Xu v KP Legal Pty Ltd [2009] FCA 1152

FEDERAL COURT OF AUSTRALIA

Xu v KP Legal Pty Ltd [2009] FCA 1152

LI NA XU v KP LEGAL PTY LTD T/AS "KP LAWYERS & BARRISTERS"

NSD 786 of 2009

LINDGREN J

2 OCTOBER 2009

SYDNEY IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 786 of 2009

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN: LI NA XU

Appellant

AND: KP LEGAL PTY LTD

T/AS "KP LAWYERS & BARRISTERS"

Respondent

JUDGE: LINDGREN J

DATE OF ORDER: 2 OCTOBER 2009

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed. 2. The appellant pay the respondent's costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION NSD 786 of 2009

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN: LI NA XU

Appellant

AND: KP LEGAL PTY LTD

T/AS "KP LAWYERS & BARRISTERS"

Respondent

JUDGE: LINDGREN J

DATE: 2 OCTOBER 2009

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The appellant (Ms Xu) appeals from a judgment of the Federal Magistrates Court of Australia given on 13 July 2009. On that date that Court by consent dismissed a creditor's bankruptcy petition against Ms Xu. 2 That Court also ordered that Ms Xu pay the costs of the petitioning creditor, the present respondent, KP Legal Pty Ltd, trading as "KP Lawyers and Barristers" (KP Legal) in a sum of $5,419. It is from that order for costs that Ms Xu appeals. 3 In the course of exchanges between the Federal Magistrate and Ms Xu on 13 July 2009, his Honour explained why Ms Xu should be ordered to pay costs notwithstanding dismissal of the creditor's petition. 4 What had happened was that four days earlier, on 9 July 2009, a Magistrate in the Downing Centre Local Court had set aside the default judgment on which the antecedent bankruptcy notice had been based (the act of bankruptcy referred to in the petition was Ms Xu's failure to comply with that bankruptcy notice). Accordingly, at the beginning of the hearing on 13 July 2009, Mr Papanicolaou who appeared for KP Legal acknowledged that the petitioning creditor could not proceed with its petition. 5 Mr Papanicolaou handed up to the Federal Magistrate a chronology of the history of the proceedings between KP Legal and Ms Xu in the Local Court and the Federal Magistrates Court. Federal Magistrate Driver explained to Ms Xu that delay by a debtor in having a judgment set aside might justify an order for costs being made against the debtor, even though the creditor's petition was dismissed. 6 According to the transcript, the hearing began at 10.21 am. The transcript records that at 2.52 pm judgment was delivered, although it is inconceivable that the hearing occupied the whole of the intervening time (the transcript is only eleven pages long). The "Reasons for Judgment," which were not formally published or given a judgment number, comprised one paragraph as follows: In the circumstances I agree that, notwithstanding the petition being dismissed, I should make an order for costs in favour of the petitioning creditor in accordance with r 13.03 of the Federal Magistrates Court Bankruptcy Rules, including disbursements. I make the following orders: ORDERS DELIVERED. The transcript records that the orders were made at 2.52 pm and that the Court then adjourned (at 2.53 pm). 7 I ensured that a copy of the transcript and of his Honour's "Reasons for Judgment" were obtained and sent to both parties well in advance of the hearing of the appeal before me. 8 I have given the above account of what occurred before Federal Magistrate Driver on 13 July 2009 in order to show why, in my opinion, his Honour's reasons are to be found, not just in what appears as "Reasons for Judgment", but in what preceded. This is clear from his Honour's statement in "Reasons for Judgment" that "[i]n the circumstances I agree that, notwithstanding the petition being dismissed, I should make an order for costs in favour of the petitioning creditor in accordance with r 13.03 of the Federal Magistrates Court Bankruptcy Rules, including disbursements." [My emphasis] 9 Federal Magistrate Driver's reasons are to be ascertained from a reading of the transcript. 10 The transcript shows that his Honour explained to Ms Xu that it did not follow from the dismissal of the petition either that she should not be ordered to pay costs or, as apparently she wished to contend, that KP Legal should pay her costs. 11 In her notice of appeal and in her oral submissions she has relied on the dismissal of the creditor's petition. In addition she seems to have argued that the issue of costs should not have been dealt with on 13 July 2009 and that there should have been an adjournment. 12 In my opinion there is no merit in this "natural justice" point. Costs are usually dealt with following the making of the order that disposes of a proceeding. In any event, Ms Xu was able to put her argument, which was that costs should follow the event. 13 It is now necessary to trace the course of events, many of which were referred to in Driver FM's reasons to be found in the transcript. 14 On 12 August 2007 a statement of claim in Downing Centre Local Court was served on Ms Xu. The proceeding in that Court was Case number 7294/07. 15 Ms Xu did not enter a defence and did not request an assessment of the account on which KP Legal sued her. 16 On 10 September 2007 a default judgment was entered against Mr Xu for the amount claimed, $22,622.46. 17 On 20 June 2008, on the application of KP Legal, the Official Receiver issued a bankruptcy notice, claiming the amount of the default judgment of $22,622.46 plus interest of $1,760.21, making a total of $24,382.67. 18 On 3 July 2008 the bankruptcy notice was served on Ms Xu. 19 On 16 July 2008 KP Legal wrote to Ms Xu enclosing a copy of the affidavit of service of bankruptcy notice advising that unless it received payment of the amount of the bankruptcy notice, $24,382.67, by 24 July 2008, it would file a creditor's petition in the Federal Magistrates Court to have Ms Xu declared bankrupt. 20 Ms Xu did not apply to set aside the bankruptcy notice or take any other steps before KP Legal filed the creditor's petition in the Federal Magistrates Court in 6 August 2008. 21 After the creditor's petition was filed Ms Xu consulted GOH Lawyers. They represented her in both the Local Court proceeding and the Federal Magistrates Court proceeding. Those solicitors set about attempting to have the default judgment set aside, but precisely what happened in each proceeding is not clear. Ms Xu filed a notice of grounds of opposition in the Federal Magistrates Court on 1 September 2008 stating that she had not committed an act of bankruptcy because she was able to pay her debts, and that she had filed a notice of motion seeking an order that the default judgment be set aside. 22 The evidence shows that KP Legal appeared in the Federal Magistrates Court proceeding on 5 September 2008, 22 September 2008, 13 October 2008 and 23 January 2009. 23 On 26 March 2009 the motion by Ms Xu to have the default judgment set aside was before the Local Court. It was dismissed because she failed to appear. The Local Court Magistrate ordered her to pay KP Legal's costs of $360 on the motion. 24 KP Legal again appeared in the Federal Magistrates Court on 6 April 2009 and 12 May 2009. 25 On 29 May 2009 Ms Xu filed a further notice of motion in the Local Court to have the judgment set aside. 26 On 9 June 2009 KP Legal again appeared in the Federal Magistrates Court. 27 On 25 June 2009 the Local Court notified the parties that Ms Xu's (second) motion to have the default judgment set aside would be listed for hearing on 9 July 2009. 28 As noted earlier, on 9 July 2009 the Local Court ordered that the default judgment be set aside and that Ms Xu file her defence within fourteen days. 29 Also as noted earlier, four days later, on 13 July 2009 before the Federal Magistrates Court, KP Legal consented to the order for dismissal of the creditor's petition. 30 Enough has been said in the preceding paragraphs to demonstrate that KP Legal was put to considerable cost and expense by reason of Ms Xu's failure to act promptly. It should be made clear that the setting aside of the default judgment does not indicate one way or the other whether Ms Xu would have been or is now likely to succeed in the Local Court proceeding. 31 Before the Federal Magistrate, KP Legal argued for an order for costs in the sum of $7,360, but his Honour made an order in terms of item 43C of Schedule 2 to the Federal Court Rules in the amount previously mentioned of $5,419. 32 Ms Xu has referred to numerous matters this morning concerning her dealings with KP Legal and her difficulties in life at present. I cannot allow these matters to intrude. Similarly, Mr Papanicolaou has referred to events subsequent to the making of the order on 13 July 2009 by the Federal Magistrates Court but I also put these to one side. 33 No reason is shown to think that the Federal Magistrate exercised his discretionary judgment in relation to costs in any perverse or untoward manner. 34 His discretion did not miscarry. There was ample reason to think that KP Legal had been put to cost and expense by reason of Ms Xu's failure to: · defend the Local Court proceeding; · apply promptly to have the default judgment set aside and to be let in to defend; · apply for an order setting aside the bankruptcy notice. 35 For these reasons the appeal should be dismissed with costs. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.