letter forwarded by the respondent on 3 March 1994 is in the following terms:- "Enclosed is a copy of my Statement of Account of 21 December 1993 which remains unpaid. We spoke during January and you indicated that a cheque would be sent to clear the account but the account remains unpaid. I have been trying to reach you by telephone without success and consequently the present situation is totally unsatisfactory. All of the work you required has been done and I am not aware of any reason why the account remains unpaid." The letter then continues, indicating that unless payment is received by Friday 11 March 1994, proceedings will be instituted. In the Court's view, this letter provides a clear indication that some arrangement had been reached between the appellant and the respondent in relation to the payment of accounts rendered by the respondent to the appellant, which arrangement was totally inconsistent with the continuance and existence of the retainer in its original form. Moreover, in her affidavits, the appellant does not dispute the existence of the debt to the respondent, but only contests its amount. She admits that $2,198 was owing, an amount which is, of course, sufficient to constitute a debt upon which bankruptcy proceedings may be founded. This argument must fail. (2) Failure to comply with s 198 of the Legal Profession Act. The appellant further submitted that no debt came into existence because of the failure on the part of the respondent to comply with s 198 of the Act. The section at that time read as follows:- "(1) Proceedings for the recovery of costs incurred by a solicitor in transacting any business shall not be commenced or maintained against any person unless at least one month has passed since the person has been given a bill of the costs so incurred." It has been submitted that the bills of costs did not comply with this section, and that therefore no relevant debt came into existence. This submission was based on the contention that the wrong scale under the Supreme Court Act 1970 (NSW) had been used in the calculations in the bills. Charges had been made at $50 per quarter hour instead of, as would have been appropriate, $35 per quarter hour. It seems likely that this was indeed the position. However, in the Court's view this does not invalidate the bills. To so hold, in accordance with arguments addressed to the Court, would be to read too much into the phrase in the section "so incurred". The object of the section is clearly to provide an opportunity to the recipient of a bill to seek advice on the bill and, if necessary, to seek taxation pursuant to section 199. The mere fact that a calculation may be incorrect does not prevent a bill bringing into existence an enforceable debt. The Court is satisfied that this argument must also fail. It was conceded that, insofar as the amount claimed was too high by virtue of the inappropriate scale being used, the bankruptcy notice was not for this reason defective. It was submitted, however, that it was defective because of uncertainty relating to the amount of its demand. In the Court's view the bankruptcy notice clearly indicates the amount that was to be paid in order to comply with its terms and, therefore, this argument must also fail. It was submitted that his Honour should have adjourned the proceedings before him until the appellant's application to the Local Court was heard. It was submitted that his discretion in this regard had miscarried. The Court has considered the arguments that have been put to it but is unable to agree that there has been any appellable failure in the exercise of his Honour's discretion. In the first place, the appellant, being bankrupt, would have no standing to maintain that application before the Local Court, in the event of the adjournment being granted. Secondly, having read the detailed reasons given by his Honour for refusing to accede to this request, the Court finds itself in complete agreement with those reasons. This particular aspect of the argument must also fail. Certain other arguments, which were placed before his Honour and rejected, have been repeated before this Court. Without going into the detail of those matters, the Court thinks it is sufficient to say that, in its view, those arguments should also be rejected. The Court orders that this appeal be dismissed with costs. I certify that this and the preceding eight (8) pages are a true copy of the reasons for judgment herein of the Court. Associate: Date: 13 SEPTEMBER 1996 A P P E A R A N C E S COUNSEL FOR THE APPELLANT: J.A. McCARTHY QC & R.B. WILSON COUNSEL FOR THE RESPONDENT: B.J. SKINNER INSTRUCTED BY: BROWN & PARTNERS DATE OF HEARING: 13 SEPTEMBER 1996 DATE OF JUDGMENT: 13 SEPTEMBER 1996