Federal Court of Australia

Alhalek v Quintiliani trading as Kells Lawyers (No 2) [2021] FCAFC 140

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    Pursuant to s 41(6A) of the Bankruptcy Act 1966 (Cth), the time for compliance with bankruptcy notice BN 248915 issued on 19 March 2020 be extended until 5 pm on 9 August 2021.

3.    The appellant pay the respondents’ costs.

4.    Within 7 days, the respondents file and serve any evidence and submissions in support of an order that costs be paid otherwise than on the ordinary basis or with respect to the costs incurred by the respondents acting on their own behalf.

5.    The appellant file and serve any submissions in response by 26 August 2021.

6.    The respondents file and serve submissions in reply within 7 days of any submissions in response.

7.    No submissions may exceed 5 pages.

8.    The question of any further order as to costs be determined on the papers.

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

REASONS FOR JUDGMENT

THE COURT:

1    Kyled Alhalek is a former client of the law firm, “Kells the Lawyers”. Mr Alhalek allegedly owes Kells money for outstanding fees and disbursements and in March 2020 he was served with a bankruptcy notice seeking payment of the sum allegedly due. In the proceeding before the primary judge he applied for an order setting aside the bankruptcy notice or, if the Court were not disposed to do so, an extension of time to comply with it. The respondents, who are the partners of the firm, opposed the application and the primary judge dismissed it, awarding costs against Mr Alhalek. This is an appeal from that judgment. For the reasons that follow the appeal should also be dismissed with costs.

The facts

2    On 6 February 2018 Mr Alhalek retained Mario Quintiliani, a partner of Kells, to represent him in two proceedings in the Local Court of New South Wales. On 27 August 2018 Mr Alhalek withdrew his instructions.

3    At that time and until mid-October 2019 Mr Alhalek was in control of a company called Mortgage Loan & General Pty Ltd. Mr Quintiliani was aware of Mortgage Loan and Mr Alhalek’s control of it at the time because of instructions he had received from him previously.

4    An invoice sent by Kells to Mr Alhalek on 4 September 2018 and dated 29 August 2018 indicated that he had incurred costs and disbursement of $35,699.40 with a balance owing of $25,699.40.

5    On 12 June 2019 Kells issued and served a bill of costs in itemised form on Mr Alhalek for a net amount of $27,587.55, made up of fees and disbursements of $37,587.55 less $10,000 which had he had paid (the Bill of Costs). Mr Alhalek refused to pay the outstanding amount.

6    At around 20 June 2019 Mr Alhalek claimed to have moved house, from an address in Woollahra, to an address in Paddington. There is no evidence to suggest that he informed Kells of any change of address and the evidence before the primary judge was that he did not.

7    On 5 August 2019 Kells filed an application for assessment of the Bill of Costs (Costs Assessment Application) with the Supreme Court of New South Wales. The Costs Assessment Application was addressed to Mr Alhalek at the Woollahra address. Mr Alhalek was also notified that an application had been filed by email to admin@mortgageloangeneral.com from the Supreme Court.

8    On 26 August 2019 Mr Alhalek filed submissions in the Costs Assessment Application in support of his objection to the Bill of Costs.

9    On 13 September 2019 Kells provided Mr Alhalek with a copy of its submissions to the costs assessor by letter to both the Woollahra and Paddington addresses and by email to admin@mortgageloangeneral.com.

10    On 22 September 2019 Mr Alhalek filed further submissions in the Costs Assessment Application.

11    By about mid-October 2019 Mr Quintiliani became aware that Mortgage Loan & General had been placed in liquidation by order of the Supreme Court of Victoria.

12    On 8 November 2019 a certificate of assessment of costs (Costs Certificate) in the amount of $31,322.50, with reasons, was issued. On 18 November 2019 the Costs Certificate was registered as a judgment of the Local Court against Mr Alhalek in the amount of $21,322.50, being the amount in the Costs Certificate, $31,322.50, less the $10,000 Kells had previously received (Costs Judgment). According to Mr Alhalek the Costs Certificate, the reasons that accompanied it, and the Costs Judgment were sent by the costs assessor to the Woollahra Address.

13    On 22 November 2019 Mr Quintiliani caused garnishee notices to be served on the Commonwealth Bank of Australia (CBA) and the Australia and New Zealand Bank (ANZ). ANZ informed Mr Quintiliani on 26 November 2019 that there were insufficient funds in the account and that they were unable to make any payments pursuant to the garnishee notice. Upon receiving that information Mr Quintiliani formed the view that Mr Alhalek was probably insolvent. A reply was not received from the CBA.

14    Mr Alhalek submitted evidence to the primary judge that in about January 2020 he sold a “Ferrari California” to F1 Prestige Car Sales Pty Ltd (F1 Prestige) for approximately $300,000 and that it was agreed, as between him and F1 Prestige, that F1 Prestige would keep the proceeds of sale to reinvest in the business but that Mr Alhalek could call upon his investment on 24 hours’ notice.

15    On 19 March 2020 bankruptcy notice BN 248915 was issued by the Official Receiver to Mr Alhalek seeking payment in the amount of $21,738.24 (Bankruptcy Notice).

16    Mr Alhalek was served with the Bankruptcy Notice on 20 March 2020. He claimed that this was the first time that he became aware of either the Costs Certificate or Costs Judgment.

17    On 23 March 2020 Mr Alhalek sent an email to the costs assessment division of the Supreme Court seeking a copy of the Costs Certificate.

18    On 26 March 2020 Mr Alhalek sued Kells in the Local Court seeking damages in the sum of $95,000 alleging negligence in the conduct of a case under s 41 of the Motor Dealers Act 1974 (NSW) by failing to file a defence within time with the result the matter was decided against him causing him continuing injury and financial loss (the Local Court Proceeding).

19    On 28 March 2020 Mr Alhalek lodged an application for review of the Cost Certificate determination, as this was out of time he applied for an extension of time on 19 May 2020.

20    On 21 July 2020 the manager, costs assessment, issued a determination (dated 17 July 2020) dismissing Mr Alhalek’s application for an extension of time to lodge the review application of the Costs Certificate determination.

21    In about early July 2020 Mr Quintiliani instructed Kells’ legal representatives engaged by its insurers to make an offer to Mr Alhalek to settle the Local Court Proceeding on the basis that the offer would not be extended beyond the close of business on 24 July 2020. After close of business on 24 July 2020 Mr Alhalek accepted the offer on terms that he would release Kells from any claims made in the proceeding or at all. The terms of settlement did not involve a payment to Mr Alhalek in respect of the claim or for costs.

22    On 3 August 2020 Mr Alhalek filed a summons in the Supreme Court seeking judicial review of the determination dismissing the application for an extension of time (the Judicial Review Proceeding).

The proceeding before the primary judge

23    Mr Alhalek applied to have the Bankruptcy Notice set aside on three alternative bases:

(1)    that he had a counter-claim which exceeds the amount of the Costs Judgement, namely the Local Court Proceeding;

(2)    that the Costs Judgment underpinning the Bankruptcy Notice will be set aside or varied as a result of the Judicial Review Proceeding; and

(3)    that the Bankruptcy Notice is an abuse of process within s 30 of the Bankruptcy Act 1966 (NSW).

24    With respect to ground 1, the existence of a counter-claim, Mr Alhalek submitted that the Local Court Proceeding raises a prima facie and bona fide claim and that he has a fair chance of success. The basis for that submissions was that the claim, which Kells says is statute barred as the loss commenced in 2012, is not statute barred because there were instances of loss from 2014–2017 and that the period of limitation runs from the time that the damage crystallises. The primary judge rejected this ground on the basis that Mr Alhalek accepted Kells’ settlement offer and a deed of settlement was being drafted. Mr Alhalek replied that the matter had not been discontinued and so the claim remained on foot but could not point to authority in support of that proposition. Her Honour observed that, since the matter was resolved without Kells paying any money to Mr Alhalek, the value of the claim could not possibly exceed the costs judgment.

25    With respect to ground 2, the primary judge found that little weight could be given to Mr Alhalek’s assertion that he would be successful in the Judicial Review Proceeding as, even if he did succeed, that would only result in the matter being remitted to another costs manager to re-determine the extension of time application. The costs assessment would only be reconsidered on review if he obtained an extension of time and the costs assessor were to uphold his grounds of review and alter the original determination. The primary judge found that there was no probative evidence as to whether he would be successful in achieving a reduction in the assessed costs or the likely amount of any reduction.

26    With respect to ground 3, the alleged abuse of process, Mr Alhalek submitted that Kells did not attempt any other method of recovering its costs apart from issuing the garnishee notices sought against the two bank accounts. He submitted that Kells did not write to him to ascertain whether he had another bank account. He also submitted that it was not his fault that he did not make the payment as he did not receive the correspondence apparently sent to his address and Kells could have emailed or sent him a letter. Further, the fact his company — Mortgage Loan & General — was being wound up was no reasonable basis for Kells to consider him impecunious.

27    Alternatively, Mr Alhalek submitted that the Bankruptcy Notice was an abuse of process because he was solvent as at 19 March 2020 and could meet the Costs Judgment.

28    The primary judge found that Kells did all it was required to do under the Uniform Civil Procedure Rules 2005 (NSW) in relation to the garnishee notices. Her Honour said that it was unnecessary for a creditor to exhaust all avenues of recovery before issuing a Bankruptcy Notice and found that Kells took steps to enforce the Costs Judgment based on information known to it. Her Honour found that Kells had not sent or served the relevant Costs Certificate, reasons or Costs Judgment on Mr Alhalek and accepted that he had only received the documents upon being served with the Bankruptcy Notice. Her Honour considered this was “of some concern” as it did not represent best practice but she declined to infer that Kells had any collateral purpose in serving the Bankruptcy Notice. She held that the facts did not allow for the inference that the Bankruptcy Notice was issued for an improper purpose or ulterior motive, namely to bring pressure to bear on Mr Alhalek. Rather, her Honour held that it was issued because the steps taken to enforce the Costs Judgment had been unsuccessful.

29    Her Honour rejected the alternative ground because Mr Alhalek did not provide any evidence that he was able to pay his debts as they fell due out of his own assets beyond the arrangement he had with F1 Prestige and provided no evidence of his liabilities or financial position in general.

30    The basis of the application for an extension of time to comply with the bankruptcy notice was the filing of the review application. After the review application was dismissed, Mr Alhalek, through his then counsel, told the Court that he sought the extension based on the commencement of the Judicial Review Proceeding in which he sought to quash the Costs Certificate determination.

31    The primary judge refused to extend time because, if the Judicial Review Proceeding were successful, it would not result in the Costs Judgment being set aside. Rather, the determination would be set aside and the application for extension of time to lodge the review application would be considered afresh. There was no evidence as to prospects. Her Honour nevertheless extended time for compliance with the Bankruptcy Notice for seven days.

The appeal

32    Five grounds of appeal are pleaded. They read (without alteration):

1.    The trial judge erred in finding that it is not possible to conclude that the Judicial Review Proceedings and, if successful, the applications that will or may follow, will lead to a setting aside or variation of the Costs Judgment such that Bankruptcy Notice No.248915 issued on 19 March 2020 should be set aside.

2.    The trial judge erred in failing to extend the time for compliance with Bankruptcy Notice No. 248915 issued on 19 March 2020 in circumstances where the Appellant has commenced proceedings to set aside the judgment in respect of which Bankruptcy Notice No. 248915 issued on 19 March 2020 was issued.

3.    That the trial judge erred in finding that the issuing of Bankruptcy Notice No. 248915 issued on 19 March 2020 is not an abuse of process on the basis that it was issued for an ulterior purpose in that the Respondent failed to take proper steps to have the Costs Judgment paid or to have the Appellant enter into an arrangement to pay the debt prior to its issue.

4.    That the trial judge erred in failing to draw an inference, or in failing to find, that the Respondent failed to take reasonable steps to enforce the Costs Judgment such that by failing to take reasonable steps to enforce the Costs Judgment, the Respondent’s issuance of Bankruptcy Notice No. 248915 issued on 19 March 2020 was an abuse of process.

5.    The trial judge erred in failing to find that Bankruptcy Notice No. 248915 issued on 19 March 2020 was issued for an improper purpose or ulterior motive such that it is an abuse of process.

33    When this matter first came before the Court, Kells sought leave to adduce further evidence on the appeal concerning the fate of the Local Court and Judicial Review Proceedings. The application was not opposed. Kells filed an affidavit from Mr Quintiliani sworn on 2 June 2021.

34    Leave is granted to adduce the further evidence.

35    Mr Alhalek’s submissions did not directly address any of the grounds of appeal.

36    He asked that the orders of the primary judge be set aside “on the basis of [j]udicial favouritism and impartiality (presumably partiality)”. Both his original submissions and his submissions in reply are largely in the nature of abuse. They are replete with personal invective, mostly directed at Mr Quintiliani. Mr Alhalek effectively conceded that the respondents’ actions “may well [have] been legal”. In reply he described his submissions as “precarious” from a legal standpoint. Nevertheless, he argued that the respondents were “morally and ethically repugnant” and called upon the Court “to ensure that the fabric of law and society are correctly guided and such acts are discouraged”.

37    Mr Alhalek complained that the primary judge put excessive weight “on the scant means by which Kells sought to enforce the debt, particularly in relations to the liquidation of MLG’s”. He claimed that he was “a mere contractor” and there was no evidence to show that he was a company officer or shareholder or, indeed, that he had anything to do with the company’s operations. Nor, he wrote, was there any evidence that Kells had sent any of “the purported documents”.

38    Finally, Mr Alhalek complained that, contrary to the primary judge’s findings, his Judicial Review Proceeding was “both meritorious and well formulated” and she was not entitled to “pass judgment” on them.

39    Mr Alhalek argued that “collateral matters were … allowed to cloud the decision of this judgement, to the benefit of the respondent[s]” and rewarded their “repugnant” conduct. He exhorted the Court to set aside the judgment “for the betterment of the law, to reinforce the ethics and code[s] of conduct amongst its practitioners, and to encourage honourable conduct within society”. The “collateral matters” were not identified.

40    There is no merit in any of Mr Alhalek’s complaints or arguments. We are not satisfied that the primary judge erred in any of the findings challenged in the notice of appeal.

41    The allegation of “judicial favouritism” or “partiality [scil.]” is outside the scope of the notice of appeal. In any case, it is baseless. We take the allegation to be an accusation that her Honour was biased in favour of Kells. In Minister for Immigration and Multicultural Affairs v Jia Legeng (2001) 205 CLR 507 at [183] Hayne J explained that:

“Bias” is used to indicate some preponderating disposition or tendency, a “propensity; predisposition towards; predilection; prejudice”. It may be occasioned by interest in the outcome, by affection or enmity, or, as was said to be the case here, by prejudgment. Whatever its cause, the result that is asserted or feared is a deviation from the true course of decision-making, for bias is “anything which turns a man to a particular course, or gives the direction to his measures”.

42    An allegation of actual bias must be “distinctly made and clearly proved”: Jia at [69] (Gleeson CJ and Gummow J). Mr Alhalek has done neither of these things. Apprehended or imputed bias only requires proof that in all the circumstances a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the questions in dispute: Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 at [6] (Gleeson CJ, McHugh, Gummow and Hayne JJ). To establish apprehended bias, however, a litigant must first identify what might have led the judge to decide the case otherwise than on its merits and then articulate “the logical connection between that matter and the feared deviation from the course of deciding the case on its merits”: Ebner at [8]; Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427 at [63]. It is impermissible to reason backwards from what was decided at trial and the manner in which it was decided to the conclusion that it might reasonably be apprehended that the judge might not have brought an impartial mind to the resolution of the issues: Michael Wilson & Partners at [73]. Yet that is all Mr Alhalek sought to do.

43    The other allegations should also be dismissed.

44    First, the appeal is not the appropriate vehicle to ventilate complaints of professional misconduct or unsatisfactory professional conduct. An appeal is for the correction of error on the part of the primary judge. Unless an appellant can satisfy the appeals court that the opinions and conclusions of the primary judge were wrong or affected by error, the appeal must be dismissed: see, for example, Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [30] (Allsop J, Drummond and Mansfield JJ agreeing).

45    Second, the evidence did not establish that there was an abuse of process.

46    In Young v Cooke [2017] FCA 26 Gleeson J observed:

104    If it is apparent to the Court that the purpose of a bankruptcy notice is to put pressure on a debtor to pay a debt, rather than to invoke the Court’s insolvency jurisdiction, the issuing of the bankruptcy notice will be an abuse of process. However, it is not an abuse of process if a creditor genuinely intends to pursue the matter if there is default in complying with the notice and there is no evidence of collateral purpose or undue pressure: Maxwell-Smith v S & E Hall Pty Limited, in the matter of Maxwell-Smith [2006] FCA 825 at [43] and [44].

105    In Slack v Bottoms English Solicitors [2002] FCA 1445, at [15]-[20], Spender J rejected as unarguable that it is an abuse of process to issue a bankruptcy notice as a means to secure payment of a debt and, in the event of default, to proceed by way of petition for sequestration. Spencer J noted that an express object of a bankruptcy notice is to persuade the debtor to pay the debt the subject of the notice.

47    The correctness of these observations was recently affirmed by a Full Court in Nobarani v Mariconte [2021] FCAFC 96 [42]–[46] (Allsop CJ, Farrell and Derrington JJ). In that case the Court emphasised (at [43]) that it was not a precondition to the issue of a bankruptcy notice that other means of recovering the debtor are exhausted. In a case such as this, the Court said, obtaining a judgment is almost invariably sufficient to put the debtor on notice. At [32], the Full Court endorsed the summary of the relevant principles given by the primary judge in the present case, principles her Honour went on to apply.

48    Third, Mr Quintiliani’s affidavit discloses that on 18 August 2020, before he primary judge delivered judgment, the Local Court Proceeding has been dismissed by consent and the parties entered into a deed of release. It also disclosed that on 10 March 2021, after the appeal was lodged, the Judicial Review Proceeding was dismissed with costs on the ground that no arguable grounds of review had been demonstrated which would warrant an extension of time: Alhalek v Kells the Lawyers [2021] NSWSC 205 (Harrison AsJ).

49    In these circumstances, the foundations for the other arguments advanced below have been removed.

50    For all these reasons the appeal must be dismissed.

51    The respondents consented to an order extending the time for compliance with the bankruptcy notice by two business days “as a matter of grace and favour” and we will make that order.

52     Costs should follow the event. At the hearing Mr Parsons of counsel, who appeared for the respondents, foreshadowed an application for indemnity costs in the event that the appeal were successful and sought an opportunity to make submissions about the extent of the costs that might be payable more generally having regard to the fact that the respondents are the solicitors on the record (see Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; 93 ALJR 1007; 372 ALR 555). He should have that opportunity. Mr Alhalek will have an opportunity to respond and, if he chooses to do so, the respondents will be permitted to reply. The matters raised will be decided on the papers.

53    There will be orders accordingly

Associate:

Dated:    5 August 2021