Federal Court of Australia

C Pty Ltd v Sommer [2021] FCAFC 87

ORDERS

THE COURT ORDERS THAT:

1.    The time within which an application for leave to appeal from the orders made by the Federal Circuit Court of Australia on 7 August 2020 as amended on 25 August 2020 in proceeding SYG697/2020 be extended to 5 May 2021.

2.    Leave be granted to the applicant to appeal from the orders made by the Federal Circuit Court of Australia on 7 August 2020 as amended on 25 August 2020 and, to the extent necessary, on 18 September 2020 in proceeding SYG697/2020.

3.    The appeal be allowed with no order as to costs.

4.    Order 1 made by the Federal Circuit Court of Australia in proceeding SYG697/2020 on 7 August 2020 be set aside and in lieu thereof the following orders be made:

(a)    Bankruptcy notice BN 248254 be set aside.

(b)    The proceeding be otherwise dismissed.

(c)    There be no order as to costs.

5.    Order 3 made by the Federal Circuit Court of Australia in proceeding SYG697/2020 on 18 September 2020 be set aside.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    The applicant, C Pty Ltd, applies for leave to appeal from orders made by the Federal ‍Circuit ‍Court of Australia on 7 August 2020 (amended on 25 August 2020) and 18 September 2020 and leave to appeal out of time in respect of the former. The application for leave to appeal and an extension of time were heard together with the appeal.

2    The issue that arises on the application and, if leave is granted, the appeal is whether the primary judge’s discretion miscarried in refusing to make orders setting aside a bankruptcy notice and dismissing the associated proceeding in circumstances where C Pty Ltd conceded that there was error affecting the judgment upon which the bankruptcy notice in issue was based. Before proceeding to consider that issue, it is convenient to set out by way of background a history of the events leading up to, and the course of, the proceeding before the primary judge.

background

3    On 8 January 2020 bankruptcy notice BN248254 (Bankruptcy Notice) was issued at the request of C Pty Ltd which trades under another name and is a law firm. On 28 February 2020 the Bankruptcy Notice was served on the first respondent, Ms Sommer, C Pty Ltd’s former client.

4    The Bankruptcy Notice sought payment of $236,238.61 from Ms Sommer. That amount was the difference between a judgment debt obtained upon the registration in the Supreme Court of New South Wales of a certificate of costs determination for an amount of $336,238.61 (Costs Certificate), issued on 18 July 2019 pursuant to s 70 of the Legal Profession Uniform Law Application Act 2014 (NSW), and the amount of $100,000 paid on account of legal costs and disbursements to C Pty Ltd pursuant to an order made in the Family ‍Court of Australia on 16 December 2019 in a proceeding in that court involving, among others, Ms Sommer (Family Court Proceeding). Until the time that order was made, that amount had been held by C Pty Ltd in a controlled account following the sale of a property that was the subject of the Family Court Proceeding.

5    C Pty Ltd acted for Ms Sommer in the Family Court Proceeding for a period of time. The Costs Certificate was issued as a result of an application made by C Pty Ltd pursuant to s 198 of the Legal Profession Uniform Law (NSW) for assessment of its costs for legal services provided to Ms Sommer in connection with that proceeding. The second respondent is the costs assessor who undertook the assessment and issued the Costs Certificate. How she came to be a party is explained below.

6    Ms Sommer filed an application to set aside the Bankruptcy Notice in the Circuit Court (FCC Proceeding). In her affidavits filed in that proceeding Ms Sommer raised two grounds which the primary judge summarised at [45]-[46] and [48] of Sommer v C Pty Ltd [2020] ‍FCCA‍ 1412 (First Judgment) as follows:

45.    As I read her affidavits, [Ms Sommer] relies on two grounds to set aside the bankruptcy notice. The first is contained in the following paragraph of [Ms Sommer’s] affidavit of 19 March 2020:

I still have an intention to pay the Respondent the remaining legal fees upon settlement in accordance with the agreement made between the parties prior to their termination of the retainer. The Responded [sic] confirmed this arrangement as recently as 7 March 2019 …

46.    From this, I infer [Ms Sommer] claims as follows

a.    C Lawyers approved a deferred payment arrangement under which [Ms Sommer] would become liable to pay C Lawyers’ legal fees only in the circumstances provided for by the terms of the Retainer ‍Agreement;

b.    at the time C Lawyers applied to have its costs assessed, none of the circumstances for the payment of C Lawyers’ legal fees had crystallised;

c.    at the time C Lawyers applied for the issue of the bankruptcy notice, the only circumstances giving rise to a liability by [Ms Sommer] to pay any of C Lawyers’ legal fees was the order Henderson J made on 8 April 2019 authorising the payment to C Lawyers’ controlled account of $100,000 out of the proceeds of sale of the Suburb B property; and [Ms Sommer] had fulfilled her obligations under that order; and

d.    in those circumstances, at the time C Lawyers applied for the assessment of its costs, and for the issue of the bankruptcy notice, [Ms ‍Sommer] was under no obligation to pay any of C Lawyers’ legal fees.

…

48.    The second ground on which [Ms Sommer] relies to set aside the bankruptcy notice is the claim that C Lawyers’ applying for the issue of, and serving on [Ms Sommer], a bankruptcy notice constitutes an abuse of process. [Ms Sommer] claims that C Lawyers “is attempting to pursue the bankruptcy notice to its finality for a private purpose; putting pressure on me to reach an early and unfavourable settlement and usurp the power of the Family Court rather than for the proper purpose of obtaining payment for creditors”. This ground potentially overlaps with the first ground to the extent it claims that, given the terms of the Retainer Agreement, and [Ms Sommer’s] claim that she did not terminate that agreement, it is not open to C Lawyers to seek to recover its costs until the determination of the FCoA proceeding.

7    On 27 April 2020 Ms Sommer filed an application in a case seeking an order under s 35A(2) of the Bankruptcy Act 1966 (Cth) that the FCC Proceeding be transferred to the Family ‍Court. On 5 June 2020 the Circuit Court made an order dismissing that application: see the First ‍Judgment.

8    At [60] of the First Judgment his Honour raised an issue in relation to the Costs Certificate. The primary judge queried whether, notwithstanding that Ms Sommer made no claim about the Costs Certificate, an issue of the sort identified in Obrart v Grego [2017] FCCA 929 at [52]-‍[72] arose. His Honour noted that in certain circumstances the court could go behind a judgment based on a costs certificate where there were substantial reasons for questioning the validity of the certificate because it was issued on the basis of a costs determination that may be affected by jurisdictional error. Accordingly his Honour invited the parties to make submissions first, on whether it was open to the court to invite submissions on four identified questions going to the costs assessment process and, subject to the answers given, whether the Costs Certificate was affected by jurisdictional error; and secondly, if it was open, to make submissions in response to those questions.

9    The FCC Proceeding was set down for hearing on 10 July 2020.

10    On 3 July 2020 C Pty Ltd informed the primary judge, by email to his associate, that on 18 June 2020 it withdrew the Bankruptcy Notice. At the direction of the primary judge an inquiry was made as to how that had occurred. In response C Pty Ltd provided the court with an email by which it had done so which provided:

We hereby give you notice that Bankruptcy No. BN248254 issued on 8 January 2020 and personally on you on 28 February 2020 is withdrawn by [C Pty Ltd].

11    Thereafter the primary judge requested that at the upcoming hearing the parties make submissions on whether it is open to a respondent to an application to set aside a bankruptcy notice to unilaterally withdraw the bankruptcy notice and if so on what basis. The primary judge heard submissions on that issue and reserved on the question of whether a creditor can unilaterally withdraw a bankruptcy notice or waive compliance with its requirements after an application to set aside the bankruptcy notice has been filed.

12    On 14 July 2020 the primary judge published his reasons answering the separate question in the negative: Sommer v C Pty Ltd (No. 2) [2020] FCCA 1898 (Second Judgment). Thereafter the FCC Proceeding was adjourned to 17 July 2020 at which time it was listed for hearing on 31 July 2020.

13    On 23 July 2020 C Pty Ltd filed an application pursuant to s 83(1A) of the Application‍ Act seeking an order extending the period for lodging an application for review of the Costs ‍Certificate (Costs Review Application) and served a copy of it on Ms Sommer.

14    There followed correspondence between Ms Sommer and C Pty Ltd and on 27 July 2020 C ‍Pty ‍Ltd provided Ms Sommer with two sets of draft consent orders: one to be filed in the FCC Proceeding to set aside the Bankruptcy Notice and dismiss that proceeding; and the second to be filed in the Supreme Court in proceeding 2019/00260128 to set aside the judgment based on the Costs Certificate.

15    On 30 July 2020 C Pty Ltd filed submissions in the FCC Proceeding in which it conceded that the Bankruptcy Notice should be set aside. C Pty Ltd relevantly submitted that there was an “obvious jurisdictional error in the costs assessment”, that the outcome of the proceeding was “foregone” and that the court should therefore set aside the Bankruptcy Notice without requiring a further trial. The primary judge directed his associate to send an email to the parties requesting them to provide submissions either at the hearing scheduled on the following day or at some later time on relevantly the following question:

The respondent’s submissions assume that the only issues before the Court are those arising under the Bankruptcy Act 1966 (Cth). Is that correct, given the matters and issues identified in paragraphs 46 and 47 of the judgment his Honour delivered on 5 June 2020, and given the Federal Circuit Court may have jurisdiction over non-federal claims that arise out of the same substratum of facts out of which claims in relation to which it does have jurisdiction arise? (See, for example, El-Hanania v Vella (No.4) [2020] FCCA 265).

16    The FCC Proceeding was listed before the primary judge for directions on 31 July 2020. At that time C Pty Ltd made submissions which reflected its written submissions, namely that in light of the error made by the costs assessor the Bankruptcy Notice should be set aside, and in relation to the issue identified by the primary judge. As to the latter C Pty Ltd submitted that, even if the Circuit Court had jurisdiction over a non-federal claim, it should not exercise it. Ms Sommer submitted that the Circuit Court should not set aside the Bankruptcy ‍Notice without a hearing on all issues that arose on her application to set it aside. She said that the proceeding should not be terminated in circumstances where C Pty Ltd had conceded only one of a number of grounds, leaving those not conceded to be litigated elsewhere.

17    On 7 August 2020 an order was made in the FCC Proceeding dismissing C Pty Ltd’s application to terminate the FCC Proceeding by the court making an order setting aside the Bankruptcy Notice. Orders were also made reserving to Ms Sommer liberty to apply for an order that C Pty Ltd be restrained from taking any further steps in relation to the Costs Review Application other than such steps as are necessary to withdraw it, or to obtain an order staying the Costs Review Application, or to communicate to the Manager, Costs Assessment that it does not intend to take any further steps in relation to that application. The liberty was expressed to be conditional on Ms Sommer first requesting C Pty Ltd to give an undertaking to that effect and C Pty Ltd declining to give such an undertaking within seven days: see ‍Sommer v C Pty Ltd (No. 3) [2020] FCCA 2156 (Third‍ Judgment).

18    On 21 August 2020 the FCC Proceeding was again listed before the primary judge. At that time C Pty Ltd sought for Ms Sommer to particularise her claims. Accordingly an order was made requiring her to file and serve a document titled “Statement of Applicant’s Case” (SOAC) identifying the orders she claimed the court should make and, in relation to each order, setting out in summary form the material facts on which she relies and the reasons why the facts on which she relies entitle her to the order she seeks.

19    On 25 August 2020 the primary judge amended the orders made on 7 August 2020 to include an order pursuant to s 41(6A) of the Bankruptcy Act extending the time for Ms Sommer to comply with the Bankruptcy Notice.

20    The FCC Proceeding was listed before the primary judge on 3 September 2020 at which time C Pty Ltd sought to strike out certain parts of the SOAC. That application was set down for hearing on 11 September 2020.

21    On 11 September 2020 the FCC proceeding was listed before the primary judge for the consideration of three questions: first, whether an order should be made restraining C Pty Ltd from taking any further steps in the Costs Review Application; secondly, whether Ms Sommer should be directed to file an amended application in which the costs assessor who issued the Costs Certificate is added as a party and orders in the nature of certiorari and mandamus are sought against the costs assessor; and thirdly, whether paragraphs 16 to 29 of the SOAC should be struck out.

22    On 18 September 2020 orders were made in the FCC Proceeding including that certain paragraphs of the SOAC be struck out with leave to re-plead in relation to the subject matter of those paragraphs; until further order C Pty Ltd be restrained from taking any step in relation to the Costs Review Application, other than those necessary for its withdrawal or abandonment; and for Ms Sommer to file an amended application joining the costs assessor, referred to as Ms M, as the second respondent and adding the following paragraph under the heading “Details of claim”:

A declaration that, on the grounds stated in the “Grounds of review” contained in the “Application for Review of Determination(s) of a Costs Assessor” the first respondent lodged on 23 July 2020 with the Manager, Costs Assessment pursuant to s.83 of the Legal Profession Uniform Law Application Act 2014 (NSW) the costs determinations recorded in the Certificates of Determination of Costs issued by the second respondent on 18 July 2020 are affected by jurisdictional error and for that reason are of no legal effect.

The court also noted that on the day the orders were made the associate to the primary judge would forward to the parties the form of the amended application that Ms Sommer was to file: Sommer v C Pty Ltd (No. 4) [2020] FCCA 2589 (Fourth Judgment).

the statutory scheme - assessment of legal costs

23    Central to the issues that arose before the primary judge was the costs assessment process undertaken prior to issue of the judgment on which the Bankruptcy Notice was based. It is therefore instructive to set out the process prescribed by the Uniform Law and the Application ‍Act for the assessment of legal costs.

24    Division 3 of Pt 4.3 of the Uniform Law concerns costs disclosure and sets out the disclosure obligation of a law practice to its clients as well as the ramifications of a failure to comply with those obligations. In particular, s 178(1) of the Uniform Law provides that if a law practice contravenes the disclosure obligations, among other things, the costs agreement concerned is void and the client is not required to pay the legal costs until they have been assessed or any costs dispute has been determined by the local regulatory authority.

25    Division 7 of Pt 4.3 of the Uniform Law concerns costs assessment and applies to legal costs payable on a solicitor-client basis. Section 198(1) of the Uniform Law sets out who may make an application for an assessment of the whole or any part of legal costs payable to a legal practice and includes, relevantly, a client who has paid or is liable to pay the costs. Section 199(2) prescribes what a costs assessor must do when carrying out a costs assessment:

(2)    On a costs assessment, the costs assessor must—

(a)    determine whether or not a valid costs agreement exists; and

(b)    determine whether legal costs are fair and reasonable and, to the extent they are not fair and reasonable, determine the amount of legal costs (if any) that are to be payable.

26    Section 200 titled “Factors in a costs assessment” includes:

(1)    In considering whether legal costs for legal work are fair and reasonable, the costs assessor must apply the principles in section 172 so far as they are applicable.

(2)    In considering whether legal costs for legal work are fair and reasonable, the costs assessor may have regard to the following matters—

(a)    whether the law practice and any legal practitioner associate or foreign lawyer associate involved in the work complied with this Law and the Uniform Rules;

(b)    any disclosures made, including whether it would have been reasonably practicable for the law practice to disclose the total costs of the work at the outset (rather than simply disclosing charging rates);

(c)    any relevant advertisement as to the law practice’s costs or the skills of the law practice or any legal practitioner associate or foreign lawyer associate involved in the work;

(d)    any other relevant matter.

27    The principles in s 172 of the Uniform Law, which is in Div 2 of Pt 4.3, include:

(1)    A law practice must, in charging legal costs, charge costs that are no more than fair and reasonable in all the circumstances and that in particular are—

(a)    proportionately and reasonably incurred; and

(b)    proportionate and reasonable in amount.

(2)    In considering whether legal costs satisfy subsection (1), regard must be had to whether the legal costs reasonably reflect—

(a)    the level of skill, experience, specialisation and seniority of the lawyers concerned; and

(b)    the level of complexity, novelty or difficulty of the issues involved, and the extent to which the matter involved a matter of public interest; and

(c)    the labour and responsibility involved; and

(d)    the circumstances in acting on the matter, including (for example) any or all of the following—

(i)    the urgency of the matter;

(ii)    the time spent on the matter;

(iii)    the time when business was transacted in the matter;

(iv)    the place where business was transacted in the matter;

(v)    the number and importance of any documents involved; and

(e)    the quality of the work done; and

(f)    the retainer and the instructions (express or implied) given in the matter.

28    Part 7 of the Application Act, titled “Legal costs—costs assessment”, applies to “Uniform ‍Law ‍costs” which are legal costs referred to in Div 7 of Pt 4.3 of the Uniform Law and legal costs referred to in s 65 of the Application Act: see s 63 and s 64 of the Application ‍Act.

29    Section 68 of the Application Act sets out how an application for costs assessment is to be made and s 69 outlines how, procedurally, the costs assessment is to run, including that the costs assessor is to give the relevant parties an opportunity to make submissions and to give due consideration to any submissions made and that the costs assessor may hold an oral hearing if he or she wishes in accordance with the costs assessment rules. As to the latter, the power to make rules in relation to, among other things, the conduct of costs assessments and reviews is conferred on the Costs Assessment Rules Committee by s 93(1) of the Application Act, although to date no such rules have been made. However, reg 37 of the Legal Profession Uniform Law Application Regulation 2015 (NSW) permits a costs assessor, by notice, to compel a party to a costs assessment to produce any specified document, provide written information or to otherwise assist in or co-operate with the determination of the assessment in a specified manner.

30    Once a costs assessor makes a determination of costs, he or she is to issue a certificate setting out the determination which includes the matters set out in s 70(1) of the Application Act. Section 70(4) provides that, in the case of an amount of money specified in a certificate that has been paid, any amount paid which exceeds the amount specified in the certificate may be recovered as a debt in a court of competent jurisdiction. Section 70(5) provides that, if an amount specified in a certificate remains unpaid, the certificate is, on its filing in the office or registry of a court having jurisdiction to order the payment of that amount of money and without taking any further action, taken to be a judgment of that court for the unpaid amount.

31    Section 73 of the Application Act provides that a costs determination is binding on all parties and no appeal or other assessment lies in respect of it, except as provided by Pt 7 of that Act. To that end Div 5 of Pt 7 provides for reviews. Section 83 relevantly provides that:

(1)    A party to a costs assessment may, within 30 days after the certificate of determination by the costs assessor has been forwarded to the parties in accordance with the regulations or the costs assessment rules, apply for a review of the determination.

(1A)    The Manager, Costs Assessment may extend the period for lodging an application.

32    Section 85 of the Application Act concerns the conduct of reviews and provides that a review panel may review the determination of a costs assessor and either affirm it or set it aside and substitute the determination that, in its opinion, should have been made by the costs assessor. In undertaking the review, the review panel has all the functions of a costs assessor in relation to the assessment concerned and is to determine the application, subject to Pt 7 and the costs assessment rules, in the manner that a costs assessor would be required to determine an application for costs assessment. Section 87 applies where a review panel sets aside the costs ‍assessor’s determination on a review. Where that occurs, the review panel is to issue a certificate that sets out its determination, which includes the amounts set out in s ‍70(1)(a)‍ to ‍(c). Sections 70(2) to (6) apply to the certificate in the same way as they apply to a certificate issued by a costs assessor under s 70.

33    Division 6 of Pt 7 of the Application Act concerns appeals. Section 89(1) provides for an avenue of appeal to the District Court of New South Wales, but only with leave if the amount of costs in dispute is less than $25,000; or the Supreme Court, but only with leave if the amount of costs in dispute is less than $100,000. A party does not require leave to appeal against a decision of the review panel to the Supreme Court if the amount of costs in dispute is greater than $100,000. An appeal is to be by way of rehearing and fresh evidence, or evidence in addition to or in substitution for the evidence before the review panel or costs assessor may, with the leave of the Court, be given on appeal: see s 89(4) of the Application Act.

the application for extension of time and leave to appeal

34    C Pty Ltd relies on a further amended application for extension of time and leave to appeal. It relies on the following grounds:

4.    The Applicant seeks leave to appeal from the interlocutory judgments and orders on the basis of the following contentions:

c.    Once the Applicant conceded that the Bankruptcy Notice should be set aside, the Federal Circuit Court should have declined, at an initial stage, to engage in judicial review of, or a collateral attack on, the costs assessment, and ought to have allowed the review of the costs assessment to continue.

5.    The Applicant seeks an extension of time in which to appeal the judgments and orders of 7 August 2020 (corrected on 25 August 2020) on the basis that:

a.    as explained in the accompanying affidavit of Adam Wiederman sworn on 2 October 2020, observations made by his Honour at [39] of the judgment of 7 August 2020 led to an application for particularity of the case the Applicant was required to meet. This led to the service of the “Statement of Applicant’s Claim”, which in turn led to an application to strike out the Statement of Applicant’s Claim. Judgment in relation to this application was delivered on 18 September 2020.

b.    The delay was as a result of an application made arising out of the judgment of 7 August 2020 in order to identify the remaining issues over which the Court was assuming and asserting jurisdiction rather than involving dilatory conduct on the part of the Applicant.

(Strike out and underlining omitted.)

35    The reason for the delay in bringing the application for leave to appeal in relation to the orders made on 7 August 2020 is explained in an affidavit affirmed by C Pty Ltd’s solicitor, Adam ‍Wiederman, on 2 October 2020. In summary it was only after Ms Sommer had been required to set out her claim in greater detail in the SOAC and the application to strike out parts of that claim had been resolved, culminating in the Fourth ‍Judgment, that C Pty Ltd sought advice from senior counsel.

36    The amended draft notice of appeal relied on by C Pty Ltd includes two grounds, the first of which concerns the orders made on 7 August 2020 and the Third Judgment, and the second of which concerns the orders made on 18 September 2020 and the Fourth Judgment:

1.    In its judgment and orders made on 7 August 2020, the orders being corrected on 25 August 2020, the Federal Circuit Court erred:

a.    in failing to set aside Bankruptcy Notice 248254 once the Appellant had conceded that it should be set aside (J [50]);

b.    in failing to otherwise dismiss the proceedings once the Appellant conceded that the Bankruptcy Notice should be set aside (J [50]);

c.    in finding that the Appellant had not “in truth” conceded the costs determination upon which the judgment giving rise to the Bankruptcy Notice was affected by jurisdictional error (J [31]);

…

f.    not considering that there was a discretion to decline to embark upon collateral review of the Costs Determination or to decline to consider granting any relief directed to the validity of that determination, contra Third Judgment, [44]; and

g.    not exercising the discretion in (f) to decline to consider the validity of the Costs Determination by way of collateral review or to decline to consider granting any relevant relief directed to the validity of that determination.

2.    In its judgment and orders made on 18 September 2020 the Federal Circuit Court erred, for the reasons set out in grounds 1(f) and (g):

a.    in failing to strike out the Statement of Applicant’s Claim filed on 28 ‍August 2020 on the basis that:

…

ii.    it did not properly plead viable causes of action.

b.    in ordering the First Respondent to file an Amended Application (J[48] – [50]) which:

i.    joined Marilyn Filewood (Costs Assessor) as Second Respondent to the proceedings; and

ii.    sought declaratory relief as to whether Certificates of Determinations of Costs issued by the Second Respondent are affected by jurisdictional error and for that reason are of no legal effect;

…

c.    in restraining the Appellant from pursuing the Application for Review in Costs Assessment Number 2019/00102579.

(Strike out and underlining omitted.)

37    The principles to be applied by the Court when considering a grant of leave to appeal or an extension of time for leave to appeal are settled. In both the Court considers the interests of the administration of justice. Leave to appeal will be granted if the decision is attended with sufficient doubt to warrant a grant of leave and substantial injustice would result if leave was refused, supposing the decision to be wrong: Décor Corporation Pty Ltd v Dart Industries Inc (1991) 73 FCR 397 at 398. The discretion to extend time is to be exercised for the purpose of enabling the Court to do justice between the parties. An extension of time will be granted where there has been an acceptable explanation for the delay in bringing the application, there is no prejudice to the respondent in granting the extension and it can be shown that there is an arguable error in the decision in issue: BQQ15 v Minister for Home Affairs [2019] FCAFC 218 at [33].

consideration

38    Having considered the material before us and the parties’ submissions, we would allow the applications for an extension of time and leave to appeal and the appeal. Our reasons follow.

39    As to leave to appeal, the primary judge’s reasons are attended with sufficient doubt to warrant their reconsideration on appeal. It is apparent that the primary judge’s discretion miscarried when, despite C Pty Ltd’s concession that there was an error in the costs assessment process and the agreement of the parties to do so, his Honour declined to set aside the Bankruptcy ‍Notice. In those circumstances, substantial injustice would result if leave to appeal was refused. For the same reasons an extension of time should be granted in relation to the Third Judgment.

40    The amended draft notice of appeal seeks to challenge the Third and Fourth Judgments. The error that we have identified concerns the orders made on 7 August 2020 and the Third Judgment in which the primary judge considered whether he should make orders setting aside the Bankruptcy Notice and otherwise dismissing the proceeding. It is convenient to set out the reasoning which led the primary judge to decline to set aside the Bankruptcy Notice.

41    The primary judge set out the events which followed the Second Judgment including the lodgement of the Costs Review Application. His Honour referred to the detail of the Costs Review Application noting at [15] that it rearranged, into positive propositions, the questions that his Honour had framed in the First Judgment. Those questions were directed to whether the costs assessor had undertaken the requisite statutory tasks in making the costs determination and, if not, whether there was a substantial reason for going behind the judgment. The primary judge observed that “at least on the face of the Costs Review Application, therefore, [C Pty Ltd] positively contends the costs assessor erred by failing to undertake the tasks she was required to undertake when assessing the costs identified in [C ‍Pty ‍Ltd’s] tax invoice of 15 March 2019”.

42    At [24] the primary judge summarised C Pty Ltd’s submissions referring first, to the error in the way in which the costs assessor undertook the costs determination and C Pty Ltd’s submission that, because of the error, it would be unreasonable for Ms Sommer not to consent to the court terminating the proceeding by making an order setting aside the Bankruptcy Notice; and secondly, the following extract from C Pty Ltd’s written submissions:

Both [Ms Sommer] and [C Pty Ltd] are united in their position that the costs assessor failed to properly turn her mind to whether counsel’s fees were fair and reasonable (even though [Ms Sommer] does not appear to have precisely understood the relevant legal issue), and as set out above it is plainly the case. There is no relevant controversy.

Once that is accepted, the proceedings are decided – the bankruptcy notice must be set aside, and there is nothing further for the Court to determine. This Court’s jurisdiction is to determine questions in bankruptcy, and once that question is determined there is no remit to embark on a further enquiry into collateral issues with no impact upon the bankruptcy question, regardless of the wishes of any party.

Even if that were not the case as a matter of jurisdiction, as a matter of discretion [C Pty Ltd] should not be put to the cost of a full hearing in circumstances where the outcome of the proceedings is already determined, simply because [Ms Sommer] seemingly wishes to have a day in Court to ventilate issues that cannot affect the Court’s ultimate orders. That is an obvious abuse of process, in that it will achieve no proper purpose aside from putting [C Pty Ltd] to expense.

43    Based on those submissions, at [25] the primary judge identified the following questions to be addressed:

a)    Has [C Pty Ltd] in truth conceded the Costs Determination is affected by jurisdictional error?

b)    Assuming [C Pty Ltd] has so conceded, must or ought the Court terminate the proceeding by making an order to set aside the bankruptcy notice without determining the other issues that arise in the proceeding?

44    The primary judge answered the first question in the negative finding (at [31]) that he was not satisfied that C Pty Ltd had in truth conceded that the costs determination was affected by jurisdictional error or, alternatively, that if there had been such a concession, C Pty Ltd’s understanding of what it believed it had conceded was not jurisdictional error as understood by the law. Given the basis upon which we have determined the application before us and the appeal, it is not necessary to set out his Honour’s reasoning in that regard.

45    In relation to the second question and in particular whether the court had a discretion not to exercise its power given C Pty Ltd’s concession about the costs determination, his Honour said (at [44]):

I do not accept that [Ms Sommer’s] insisting to proceed with the matter is an abuse of process. In those circumstances, and given that “[o]rdinarily, questions of abuse of process, forum non conveniens and the like aside, jurisdiction conferred upon a court is to be exercised”, I do not accept I have any discretion not to exercise jurisdiction in relation to the matter that is before me.

46    It is in reaching that conclusion that his Honour erred.

47    The proceeding before the primary judge was an application to set aside the Bankruptcy Notice. In that context Ms Sommer raised the following issues as bases on which the court would go behind the judgment on which it was based: first, C Pty Ltd had failed to make adequate disclosure in relation to its costs agreement with Ms Sommer rendering that agreement void; secondly, at the time the costs agreement between Ms Sommer and C Pty Ltd was terminated, Ms Sommer’s liability to pay the costs had not crystallised; and thirdly, the costs assessor had misconstrued her task as a result of which the costs assessment process had miscarried.

48    The Circuit Court has such original jurisdiction as is conferred on it by laws made by Parliament by express provision or by operation of s 15C of the Acts Interpretation Act 1901 (Cth) to a provision that, whether expressly or by implication, authorises a civil proceeding to be instituted in the Circuit Court in relation to a matter: see s 10 of the Federal Circuit Court of Australia Act 1999 (Cth). Section 27 of the Bankruptcy Act confers exclusive jurisdiction in bankruptcy on the Circuit Court and this Court save as provided for in that section.

49    It follows that the Circuit Court had jurisdiction to consider the issues raised on the application to set aside the Bankruptcy Notice in the context of the Circuit Court exercising its jurisdiction in bankruptcy. Its jurisdiction to do so continued while the application was extant.

50    By the time of the hearing that led to the Third Judgment, C Pty Ltd had conceded that the costs ‍assessor’s task had miscarried and that there was a jurisdictional error in the costs ‍determination. That being so, C Pty Ltd submitted that the Circuit Court had a discretion to decline to conduct a hearing on all of the issues raised on the application to set aside the Bankruptcy Notice. That submission should have been accepted. The primary judge had a discretion to decline to exercise his power and thus to decline to entertain a collateral challenge to the validity of the costs determination or to grant any relief in relation to it. There are two reasons why that is so.

51    First, the Uniform Law and Application Act provide a comprehensive process for the assessment of legal costs. That process, put in place by the New South Wales Parliament, provides for specialist tribunals to consider the appropriateness of the costs which the legal practice seeks to recover, having regard to the statutory test to be applied, including associated questions such as the effect of a failure by a law firm to give disclosure in accordance with the requirements of the Uniform Law and the Application Act. The process is one supervised by the Supreme Court through an appeal by way of rehearing.

52    Once the parties sought to have the Bankruptcy Notice set aside because of an admitted error on the part of the costs assessor, the effect of the primary judge’s decision to continue with the proceeding and to determine the issues raised in opposition to the Bankruptcy Notice was unnecessary for the resolution of the matter in bankruptcy. To do so would be for a purpose foreign to the bankruptcy relief, being to embark upon a resolution of the question as to whether Ms Sommer owed C Pty Ltd any costs and if so how much. This enquiry would displace the authority of the specialist tribunal established by the statutory scheme to address costs assessment issues, and any appeal from the findings of that tribunal, by a determination of such issues by the Circuit Court in circumstances that were unnecessary for the discharge of its jurisdiction in bankruptcy. In the face of the proposed consent orders, the resolution of those issues was no longer necessary for the exercise by the primary judge of the Circuit Court’s bankruptcy jurisdiction. If, however, some aspect of this question as to whether Ms Sommer owed money had been properly live as a reason to go behind the judgment, the Circuit Court may properly have considered the question.

53    Secondly, in Commissioner of Taxation v Futuris Corporation Limited (2008) 237 CLR 146, in considering the appropriateness of reviewing an amended assessment of income tax for jurisdictional error, a majority of the High Court (Gummow, Hayne, Heydon and Crennan JJ) held that the pendency of a proceeding under Pt IVC of the Taxation Administration Act 1953 (Cth) should have led a Full Court of this Court to refuse declaratory relief. At [10] their Honours observed that “as a matter of discretion, relief under s 75(v) [of the Constitution] and s 39B [of the Judiciary Act 1903 (Cth)] may be (and often will be) withheld where there is another remedy”, which in that case was provided by Pt IVC. At [48] the majority, referring to the decision of Gaudron J in Enfield ‍City Corporation v Development Assessment Commission (2000) 199 CLR 135, observed that “the usual discretionary considerations attending the grant of equitable remedies apply to injunctions and declarations in public law cases” and that in the case before their Honours “the pendency of a proceeding by Futuris under Pt IVC should have led the Full Court to refuse declaratory relief in any event”.

54    Like the review process under Pt IVC of the Taxation Administration Act considered by the High Court in Futuris, the process set out in the Uniform Law and the Application Act provides for review of a costs assessment, once made, by a specialist panel followed by an appeal to a court. At each stage there is a forum in which a challenge can be brought.

55    In this case there is, subject to the grant of an extension of time, an extant review of the costs determination. On review, the review panel is able to resolve the issues that arise between C ‍Pty Ltd and Ms Sommer including determining whether there is a valid costs agreement and, as a necessary element of the consideration of that issue, whether C Pty Ltd complied with its disclosure obligations, determining the quantum of fair and reasonable costs for the legal services provided by C Pty Ltd to Ms Sommer and, subject to that determination, determining whether the amount of $100,000 paid to date on account of C Pty Ltd’s costs, or any part of it, is to be repaid to Ms Sommer. If either party is dissatisfied with the review panel’s determination, an appeal lies to the District Court or Supreme Court, as appropriate. These factors support an exercise of the Circuit Court’s discretion to decline to continue the proceeding.

56    It is apparent that, contrary to his finding, the primary judge not only had a discretion to exercise in the context of the case before him but, in light of the concession made and the comprehensive statutory process available for consideration of the costs determination, should have exercised that discretion by setting aside the Bankruptcy Notice, otherwise dismissing the proceeding and thereby declining to embark on any collateral challenge to the costs determination.

Conclusion

57    C Pty Ltd has made out ground 1 of the amended notice of appeal. We will set aside order 1 made on 7 August 2020 which was the order dismissing C Pty Ltd’s application for the proceeding to be terminated by the Circuit Court making an order setting aside the Bankruptcy ‍Notice. This Court can re-exercise the discretion. We will accordingly make orders setting aside the Bankruptcy Notice and otherwise dismissing the FCC Proceeding.

58    Ground 2 of the amended notice of appeal concerns the orders made on 18 September 2020 and the Fourth Judgment. Given the conclusion we have reached, it is not necessary for us to consider that ground. The effect of the orders we will make on this appeal will bring the FCC ‍Proceeding to an end. However, the orders made on 18 September 2020 included an order enjoining C Pty Ltd from taking any step in the Costs Review Application save for steps necessary to withdraw or abandon it. The parties should be permitted to pursue that application rather than have the Circuit Court undertake a form of collateral review. Accordingly that order should also be set aside.

59    That leaves the question of costs. C Pty Ltd does not seek its costs of the appeal but, in its amended notice of appeal, seeks an order that Ms Sommer pay its costs of the FCC Proceeding from 10 July 2020, which was the date of the Second Judgment. We do not intend to make that order. The position in which Ms Sommer has found herself was, to a significant degree, visited upon her by the way in which the primary judge approached the resolution of the application to set aside the Bankruptcy Notice. She should not be required to pay C‍ Pty ‍Ltd’s costs of the proceeding in the Circuit Court. Rather, the order we will make is that there be no order as to costs.

60    We will make orders giving effect to these reasons.

Associate:

Dated:    31 May 2021