New South Wales Supreme Court CITATION : Zeaiter v Reliance Financial Services [2008] NSWSC 519 HEARING DATE(S) : 14 May 2008 JUDGMENT DATE : 29 May 2008 JUDGMENT OF : Gzell J DECISION : Declarations made. 2nd defendant, and not trustee in bankruptcy, ordered to pay plaintiff's costs of the proceedings. CATCHWORDS : PROCEDURE - Declaratory Relief - That not indebted to 2nd defendant and he holds no security over her property - Cross-claim for moneys owed, declaration that property charged and judicial sale - 2nd defendant became bankrupt - Trustee does not prosecute cross-claim and does not oppose relief claimed by plaintiff - Whether she is entitled to the declarations - Costs - Whether Bankruptcy Act 1966 (Cth), s 58(3)(b) prevents court proceeding with the matter - Whether no hearing on the merits and no order as to costs should be made Contracts Review Act 1980 LEGISLATION CITED : Fair Trading Act 1987 Trade Practices Act 1974 (Cth) Bankruptcy Act 1966 (Cth) Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 82 ALJR 173 CASES CITED : Mango Media Pty Ltd v Velingos [2008] NSWSC 202 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 PARTIES : Annette Theresa Zeaiter (Plaintiff) Sam Peter Cassaniti (Second defendant) FILE NUMBER(S) : SC 3801/06 COUNSEL : Mr A Fernon (Plaintiff) Mr D Allen (Second defendant) SOLICITORS : McCabe Terrill Lawyers (Plaintiff) Hancocks Solicitors (Second defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J THURSDAY 29 MAY 2008 3801/06 ANNETTE THERESA ZEAITER v RELIANCE FINANCIAL SERVICES PTY LTD & ANOR JUDGMENT Introduction 1 Annette Theresa Zeaiter, the plaintiff, brought proceedings against Reliance Financial Services Pty Ltd and Sam Peter Cassaniti. The proceedings against Mr Cassaniti have been ordered to be heard separately and in advance of the proceedings against Reliance. 2 Mr Cassaniti is a bankrupt. The sequestration order was made on 10 April 2007. His trustee does not oppose further amendment of the statement of claim to seek the relief that is sought against Reliance from Mr Cassaniti as well. 3 The trustee does not oppose the grant of relief against Mr Cassaniti on the basis that no orders, including costs orders, would be sought against the trustee personally; no monetary orders, including costs orders, provable as debts in the bankruptcy would be sought; and that costs would be sought against Mr Cassaniti to be paid by Mr Cassaniti. 4 The trustee does not prosecute Mr Cassaniti's cross-claim against Mrs Zeaiter and her estranged husband Raymond Zeaiter. 5 Mr Cassaniti did not appear at the hearing except in relation to costs. Non-signature 6 By his cross-claim, Mr Cassaniti sought to enforce a retainer agreement between Cassaniti & Associates, accountants and consultants, and Mrs Zeaiter dated 20 October 2000. In her statement of claim, Mrs Zeaiter seeks a declaration that the engagement letter was not signed or agreed in by her. A similar declaration is sought with respect to a further engagement letter dated 10 June 2003. 7 Mrs Zeaiter said that her husband ordered her to sign documents that she did not read. She was afraid of him. Mr Zeaiter said he had no knowledge of the first engagement letter. Mrs Zeaiter's evidence with respect to her purported signature on documents was equivocal. In some cases she acknowledged a signature as hers. With respect to other documents she alleged a forgery of her signature. And with respect to other documents she said the signature did not look like hers. I am not prepared to find that she did not sign either engagement letter. Unfair contracts 8 In the alternative, Mrs Zeaiter seeks declarations that the engagement letters were unfair contracts within the meaning of the Contracts Review Act 1980, s 7, that they were entered into in unconscionable circumstances within the meaning of the Fair Trading Act 1987, s 43 and that they were entered into in reliance upon a breach of the Trade Practices Act 1974 (Cth), s 42 and s 45. 9 It was submitted that Mr Zeaiter acted as Mr Cassaniti's agent in obtaining Mrs Zeaiter's signature to the engagement letters and he obtained those signatures by duress. On the mere assertion of Mr Zeaiter that he had no knowledge of the first engagement letter, I am not prepared to find the agency. 10 The letters prescribed fees and security by way of charge and mortgage over real property that Mrs Zeaiter submits were unnecessary in light of the limited accounting services that might be sought by her. 11 But that does not, in my view, render the retainers unfair contracts or unconscionable contracts. The fee for a principal partner was $300 per hour and the fees ranged down to a typist general clerk at $55 per hour. On their face they do not appear to be exorbitant. 12 In my view, Mrs Zeaiter failed to establish an entitlement to declarations in the alternative form. Abandonment 13 In the further alternative, Mrs Zeaiter seeks declarations that the engagement letters were abandoned. It is unnecessary for me to consider this issue because it is claimed that no services were provided under either agreement. If no services were provided, there is no need to consider the question of abandonment. No services 14 Finally, Mrs Zeaiter seeks declarations that the engagement letters did not give rise to any liability on her part in respect of Mr Cassaniti, including in respect of any moneys that might be owing by Mr Zeaiter to Mr Cassaniti and that the engagement letters did not give rise to any charge, mortgage or other interest in land in favour of Mr Cassaniti. 15 Mrs Zeaiter did not retain Mr Cassaniti to provide any services to her. Her personal income tax return for 2001 or 2002 was taken by her husband to be completed by Mr Cassaniti. But Mrs Zeaiter was never charged for the service nor did she receive any invoice from Mr Cassaniti. 16 Mrs Zeaiter retained her own accountants and has never been contacted by Mr Cassaniti to repay any moneys allegedly due to him. Mr Cassaniti placed a caveat over Mrs Zeaiter's land alleging a debt under the first engagement letter. It was stamped to the level of an advance of $15,000. The evidence before the Court is to the effect that no such advance was made. 17 In the absence of a debt, Mr Cassaniti had no entitlement to charge or mortgage Mrs Zeaiter's land in terms of either engagement letter. On the evidence before the Court, I find that neither engagement letter gave rise to any liability on Mrs Zeaiter's part with respect to any moneys owed by her or any moneys that might be owed by her estranged husband to Mr Cassaniti. I find that neither engagement letter gave rise to any charge, mortgage or other interest in Mrs Zeaiter's land in favour of Mr Cassaniti. 18 I will make the declarations in paragraphs 11(i) and (j) and paragraphs 14(i) and (j) of the second further amended statement of claim. Cross-claim 19 In light of the trustee of Mr Cassaniti's bankrupt estate declining to prosecute the cross-claim, the appropriate order is that it be dismissed. Costs 20 It was common ground that once the sequestration order was made, Mr Cassaniti ceased to have standing both as to his defence to the statement of claim and as to his cross-claim. 21 It was also common ground that any award of costs made by the Court would not constitute a debt provable in the bankruptcy in terms of the Bankruptcy Act 1966 (Cth), s 82(1). Unless and until the Court, in exercise of its discretion, makes an order against Mr Cassaniti to pay costs, he is not liable to do so. Hence there was no liability as to costs to which Mr Cassaniti was subject at the date of the bankruptcy and there was no provable debt under s 82(1) (Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 82 ALJR 173 at [65]). 22 The Bankruptcy Act (Cth), s 58(3)(b) provides that except as provided by the Act, after a debtor becomes bankrupt, it is not competent for a creditor, except with the leave of the Court, to take any fresh step in any legal proceeding in respect of a provable debt. 23 It was submitted that this provision prevented the Court from dealing with the statement of claim and the cross-claim. 24 This submission goes further than an argument on costs. It goes to the jurisdiction of the Court to make the declarations I have indicated I would make. 25 In support of the submission, reference was made to Mango Media Pty Ltd v Velingos [2008] NSWSC 202. In that case, Barrett J concluded that proceedings seeking declaratory relief recognising a security interest the plaintiff claimed to have in the defendant's land fell within the provision. 26 The instant circumstances are quite different. Mrs Zeaiter does not sue as a creditor. She seeks to establish that she is not a creditor. She does not fall within the terms of the Bankruptcy Act (Cth), s 58(3)(b). 27 Nor is Mr Cassaniti's cross-claim that of a creditor of his bankrupt estate. Nor is it in relation to a provable debt. Mr Cassaniti seeks to recover moneys he alleges are due to him. If he had been successful, those moneys would have augmented his estate. They would not have constituted a claim upon it. 28 It was submitted on Mr Cassaniti's behalf that an order for costs should not be visited against him because the matter might have been resolved by agreement between Mrs Zeaiter and the trustee without coming to Court. 29 That submission does not affect costs incurred before Mr Cassaniti became a bankrupt and most of the costs were incurred before that event. 30 The proceedings were commenced in July 2006. Mrs Zeaiter sought an order against Reliance for the removal of a caveat lodged by it over her property. Mr Cassaniti was not a party to those proceedings. Reliance filed a cross-claim against Mrs Zeaiter and a bank in August 2006 seeking a declaration that Mrs Zeaiter's property was charged for the payment of moneys allegedly advanced to her and interest accrued and seeking judicial sale of the property and associated relief. In October 2006 Mrs Zeaiter was granted leave to file an amended summons that included Mr Cassaniti as a party and sought relief in the removal of a caveat lodged by him together with an injunction restraining him from lodging any further caveats. By a second-cross claim filed in November 2006, Reliance and Mr Cassaniti sought against Mr and Mrs Zeaiter and a finance house recovery of moneys said to have been advanced to Mr and Mrs Zeaiter, judicial sale and associated relief. It was by a statement of claim filed in December 2006 that the current declaratory relief with respect to the engagement letters was raised by Mrs Zeaiter, as much as by way of defence to the second cross-claim. 31 All Mrs Zeaiter's affidavits establishing her claim and in defence to the second cross-claim were served well before Mr Cassaniti became bankrupt. The last affidavit was sworn in February 2007. 32 Further affidavits were read before me but they were limited to establishing Mr Cassaniti's bankruptcy and the negotiations and discussions with his trustee. 33 Costs were incurred by Mrs Zeaiter because of Mr Cassaniti's resistance to the statement of claim and his persistence with the second cross-claim. 34 Furthermore, the trustee and Mrs Zeaiter did arrive at an agreement that shortened the hearing from the three days for which the matter was set down to but part of one day. 35 It was submitted on Mr Cassaniti's behalf that Mrs Zeaiter had not succeeded on all points. That is so, but this is not a case in which it is appropriate to award costs of separate and discrete issues. The evidence in relation to the alternative relief claimed was inextricably woven together. 36 It was submitted that there had been no hearing on the merits and the appropriate exercise of discretion was that no order for costs should be made against Mr Cassaniti. 37 Reliance was placed upon McHugh J's decision in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622. In that case the prosecutrix had been refused a protection visa by the Minister. She was unsuccessful in a review of that decision by the Refugee Review Tribunal. She commenced proceedings in the High Court shortly after which the Minister granted a protection visa. The prosecutrix did not proceed with the High Court proceedings but sought an order for costs under the High Court Rules. They provided that when for any reason the further prosecution of a proceeding became unnecessary except for the purpose of determining by whom the costs of proceeding should be paid any party might apply to the Court and the Court might make such order as was just. At 624 his Honour pointed out that ordinarily a discretionary power to order costs is exercised after a hearing on the merits and as a general rule the successful party is entitled to costs but where there has been no hearing on the merits the court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. His Honour went on at 625 to say that where it appears that the parties have acted reasonably, the proper exercise of discretion is that no order for costs should be made: "If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases." 38 His Honour did recognise that in an appropriate case a Court will make an order for costs even when there has been no hearing on the merits. 39 This was not a case in which the proceedings were settled or their further prosecution became futile. The trustee did not oppose the relief sought by Ms Zeaiter but she had to establish her entitlement to that relief and that required the Court to analyse the material that she placed before it. 40 The circumstances of this case are distinguishable from those in Lai Qin and, in my view, there is no reason to displace the general rule that costs follow the event. 41 I therefore propose to make an order that Mr Cassaniti pay Ms Zeaiter's costs of the proceedings. Orders 42 I make the declarations in paragraphs 11(i) and (j) and paragraphs 14(i) and (j) of the second further amended statement of claim. I dismiss the second cross-claim. I order Mr Cassaniti, and not his trustee in bankruptcy, to pay Mrs Zeaiter's costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.