FEDERAL COURT OF AUSTRALIA

Bhattacharya v Berger [1999] FCA 883

BANKRUPTCY – application to set aside a bankruptcy notice on the single ground that the debtor had "a counter claim or cross claim" against the creditors – several other grounds claimed in the affidavits supporting the application – further claims made in submissions including that the creditor was liable in tort and for breaches of contract and statutory duty – chronological history of debtor’s legal actions demonstrating that allegations not made prior to the issue of the bankruptcy notice and previously made against others – whether costs orders can be final orders – whether Costs Assessor's determination in the Certificate of Costs is reviewable

Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41(7)

Legal Profession Act 1987 (NSW) ss 57B, 193(1), 208, 208(1), 208A(1), 208J(3), 208L

Legal Profession Act 1987 -Regulation No. 173 of 1995 (NSW), s 22A(1)(h)

Legal Profession Act 1987 - Rules No. 561 of 1995 (NSW)

Re Gibbs ex parte Triscott [1995] 65 FCR 80, followed

Re McAlister; Ex parte McAlister, Moore [1936] 8 ABC 283, followed

PRANAY KUMAR BHATTACHARYA V VICTOR BERGER & HARRY NORMAN FREEDMAN TRADING AS MILNE BERRY & BERGER

NG 7269 OF 1998

THE HON JUSTICE MARCUS EINFELD AO

SYDNEY

2 JULY 1999

THE COURT ORDERS THAT:

1.             the application of the debtor filed on 11 March 1998 to set aside the bankruptcy notice be dismissed

2.             time for compliance with the bankruptcy notice be extended to 4 pm on Friday 9 July 1999

3.             the debtor pay the creditors’ costs

Note:    Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     On 23 March 1993, the debtor, who lives at Emu Plains, retained the creditors as his solicitors to investigate, presumably with a view to legal proceedings, his assertion and belief that his wife’s death on 15 November 1992 had resulted from a conspiracy by a number of people, including Ministers of the Crown, police and his wife’s treating doctor.  In his initial letter of the following day confirming his retainer, the creditor Harry Norman Freedman noted that he had informed the debtor at their meeting on the previous day that he considered the debtor’s allegation “very difficult to sustain” and that there was “no evidence to support [his] contention”.  The letter notes that the debtor wished nevertheless to proceed.  Accepting these instructions, Mr Freedman quoted his firm’s costing schedule, enclosed a costs agreement for signature, and asked for a payment of $600 on account of costs.  This sum was paid, the costs agreement was signed, and in the ensuing months, Mr Freedman carried out certain inquiries.  Meanwhile the death of the debtor’s wife was being investigated by the Westmead Coroner.

2                     At some time in 1993 or early 1994, the debtor was arrested by officers of the New South Wales Police and was detained for about a week in Parramatta Gaol.  The papers given to me do not say why.  It seems that he was charged with criminal offences but after bail was granted by the District Court, the charges were apparently withdrawn.  In due course, the Coroner dispensed with an inquest into the death of the debtor's wife. Then on 10 or 12 February 1994 the debtor was admitted to the Pialla Unit of Nepean Hospital pursuant to the Mental Health Act, apparently following police intervention.

3                     Shortly thereafter the debtor commenced proceedings in the Supreme Court of New South Wales, apparently related to or in connection with his detention under the Mental Health Act, and on 1 May 1994 there was a hearing before Justice Brownie sitting in the Protective Jurisdiction.  Mr Freedman did not represent the debtor at the proceedings, but the result was not favourable to the debtor because he appealed the judgment to the Court of Appeal. 

4                     On 4 July 1994, the debtor wrote to Mr Freedman instructing him to include in the appeal a claim for damages of $1 million a day for unlawful detention in the Nepean Hospital, increasing after 7 July 1994 “because of increased gravity of illegality associated with longer detention”.  This was not done because Mr Freedman was of the opinion that it was not legally possible.  This view was apparently correct.  As events transpired, the debtor left the hospital on 8 July 1994.  While there he was, and has subsequently been, seen by a number of psychiatrists.  At least two of them have diagnosed him as either being delusional with a severe paranoid psychosis or a true victim of a conspiracy.  They cannot say which.

5                     The hearing in the Court of Appeal took place on 8 August 1994.  The debtor was represented by counsel instructed by Mr Freedman. The appeal was unsuccessful and the debtor was ordered to pay costs.  The debtor says that the High Court refused him leave to appeal from the Court of Appeal’s judgment.

6                     Then on 10 October 1994, three months after leaving Nepean Hospital, the debtor wrote to Mr Freedman again, listing the various matters on which he was instructed to act:

1.      Damages for wrongful dismissal from the Department of Public Works in 1982

2.      Damages against the NSW Anti-Discrimination Board for wrongful investigation of his complaint of wrongful dismissal

3.      Damages for defamation by the Department of Technical and Further Education from 1982 allegedly causing “ill effects” on his employment

4.      Damages against the Attorney General’s and Corrective Services Departments and New South Wales Police for wrongful detention at Parramatta Gaol in 1993 and criminal charges against the Coroner

5.      Damages against the New South Wales Government of $1 million a day for detention in Nepean Hospital in 1994

6.      Damages against the Legal Aid Commission and its solicitors “involved in these matters” for negligence

7.      Damages against a doctor for providing wrong information and releasing records without the debtor’s consent on 10 February 1994

7                     In addition, the debtor sought “a proper coronial investigation”, and unspecified criminal charges against “a number of [unnamed] doctors, politicians, and some past and present residents of Penrith, including some officers of the Police Force.  These people are well known to the Police and they are required to act as per their duty”.  The debtor suggested in the letter, in answer to a question apparently raised with him by Mr Freedman, that if the Supreme Court found that there was nothing wrongful in the death of his wife, the Court would have “negligently or deliberately manufactured” the facts.  Whilst critical, even abusive, of Mr Freedman, the debtor called for action on all the matters referred to within 14 days. 

8                     Throughout 1994 Mr Freedman had apparently rendered various accounts for fees and disbursements, including counsel’s fees in respect of the Supreme Court proceedings, but it seems that all or most of them were not paid.  He declined to do any further work for the debtor until the outstanding accounts were paid.

9                     Then on 26 October 1995, the creditors filed Civil Claim number 13077 of 1995 at the Downing Centre Local Court claiming $26,645.90 for unpaid costs.  The amount claimed included interest, filing and service fees and legal costs on the summons.  As I understand the position, judgment was entered by default after the debtor’s notice of grounds of defence was struck out by the Local Court on 27 March 1997.  It is not clear why this long delay occurred.

10                  The creditors also lodged a bill of costs for assessment in the Supreme Court pursuant to the Legal Profession Act 1987, and on 10 October 1996, a Costs Assessor issued a Certificate as to Determination of Costs.  I gather that the costs covered by the Local Court judgment and the Certificate were for the same work.  There was no appeal from this determination and the Certificate was filed in the Local Court, where it was then registered, on 10 February 1998.  Again the delay is not explained.  By section 208J(3) of the Legal Profession Act, the filing of the Certificate constituted it as a judgment of the Local Court for the amount of the unpaid costs.  The Certificate testified to a determination by the Assessor that the costs payable were $24,889.58 with credit to be given for the sum of $11,000 already paid by the debtor.  With the costs of registration of $51, the debt was fixed at $13,940.58.  Two days after the filing and registration of the Certificate, viz. on 12 February 1998, the creditors issued a bankruptcy notice claiming this sum.  It was served on the debtor on 21 February 1998 (the debtor says that it was 23 February but the difference does not matter).

11                  Then on 9 March 1998, almost a year after it was pronounced, the debtor moved the Downing Centre Local Court for an order setting aside the default judgment and the registration of the costs certificate.  He sought and obtained ex parte a stay of the Local Court judgment pending the hearing of the motion.  Two days later, viz. on 11 March 1998, he filed his application in this Court seeking orders setting aside the bankruptcy notice and extending time for compliance.  On 17 April 1998, the motion to set aside the judgment in the Local Court was dismissed, the debtor being ordered to pay costs of $500.  The Local Court did not have jurisdiction over the Assessor’s Certificate.

12                  The single ground given in the application to set aside the bankruptcy notice was that the debtor had “a counter claim or cross claim” against the creditors.  However, the several affidavits supporting the application, one of which itself annexed two affidavits filed in earlier proceedings, claimed a number of grounds.  Many of them are repetitive and are not at all clear.  Doing the best I can to interpret them, the debtor appeared to be principally alleging that:

1.      he did not agree to pay costs for all or many of the matters for which he was charged, some of which, he says, were ordered to be paid by the Mental Health Advocacy Service and some of which should have been charged to other people or agencies

2.      the creditors did not perform some of the work he requested and performed other work so incompletely or inadequately that they are in consequence liable to him in contract and negligence for a sum which greatly exceeds the amount of the debt

3.      the debt includes a debt claimed in a previous bankruptcy notice which was set aside by the Court on 21 January 1998

4.      the judgment or order relied on in this bankruptcy notice “has been set aside by the Local Court by a Stay of Proceedings”

I have pieced together this history from the material I was given.  It has been done in chronological order rather than by subject matter to demonstrate that these allegations had not previously been made prior to the issue of the bankruptcy notice.

13                  As his claim for breach of contract and tort was vague, I directed at a directions hearing on 28 August 1998 that the debtor file and serve an affidavit setting out with precision the evidence of any and all allegations of negligence and breach of contract on which the suggested cross-claim is based.  At a directions hearing on 14 September 1998, the debtor presented a draft verified statement of claim setting out the claims he would wish to make in this respect.  I then ordered that he file his full written submissions in support of the application to set aside the bankruptcy notice by 12 October.  The creditors’ response was to be filed by 26 October and any submissions in reply by 2 November.  The debtor’s submissions were supplied on 1 October 1998.  The creditors’ written argument in reply was provided on 22 December 1998.  The debtor made a further submission on 2 April 1999 in providing me with a copy of the reasons for judgment of Justice Young in the Equity Division of the Supreme Court, given the previous month.  I have now had an opportunity to consider all these submissions in detail.

14                  Two preliminary matters must first be referred to.  With the filing of his written submissions on 1 October 1998, the debtor gave notice of a motion, returnable on 8 October, that I disqualify myself from hearing the matter.  Although there is no provision for motions under the Bankruptcy Act 1966, I treated it as an application and entered upon its consideration.  The motion was supported by an affidavit suggesting that I am a member of or am associated with the Australian Labor Party which I am not, but the debtor says he is.  The affidavit also made some vague statements about my former role as President of the Human Rights & Equal Opportunity Commission which I relinquished in 1990, and my support for multiculturalism which the debtor said he did not support.  At one point in the affidavit he seemed to confuse me with my father who was a member of the NSW Labor Government in the 1970s and 80s and who died in 1995. 

15                  I had at an earlier hearing announced that I have known the firstnamed respondent creditor professionally in the past and that he had appeared before me on occasions but that we were not friends or even social acquaintances.  It was not unimportant that this case exclusively involved his partner, the other creditor (Mr Freedman), whom I did not know at all.  The debtor made no request then that I disqualify myself.  His affidavit now claimed to rely on this statement as another ground for my disqualification.  He also claimed that my advocacy of human rights and my former Presidency of the Commission did not permit me to adjudicate on a matter in which he said his “natural rights” had been violated by an officer of the Commission and in which some “alleged violent acts” had been committed against him by a person “who held a position of power” in the Commission.  Both events are said to have occurred long after I had completed my term of office and I knew nothing of them at all.  As it happens, if they occurred, they have nothing to do with the present application.

16                  None of those matters created any preconception, prejudgment or bias on my part in fact.  As I could see no ground which a reasonable mind might consider would hinder my capacity to bring an unbiased mind to the issues before the Court, or any fact which might cause a reasonable bystander to entertain an apprehension that I might be unable to decide this application without a bias against the debtor, I dismissed the application (“motion”) and reserved the question of costs.

17                  The second preliminary matter relates to proceedings number 2151 of 1997 commenced by the debtor in the Equity Division of the Supreme Court.  So far as I can see from the material he made available to me, the debtor issued a summons in early 1997 against 15 public officeholders or entities in the New South Wales Public Service.  It came before Justice Sully on 8 May 1997 who required that the debtor file an amended summons and ordered that it be returnable before the Duty Registrar.  The defendants issued a motion to strike out the amended summons and the motion was heard by Master Macready on 5 June 1997.  After briefly reviewing the long history given by the debtor going right back to 1974, the Master determined that a statement of claim was required.  He stayed the amended summons and gave leave to the debtor to apply to file a statement of claim.

18                  In due course the debtor filed his motion for leave to file a statement of claim and the defendants moved to have the proposed statement of claim dismissed or struck out upon the grounds that it did not disclose a reasonable cause of action or because it was frivolous and vexatious.  These motions came before Master McLaughlin on 3 April 1998.  As in the hearing before Master Macready, the debtor appeared in person.  Master McLaughlin declined to allow the statement of claim to be filed.  He dismissed all the causes of action except those arising from the allegation that the debtor was wrongly arrested and detained at Parramatta Gaol in January 1993/ February 1994 and an allegation against police in relation to an incident in October 1993.  In relation to those matters, he gave leave to file a further statement of claim before 29 May 1998.

19                  The debtor did not file the further statement of claim but appealed Master McLaughlin’s decision to Justice Young.  There was a cross appeal seeking an order dismissing the proceedings the Master did not dismiss.  Again the debtor appeared unrepresented.  In his judgment given on 5 March 1999, Justice Young outlined the debtor’s claims as being that:

·        the defendants were responsible for destroying his family and subjecting him to pain, suffering and atrocities including the murder of his wife

·        the defendants had deliberately withheld information from him and had made baseless, corrupt, racist and sexually discriminating allegations against him

·        the defendants caused him to lose his job because of outspoken allegations he had made as a branch member of the Australian Labor Party against various government practices perpetrated by people in high office in a previous New South Wales Labor Government

·        the defendants caused him to be arrested and put in Parramatta Gaol and later detained in mental hospitals because of his complaint about his wife’s murder

20                  He sought exemplary damages in the sum of $50 million and orders that the Coroner’s report dispensing with an inquest into his wife’s death be set aside and that the Coroner be ordered to conduct a proper inquest into the death.  He also sought an order for the immediate arrest and charging of “the persons responsible for his wife’s death”.

21                  Justice Young dismissed the appeal, and as no statement of claim complying with the Master’s order had been filed, allowed the cross appeal.  No direction was given to the Coroner.  Costs were ordered to be paid by the debtor.   As the debtor’s covering letter to me enclosing his Honour’s reasons for judgment makes no mention of any appeal, I assume that Justice Young’s judgment terminated the equity proceedings.  My reasons for mentioning them here is because of the cross claims made by the debtor against the creditors in the current bankruptcy proceedings.

22                  The debtor’s submissions in the present application are confusing and repetitive.  As best as I have been able to distill them, his contentions are that:

1.      he has not committed an act of bankruptcy because the judgment or order relied on is not final

2.      he has a counter claim, set off or cross demand as provided for by section 40(1)(g) of the Bankruptcy Act

3.      the bankruptcy notice is defective in a respect which is not formal and therefore cannot be cured under section 306 of that Act

4.      the Court has power under section 30 of the Act to “go behind” the Certificate of Costs and determine the facts for itself.  This exercise, the debtor says, will prove the baselessness of the debt.

23                  There is no merit at all in the first, third or fourth contentions which have not been raised before, including in the application before the Court or the affidavits which supported it. 

24                  As to ground 1, it need only be said that orders for costs can be final orders as referred to in section 40(1)(g) of the Bankruptcy Act: Re McAlister; Ex parte McAlister, Moore [1936] 8 ABC 283; Re Gibbs ex parte Triscott [1995] 65 FCR 80.  No argument was advanced and no facts revealed which established that this costs order was not a final order or judgment: see Legal Profession Act s.208J(3).  As to ground 3, the debtor has identified no defect of any kind, his argument about an alleged “injustice” being in effect the same as he raises in ground 2 which I shall deal with under that heading.

25                  As to ground 4, there is no doubt that in an appropriate case, the Court can examine the facts which gave rise to a judgment to see if there was a debt at all.  The judgment here is the filed Certificate setting out the Assessor’s determination as to the costs payable.  By section 208 of the Legal Profession Act, the Assessor is not bound by the rules of evidence and may gather information in any manner, but is bound to give the parties an opportunity to make submissions and to consider all submissions made.  Section 208A(1) sets out the Assessor’s duties:

When considering an application relating to a bill of costs, the costs assessor must consider:

(a)     whether or not it was reasonable to carry out the work to which the costs relate, and

(b)     whether or not the work was carried out in a reasonable manner, and

(c)     the fairness and reasonableness of the account of the costs in relation to that work

26                  The debtor had the right to make submissions to the Assessor on these matters but apparently did not do so.  He has now presented no material from which to conclude that the Assessor in this case failed to carry out his task in accordance with his statutory duties or that he came to any wrong factual conclusions on the matters before him.  If such a contention was to have been made, the correct method of doing so would have been an appeal from the Assessor’s determination on a matter of law, as provided for by section 208L of the Legal Profession Act.  In the absence of such an appeal or any factual or legal submissions which might have supported one, there is no basis for the Bankruptcy Court to enter upon any such exercise.

27                  Finally, and most importantly, is the debtor’s counter claim, alleged in ground 2, as to which section 40(1)(g) and 41(7) of the Bankruptcy Act say:

40(1)   A debtor commits an act of bankruptcy in each of the following cases:

            ………

(g)    if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

(i)   where the notice was served in Australia – within the time specified in the notice; or

(ii)      where the notice was served elsewhere – within the time fixed for the purpose by the order giving leave to effect the service,

comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained

            …

41(7)    Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.

28                  It is well settled that the debtor must present prima facie evidence of the truth of the counter claim and show a reasonable chance of success.  The claims may include claims for damages for tort, including negligence and defamation, and for breach of contract.  The debtor says that his verified statement of claim now filed in the Common Law Division of the Supreme Court provides this evidence.  It is therefore necessary to examine this pleading which was issued against Mr Freedman only.

29                  The debtor first claims that Mr Freedman charged for work done in October/November 1993 in relation to his wife’s wrongful death but did not tell the debtor what the work was.  Second, he did not investigate the investigations of the Coroner.   Third, he did not commence action against the police and doctors for the debtor’s detention in the Nepean Hospital under the Mental Health Act and wrongly charged for work done in this period.  Fourth, the debtor claims that Mr Freedman inadequately or incompetently conducted the appeal to the Court of Appeal from the decision of Justice Brownie.  Fifth, Mr Freedman is alleged to have threatened the debtor to try to induce him to drop his efforts to pursue the so-called killers of his wife.  Sixth, he did not carry out the debtor’s instructions or acted contrary to instructions on a number of matters, including a failure to report police misconduct.  Seventh, he untruthfully informed the police that he apprehended violence by the debtor to a person who the debtor alleges was responsible for killing his wife, as a result of which the debtor was arrested by police on 1 May 1998.

30                  The debtor also claims breaches of statutory duty in that Mr Freedman did not comply with section 193(1) of the Legal Profession Act and regulation 22A(1)(h) of Regulation No. 173 of 1995.  Section 193(1) is headed "Form of Bill of Costs" and states:

(1)   The regulations may make provision for or with respect to the form of, and particulars to be included in, bills of costs.

(2)   A bill of costs may be described as a memorandum of fees or in any other way authorised by the regulations.

31                  Regulation 22A(1)(h), which falls under "Division 1 - Bill of costs" and under the heading "Particulars in bill of costs", sets out, for the purposes of section 193(1), particulars that are to be included in a bill of costs.  The debtor does not identify Mr Freedman’s contraventions of these provisions. 

32                  The debtor next asserted that Mr Freedman failed to take adequate care for the protection of the debtor’s interests under what he called “the Practice Rules and the Advocacy Rules Act No. 561 of 1995”.  These are the Legal Profession Act 1987 - Rules (NSW) and have the subheading "Revised Professional Conduct and Practice Rules" made by the Council of the Law Society of New South Wales pursuant to its power under section 57B of the Legal Profession Act.  The rules apply principally to legal practitioners practising as solicitors, or as barristers and solicitors.  The rules headed "Advocacy Rules" have specific application to advocates.  Their introduction states that:

The rules incorporate, with appropriate amendments applicable to the practice of solicitors in New South Wales, the National Model Rules of Professional Conduct and Practice approved in principle by the Law Council of Australia.

33                  The debtor does not state which rules were contravened by Mr Freedman and in what way or ways he failed to protect the debtor’s interests.  But he claims exemplary damages of $1 million and an order for the specific performance by Mr Freedman of his legal duties and undertakings to investigate the killing of the debtor’s wife.  I am not sure whether the $1 million is additional to or in substitution for the $50 million previously claimed.

34                  The pleading can thus be seen as making a series of allegations against Mr Freedman but, just as was held by Masters Macready and McLaughlin when dealing with the earlier claims, the material facts have not been pleaded as required by the Rules of Court.  Moreover, no evidence has been presented in the affidavits to support the allegations.  For example, nothing has been alleged to establish in what way Mr Freedman was in breach of his duty of care in the Court of Appeal proceedings.  It is not enough to say “he did not mention the murder of my wife”, if that is what is alleged; it must be shown how the murder (or any other subject referred to), if it occurred, was relevant to the proceedings and could have influenced their outcome.  It is not enough to say “he did not do what I told or asked him to do in a letter”; it must be shown that whatever he did not do was part of his retainer, was possible, and would have advanced the debtor’s interests.  It is obvious that if more was done, more costs would have been incurred.  A solicitor is under a duty not to spend the client’s money on useless or unhelpful pursuits.

35                  The second prerequisite for applications of this kind is that the counter claim could not have been set up in the action or proceedings in which the judgment was obtained.  In other words, the debtor must have had a prior chance to litigate his claims against Mr Freedman.  If there was an opportunity to do so and it was not taken, the proviso is not activated.  In this case, there was a Local Court judgment in March 1997 after grounds of defence filed by the debtor were struck out.  There was no appeal from that judgment but the Local Court was asked to set aside the judgment a year later.  That application was dismissed with costs.  There was no appeal from the dismissal.  Those facts are relevant to the debtor’s bona fides and the genuineness of his belief in the allegations he now makes.  But that Local Court judgment is not the result of the relevant proceeding because the debt claimed in the bankruptcy is the amount certified by the Costs Assessor in October 1996 and registered in February 1998.

36                  Clearly, a combination of sections 208(1) and 208A(1) of the Legal Profession Act provided the debtor with the opportunity to raise with the Assessor the negligence and breaches of contract and of statutory duty alleged against Mr Freedman.  One item of set off was obviously raised because the Assessor determined that he was to be given a credit for $11,000 already paid.  He could also have made the allegations he now makes on appeal from the Assessor’s determination, at least in the form that the Assessor erred in law by not considering them as mandated by section 208A(1) and, if considered and rejected, by not giving reasons for their rejection.  In fact he did not raise them until a bankruptcy notice was issued.  The earlier equity proceedings show that until the bankruptcy notice, the debtor was holding people other than Mr Freedman responsible for his plight and his losses even if he expressed the causes of action somewhat differently.

37                  In my opinion, the verified statement of claim and the affidavits in support of the application do not establish that the debtor has a counter claim against Mr Freedman exceeding the debt claimed, nor has it been proved that he was prevented by law from setting up within the framework of the application for the assessment of costs the claims there made.

38                  The application to set aside the bankruptcy notice is dismissed.  The debtor will pay the creditors’ costs.  The time for compliance with the bankruptcy notice is extended to 4 pm on Friday 9 July 1999.

Associate:

Dated:              2 July 1999