Re Billson, Graham Martin; Ex Parte Official Receiver v Christine Marie Billson [1998] FCA 1208

FEDERAL COURT OF AUSTRALIA BANKRUPTCY – administration of property – avoidance of settlement - payment of legal costs of alleged partnership action by bankrupt – alleged agreement between bankrupt and spouse respondent for him to bear such costs – whether such agreement void as against official receiver – whether spouse respondent held her proportion of such costs upon a constructive trust for the benefit of the applicant – whether spouse respondent bound to account in accordance with ordinary partnership principles.

Bankruptcy Act 1966 (Cth), s 120 Re La Rosa; Ex parte Norgard v Rocom (1990) 21 FCR 270, discussed Jones v Dunkel (1959) 101 CLR 298, considered RE: GRAHAM MARTIN BILLSON; EX PARTE OFFICIAL RECEIVER v CHRISTINE MARIE BILLSON WG 7057 OF 1998 JUDGE: R D NICHOLSON J PLACE: PERTH DATE: 24 SEPTEMBER 1998

GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA

western australia DISTRICT REGISTRY wg 7057 of 1998

BETWEEN: Re graham martin billson

ex parte official RECEIVER

APPLICANT

AND: christine marie billson

RESPONDENT

JUDGE: R d nicholson j

DATE OF ORDER: 24 SEPTEMBER 1998

WHERE MADE: perth

THE COURT ORDERS THAT: The application be dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA

western australia DISTRICT REGISTRY wg 7057 of 1998

BETWEEN: Re graham martin billson

ex parte official RECEIVER

APPLICANT

AND: christine marie billson

RESPONDENT

JUDGE: r d nicholson j

DATE: 24 september 1998

PLACE: perth

REASONS FOR JUDGMENT HIS HONOUR: This application seeks declarations and orders in relation to the proceeds, legal fees and disbursements of an action brought in New Zealand ("the New Zealand action") by Mr Billson ("the bankrupt") and Mrs Billson ("the respondent"). The application is brought under s 120 of the Bankruptcy Act 1966 (Cth) ("the Act"), alternatively on equitable and partnership grounds. There was no appearance for the respondent. The specific relief sought by the applicant is: (1) a declaration that the bankrupt and the respondent were jointly liable for legal fees and disbursements in the amount of $NZ30,024.70, charged by Divetts Barristers and Solicitors ("Divetts") in relation to the New Zealand action ("the fees"); (2) a declaration that of the $NZ38,790.11 distributed by Divetts to the respondent on or about 23 March 1998, $NZ15,012.35 constitutes divisible property of the estate of the bankrupt; (3) in the alternative, an order that an oral agreement between the bankrupt and the respondent entered into on or about September 1996, whereby the fees would be paid entirely out of the bankrupt's share of any proceeds of the New Zealand action, is void as against the applicant pursuant to s 120 of the Act; (4) an order that the respondent pay to the applicant the sum of $12,638.15 (being the equivalent of $NZ15,012.35) together with interest. The application is supported by two affidavits. The first is that of Alan Francois Carles, the applicant's solicitor, sworn 23 July 1998 ("Mr Carles' affidavit") and the second is of Gillian Mary Love sworn 26 May 1998 ("Ms Love's affidavit"). Background On 27 September 1996 the bankrupt (then not a bankrupt) entered into an agreement with the law firm of White Fox and Jones, represented by Mr P J Divett, in respect of fees relating to the New Zealand action. Relevantly the agreement provided that in the event the action went to trial and resulted in recovery, he would pay the sum of $15,000.00 plus GST and disbursements to Divett and Associates. The bankrupt was bankrupted on 8 November 1996 following presentation of his debtor's petition. During the course of the administration of the bankrupt's estate the applicant became aware that the bankrupt and the respondent were pursuing the New Zealand action. That action was allegedly a claim for damages arising out of a failed franchise business in which the bankrupt and respondent had allegedly been partners. On 10 June 1997 the bankrupt first advised the applicant he and the respondent in partnership had operated a franchise business called "Pressed 4 Time" ("the franchise") in New Zealand from 8 May 1993 to 10 December 1993 and had brought the New Zealand action in respect of it against a Mr Falloon. He also advised the applicant he and the respondent were represented by Divetts in the action; that judgment for $75,864.75 had been handed down in their favour the previous day; and there was an oral agreement between the bankrupt and the respondent whereby the respondent would receive half of the proceeds of the New Zealand action, with the legal costs of that action to be paid entirely out of the bankrupt's half share of the proceeds. Various correspondence between Divetts and the solicitors for the applicant is annexed to both Ms Love's and Ms Carles's affidavits. The history of this matter as far as can be ascertained from that correspondence is as follows. On 14 March 1997 Divetts wrote to the Manager of the Insolvency and Trustee Service Australia in Perth ("ITSA") confirming that the bankrupt and the respondent were the plaintiffs in proceeding No 1838/96 (which I take to be the New Zealand action); that Divetts had acted for both the bankrupt and the respondent since 1 October 1996; that the proceedings had been settled; and legal costs and expenses incurred by the bankrupt and respondent were significant and likely to offset any sums payable pursuant to the settlement agreement. Divetts again wrote to ITSA on 5 December 1997, referring to three letters from ITSA, none of which were in evidence before this Court. Divett's letter advised that judgment had been entered for the bankrupt and the respondent in the High Court at Christchurch on 9 June 1997 in the amount of $NZ75,864.75, which proceedings were commenced on their behalf in 1993. It further stated that the writer of the letter, P J Divett, continued acting for the bankrupt upon leaving his employment with White Fox & Jones in September 1996; and that he had entered into an agreement with the bankrupt in relation to the costs of the New Zealand action. He wrote: "The writer entered into an agreement with Mr Billson on the issue of costs. We understand this was the result of the agreement between him and his wife to which you refer. … The writer continued to represent Mr Billson for the purposes of the proceedings but despite our advice to you to the contrary in our letter of 14 March 1997, ceased representing Mrs Billson. Mrs Billson has advised us in no uncertain terms that we were not acting on her behalf on the matter since the agreement with Mr Billson in September 1996. On reflection we have to accept this. Our instructions always came from Mr Billson, and in fact his wife did not even attend the hearing which took place in October 1996. In our view the fact that she has profited from the proceedings is irrelevant to whether the agreement between her and her husband, and in turn with our firm are binding." After some discussion regarding enforcement of the judgment, the letter states: "... we take the view that we are obliged to distribute the net proceeds of the proceedings, after deductions of our costs, in accordance with the arrangements between the Billsons'(sic) and his agreement with our firm, as subsequently amended … . Perhaps you could advise how you would like Mr Billsons (sic) share of the proceeds remitted." The applicant's solicitors replied by letter dated 10 December 1997. The letter stated that the applicant did not accept Divett's were entitled to distribute the proceeds of the New Zealand action on the basis set out in the 5 December letter. It also purported to reserve the applicant's right to pursue a claim for any losses if any distribution occurred without their client's written consent. In addition a full account of all legal costs incurred up to 10 December 1997 was requested. Further correspondence passed between the respective solicitors concerning ownership and distribution of the funds. This correspondence ultimately culminated in a letter dated 23 March 1998 from Divetts to the applicant's solicitors advising: "We have sought the opinion of counsel on this matter. As a result of that opinion and written instructions we have received from Mrs Billson we have remitted the sum of $38,790.11NZD to her and enclose herewith our bankers draft for the sum of $8,765.42NZD being your clients share of the funds we hold. We enclose our statement of account on the matter." The account referred to in the letter is set out below: "Re: BILLSON – FALLOON BY total amount of funds received from Mr Falloon (includes $888.75 interest) 77,580.23 TO C. Billson – share of proceeds 38,790.11 TO All costs and disbursements 30,024.70 TO BALANCE 8,765.42 $77,580.23 $77,580.23 "