FEDERAL COURT OF AUSTRALIA

Frigger v Murfett Legal Pty Ltd [2018] FCA 591

ORDERS

THE COURT ORDERS THAT:

1.    The application to set aside the Bankruptcy Notice be dismissed.

2.    The applicants pay the costs of the respondent to be assessed if not agreed.

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

REASONS FOR JUDGMENT

MCKERRACHER J:

THE APPLICATION

1    Mr and Mrs Frigger (the Friggers) apply to set aside a Bankruptcy Notice, BN213703, served upon by them by Murfett Legal Pty Ltd. The Bankruptcy Notice is in respect of unpaid legal fees. The Friggers contend that they have a counter-claim of $315,807 in damages, plus exemplary damages said to be pursuant to Grey v Sirtex Medical Ltd (2011) 193 FCR 1. Mrs Frigger also contends, on her own behalf and on behalf of her husband, that the Bankruptcy Notice was issued to put pressure on her and her husband to pay various costs orders, rather than to invoke the Court’s jurisdiction in relation to insolvency, in circumstances where Murfett Legal is aware that the Friggers are not insolvent.

BACKGROUND

2    Pursuant to a costs agreement between Murfett Legal and the Friggers for payment of legal costs, the Friggers agreed to provide security over their properties. Accounts had been rendered but were unpaid and action was taken by Murfett Legal in the Magistrates Court of Western Australia to recover the unpaid legal fees. Murfett Legal lodged caveats over properties owned by the Friggers to protect their interests. These actions have resulted in two tranches of litigation. For the purposes of these proceedings, it is necessary to briefly describe them.

The recovery proceedings

3    Murfett Legal commenced proceedings in the Magistrates Court on 15 January 2013, seeking recovery of the outstanding balance of legal fees together with interest (GCLM 803 of 2013). Default judgment was obtained, but leave was given for the Friggers to set it aside on condition that payment was made into court.

4    On 22 January 2016, in detailed reasons which noted the protracted history of the proceedings, judgment was given in favour of Murfett Legal. The judgment debt in relation to this action has been paid by the Friggers.

5    By notice of appeal dated 1 February 2016, the Friggers commenced an appeal in the District Court of Western Australia from the decision of the Magistrates Court (APP 4 of 2016). On 20 May 2016, his Honour Judge Gething gave judgment in favour of Murfett Legal in the appeal: Frigger v Murfett Legal Pty Ltd [2016] WADC 71.

6    In both the Magistrates Court and the District Court proceedings, costs were ordered in favour of Murfett Legal. The costs of the Magistrates Court proceedings were assessed at $46,850.29. The costs of the District Court appeal were assessed at $33,244.53.

7    The costs of the District Court appeal to which the Bankruptcy Notice pertains remain outstanding. However, the Friggers maintain in this Court that the Bankruptcy Notice should be set aside as they are entitled to seek damages against Murfett Legal, relying on the undertaking as to damages provided by Murfett Legal initially when seeking an extension of caveats over the Friggers’ properties in proceedings in the Supreme Court of Western Australia.

The caveat proceedings

8    Further background is set out in two judgments of the Supreme Court in Murfett Legal Pty Ltd v Frigger [2015] WASC 406 per Le Miere J and Murfett Legal Pty Ltd v Frigger (No 2) [2017] WASC 262 per Master Sanderson dealing with the Friggers’ applications to set aside the caveats and for damages for filing them. The latter judgment was delivered in September 2017 and it is convenient to collect some of the history from the learned Master’s reasons. As the Master notes, the Supreme Court matter initially came on before Le Miere J on 18 December 2012. His Honour extended both caveats under consideration in that case until 6 February 2013 and then adjourned the hearing of the application to 5 February 2013. On that date, his Honour extended one of the caveats, L775693, until further order but made no order in respect of the other caveat, L775694, which accordingly lapsed at midnight on the 6 February 2013. As a condition of the extension of the caveat Murfett Legal was required to provide an undertaking as to damages and to proceed with its action for recovery in the Magistrates Court.

9    In November 2014, the Friggers filed an application to remove the caveat lodged by Murfett Legal. Le Miere J heard argument and determined that the caveat should stand. His Honour was satisfied that all three objections which had been taken by the defendants were satisfactorily met. First, Murfett Legal’s claim that it had a caveatable interest in the land was concluded to have, or potentially to have, substance. Secondly, the balance of convenience favoured the caveat remaining on the title. Thirdly, the caveat had been adequately drafted.

10    Despite this, on 14 July 2017, the Friggers filed a chamber summons in the Supreme Court seeking relief pursuant to s 140 of the Transfer of Land Act 1893 (WA) claiming damages from Murfett Legal as compensation for damages sustained by the lodgement of caveats against their properties in November 2011 without reasonable cause. The Friggers also sought exemplary damages. This was the claim that came before Master Sanderson for determination.

11    Master Sanderson was satisfied that the chamber summons was incompetent and should be dismissed, noting that when the initial proceeding was heard and determined by Le Miere J it concerned only one caveat, L775693. If the Friggers wished to seek damages in respect of caveat L775694, they would be required to issue separate proceedings, presumably also in reliance upon s 140 of the Transfer of Land Act. It was not open to the Friggers to rely upon that section in the chamber summons before the Master.

12    More importantly for the present application, the Master noted that if the proceedings were an attempt to seek damages pursuant to the undertaking given, the claim must fail as Murfett Legal succeeded in its action in the Magistrates Court. That being so, as the Master held, it must be the case that Murfett Legal had a right to claim against the Friggers. Moreover, as the Master noted, there was nothing in the evidence or on the findings of Le Miere J which suggested that it was not open to Murfett Legal to rely upon the Friggers’ contractual undertaking to provide security by lodging the caveat. There was nothing to suggest, as would be a fundamental necessity to warrant any claim for damages, that the caveat was improperly lodged. The Master said ‘[i]f anything the evidence points to Murfett Legal being entirely justified in lodging the caveat and maintaining it until they were paid their fees’ (at [8]).

EVIDENCE

13    It was necessary for the Friggers to deal with, amongst other things, the content of the affidavit of Mr Jason Kristyan De Silva, director of Murfett Legal, who deposed to much of the content referred to above. Specifically, Mr De Silva swore that the caveats were lodged after numerous invitations by Murfett Legal to the Friggers to apply for assessment of costs, even after the 12 month had expired. The Friggers did not apply for Murfett Legal’s costs to be assessed.

14    Mr De Silva deposed to the fact that Le Miere J held that Murfett Legal was entitled to lodge its caveats over the Friggers properties, pursuant to the costs agreement between the parties. Mr De Silva noted that the only matter remaining for determination in the caveat proceeding was the question of costs of that proceeding. He expressed an opinion that Murfett Legal would be entitled to its costs, given that it has been wholly successful in the substantive proceedings against the Friggers regarding the debt and interest owed by them to Murfett Legal, in what I have described as ‘the recovery proceedings’. As Mr De Silva noted, it is the costs order and signed allocatur in the District Court appeal which is the subject of the Bankruptcy Notice in the present set aside application.

15    Further, on the question of reasonableness, Mr De Silva deposed to the fact that Murfett Legal also invited the Friggers to advise of alternative security which could be used to replace the security then held by way of caveat L775693, with a view to its removal. They failed to do so. Murfett Legal also proposed to the Friggers that they pay a further amount into Court to cover interest to that date and further interest to accrue on the debt owed to Murfett Legal as alternative security to caveat L775693, pending determination of Murfett Legal’s action in the Magistrates Court for recovery of the debt. The Friggers did not accept that proposal. The balance of the debt and interest, the subject of the Magistrates Court judgment, but not costs, has been paid by the Friggers and caveat L775693 has been removed.

16    Mr De Silva produced all of the judgments in the various proceedings, noting that the costs of the District Court appeal ($33,244.53) were assessed on 27 April 2017, before the costs of the Magistrates Court trial ($46,850.29) were assessed on 11 July 2017. That is why the Bankruptcy Notice, issued 19 May 2017, is based on the appeal costs, not the costs of the trial at first instance. But both set of costs remain unpaid.

17    Mr De Silva also confirmed that the Friggers have already unsuccessfully made the same arguments in previous proceedings seeking to set aside a bankruptcy notice issued by Murfett Legal to the Friggers in respect of other costs orders which have been obtained against them. The Friggers made the same arguments unsuccessfully in previous Federal Court proceedings (WAD 748 of 2015), asserting an alleged claim for damages and seeking to set aside a previous bankruptcy notice numbered BN186174, issued on 30 November 2015 by Murfett Legal to the Friggers in respect of costs orders obtained in other proceedings between the parties. The Court refused to set aside the bankruptcy notice.

18    On the question of the alleged abuse in issuing the Bankruptcy Notice, Mr De Silva said he was not aware of the Friggers’ financial position and even if affidavit evidence were put on by them setting out the financial position, without objective and possibly audited evidence, he would not be inclined to believe their assertions as to their financial position, given the many findings by different courts as to their lack of credibility, including a finding that they are accustomed to ‘changing their evidence to suit whatever is their present dilemma’.

SUBMISSIONS FOR THE FRIGGERS

19    The Friggers make the point that it is not correct to say that Le Miere J held that Murfett Legal was entitled to lodge the caveats. Rather, his Honour held that there was a prima facie case that Murfett Legal had a charge over the land. They also deny that they change their evidence to suit ‘whatever is our present dilemma’.

20    The Friggers contend that the claim they advance is based on ‘s 272 Legal Profession Act 2009 – Security for legal costs’ and, secondly on ‘s 40 National Consumer Code – Mortgages over all property void’. I presume that these submissions refer to s 272 of the Legal Profession Act 2008 (WA) and perhaps s 44 of the National Credit Code, contained in Sch 1 of the National Consumer Credit Protection Act 2009 (Cth).

21    Section 272 of the Legal Profession Act provides:

272.    Security for legal costs

A law practice may take reasonable security from a client for legal costs (including security for the payment of interest on unpaid legal costs) and may refuse or cease to act for a client who does not provide reasonable security.

(emphasis added)

22    Section 44 of the National Credit Code provides:

44    Mortgages over all property void

(1)    A mortgage that does not describe or identify the property which is subject to the mortgage is void.

(2)    Without limiting subsection (1), a provision in a mortgage that charges all the property of the mortgagor is void.

23    The Friggers submit that taking a charge over all of the Friggers’ real and personal assets, ‘worth approximately 1,600 times the value of the outstanding debt’, was not ‘reasonable security’ and such a charge was in contravention of s 272 of the Legal Profession Act and is void.

24    The Friggers submit that the costs agreement ‘is a credit contract pursuant to the definition [in] s 5 [of the] Consumer Credit Code’, and refer to ‘s 4(1)(a) of the National Consumer Code’. It is submitted that s 4(1)(a) goes considerably beyond the general meaning of ‘loan’. The Friggers submit:

[Section 4(1)(a)] operates to bring any “forebearance to require payment of money owing on any account whatsoever” within the statutory meaning of “loan”. It is to be noticed there is no need for a forebearance to sue to be proved. All that is necessary is a forebearance to require payment… The purpose of defining “loan” in this way would seem to be to bring transactions within legislation where interest is charged in respect of forebearances.

(citations omitted)

I pause to note that it is quite unclear what is being referred to as ‘section 4(1)(a) National Consumer Code’. Section 4 of the National Consumer Credit Protection Act is merely a guide to Pt 1 regarding definitions. Section 4 of the National Credit Code has no subs (1)(a) and defines ‘credit contract’, with no references to ‘loans’.

25    If the costs agreement was covered by the national legislation, the Friggers contend that the charging clause is void ‘pursuant to s 40 National Consumer Code’ as it does not identify or describe the property and charges all of the property of the Friggers. As such, Murfett Legal, the Friggers contend, had no reasonable cause to lodge the caveats. Additionally, it is contended, the Bankruptcy Notice has been used for an ulterior purpose.

CONSIDERATION

26    The onus is on the Friggers to satisfy the Court that they have a valid counter-claim or set-off and that the facts are such that it is just for the Court to permit them to have the matter heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by a payment: Re Glew; Glew v Harrowell of Hunt & Hunt Lawyers (N7350 of 2002) (2003) 198 ALR 331 (at [10]-[12]). There Lindgren J said:

10    In Brink [Re Brink; Ex parte Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135] Lockhart J said (at ALR 438-9; FLR 141) that the court is not required to “undertake a preliminary trial of the counter-claim, set-off or cross demand”. But, clearly, the application of the criteria above requires the court to make some kind of preliminary assessment, though obviously not to determine the counter-claim, set-off or cross demand finally. And in Guss v Johnstone (2000) 171 ALR 598, Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ stated (at 606):

[40]    The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.

11    Plainly, in order to “satisfy” the court for the purposes of s 40(1)(g), the debtor is not required to prove, as on a final hearing, the asserted entitlement to recover from the creditor. Accordingly, evidence tendered on an application to set aside is to be tested for admissibility, not as if the proceeding were one in which the debtor’s claim was being finally determined, but by reference to the question whether the court should be satisfied that the debtor has a claim deserving to be finally determined.

12    Perhaps little more can usefully be said than that a debtor must satisfy the court that there is sufficient substance to the counter-claim, set-off or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.

27    It is for the Friggers in this instance to demonstrate that they have a prima facie case against Murfett Legal, that they have a fair chance of success in such a matter, and that the claim is genuine or bona fide: see Dekkan v Evans [2008] FCA 1004 per Jacobson J (at [52]):

His Honour [referring to Lindgren J in Glew v Harrowell (at[9])] observed that the authorities indicate that an applicant must satisfy the Court of three interrelated, and sometimes overlapping matters: first, that he or she has a “prima facie case”, even if evidence is not adduced which would be admissible on a final hearing; second, that he or she has “a fair chance of success”; third, that the claim is “genuine” or “bona fide.”

28    It is not sufficient for the Friggers to merely assert that they will commence an originating summons for damages, pursuant to s 140 of the Transfer of Land Act, to satisfy the Court of these matters. See, for example, Re Cox (1934) 7 ABC 98 and Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 (at 350).

29    The fundamental hurdle for the Friggers is the decision of Master Sanderson, where the Friggers’ application, alleging an entitlement to damages pursuant to the undertaking given by Murfett Legal, was dismissed with costs. For reasons which the learned Master gave, such claim in damages is not arguable. That also accords with the decision of Le Miere J where the reasonableness of lodging the caveats necessarily was an issue in determining whether to order the removal of the outstanding caveat. It is not to the point that one of the caveats lapsed, presumably once it was clear there was sufficient security protected by the other caveat. The question of the legal ability to lodge the caveats has been determined and the propriety of the actions taken by Murfett Legal has also been confirmed in the Magistrates Court and in the District Court on appeal. Such an argument under the Legal Profession Act is no longer open to the Friggers in light of the decisions of the Supreme Court. Whether the argument was raised there or not, it should have been if it had any merit. It is not open now to go behind the judgments.

30    The same may be said of any argument under the consumer credit regimes, although those arguments are even more problematic. The Friggers submitted:

9.    The cost agreement is a credit contract pursuant to the definition s 5 Consumer Credit Code:

(a)    clause 6 costs agreement: “you agree to pay such accounts….in accordance with any credit arrangement we may extend in writing to you”: Brott v Shtrambrandt & Ors [2009] VSC 467[.]

(b)    The respondent’s letter dated 17 November 2010 offering to provide credit by allowing the balance to be repaid in instalments.

(c)    Credit was provided by Murfett when it deferred, by forbearance, the payment of the outstanding balance: s 4 Consumer Credit Code: Tozer Kelmsley & Milbourne v Point; Geeveekay v Director of Consumer Affairs Victoria [2008] VSC 50 @ [38], [56], [57], Clifford L Pannam, The Law of Money Lenders in Australia and New Zealand (1965) 21-22.

31    Brott v Shtrambrandt & Ors [2009] VSC 467, as cited by the Friggers, referred to the Victorian Code, not the National Credit Code. This may explain the mis-referencing to the ‘Consumer Credit Code’, as opposed to the National Credit Code. The Victorian Code has no present relevance.

32    In Geeveekay v Director of Consumer Affairs (Vic) [2008] VSC 50, Bell J provided a comprehensive consideration, but again, of the Victorian Code. Specifically the Friggers refer to the following (at [38] and [56]-[57]):

38    The definition also significantly departs from the approach adopted in the money lenders legislation. For example, the Money Lenders Act 1958 defined “loan” to include various kinds of payment or advance, the forbearance to require payment and “every contract (whatever its terms or form may be) which is in substance or effect a loan of money”. The latter component of the definition gave rise to its own complex jurisprudence. The review of that jurisprudence in the principal Australian text is proof positive that a different approach had to be adopted.

…

56    As to paragraph (a), deferring the payment of a debt owed covers at least the case of forbearance. It may not cover much else, but that will be revealed through the decided cases over time. What is deferred is the time for the payment (see below). Such a transaction is not a loan as such, and creates no new amount of debt, because the debt is already owed. Paragraph (b) does not include such a case, because there is no incurring of debt. The deferring of the payment of an existing debt, if contractual, comes within paragraph (a).

57    It has been suggested that paragraph (a), looked at alone, might also cover credit sales and loans, that is, if “debt” is read as including a debt created by the contract itself. But s 4(1)(a) and (b) has to be read as a whole. The scheme is clear enough from the language used. The debt referred to in paragraph (a) is described in the past tense. It picks up cases where payment “of a debt owed... is deferred”. By contrast, the debt referred to in paragraph (b) is described in the present tense. It picks up cases where the debtor “incurs” a deferred debt. If the intended coverage of the Code with respect to credit sales and loans depended on it, I could see how paragraph (a) might be widely interpreted to encompass debts created and payments deferred in the one document, but it does not. Paragraph (b) is perfectly apt to pick up such transactions. It seems to me to be an unnecessary complication, and a distraction, to ponder whether such cases can be squeezed into paragraph (a) as well. I will leave further discussion of that subject for cases, if any, where it actually matters.

(citations omitted)

33    It may be that the Friggers are seeking to argue for an expansive reading of the credit regime, but the contract in contention in that case was a contract for sale of a property which contained provision for the balance to be paid in instalments. It is entirely different in nature. In any event, the legislation has no present application.

34    But the short answer to any potentially relevant credit legislation is that agreements such as that under consideration are expressly excluded from the relevant credit regime. The State codes on which these decisions were based were repealed and replaced by the National regime on which the Friggers purport to, but cannot, rely. Regulation 24 of the National Consumer Credit Protection Regulations 2010 (Cth), made pursuant to the National Consumer Credit Protection Act, relevantly provides:

Subdivision 1.2—Activities exempt from being credit activities under the Act

24    Activities exempt from being credit activities

(1)    For paragraphs 110(b) and (c) of the Act, this regulation:

(a)    exempts certain credit activities, or classes of credit activities, from all of the provisions to which Part 2-6 of the Act applies; and

(b)    modifies specified provisions for the purposes of the exemption mentioned in paragraph (a).

Note:    Section 108 of the Act identifies the provisions to which Part 2-6 of the Act applies.

(2)    Subject to subregulation (3), the following credit activities are exempted:

(a)    the providing of credit assistance by a lawyer in his or her professional capacity in relation to matters of law, legal interpretation or the application of the law to any facts;

(b)    the providing of any credit assistance not mentioned in paragraph (a) by a lawyer in the ordinary course of activities as a lawyer that is reasonably regarded as a necessary part of those activities.

(3)    For subregulation (2), the credit activity is exempted only if the lawyer providing the credit assistance does not hold out or advertise to consumers that he or she is able to provide credit services.

(4)    A credit activity, other than the provision of credit assistance mentioned in subregulation (2), is exempted if it is engaged in by a lawyer in the following circumstances:

(a)    the lawyer is acting:

(i)    on the instructions of a client, an associate of the client or a relative of the client; and

(ii)    in his or her professional capacity; and

(iii)    in the ordinary course of his or her activities as a lawyer;

(b)    the credit activity can reasonably be regarded as a necessary part of those activities;

(c)    the lawyer has not received, and will not receive, from the client or from another person on behalf of the client a benefit in connection with those activities other than:

(i)    the payment of professional charges in relation to those activities; and

(ii)    reimbursement for expenses incurred or payment on account of expenses to be incurred on behalf of the client, an associate of the client or a relative of the client;

(d)    the lawyer does not hold out or advertise to consumers that he or she is able to provide credit services.

…

35    For at least five reasons then, the arguments advanced by the Friggers on credit codes must be rejected. The first three of the reasons apply also to the arguments under the Legal Profession Act:

(1)    the validity of the caveats has already been determined by the Supreme Court in litigation between these parties;

(2)    the arguments raised could have been raised in the proceedings in the Supreme Court. It is now now open, by virtue of s 40(1)(d) of the Bankruptcy Act 1966 (Cth) to raise those arguments;

(3)    under ordinary principles of conducting litigation, it is inappropriate to raise such arguments on a drip feed basis when it was open to raise them before by virtue of principles relating to Anshun estoppel: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589;

(4)    the consumer credit provisions relied upon by the Friggers do not now apply; and

(5)    to the extent the Friggers rely upon national legislation, the conduct of the solicitors are expressly exempted from that legislation.

36    As to the abuse of process argument, this is entirely without foundation. Mr De Silva has deposed to the fact that he intends to petition the Court for a sequestration order in the event of non-compliance by the Friggers with the Bankruptcy Notice. The simple fact that the Friggers may contemplate or may have commenced some other proceeding does not, of itself, justify a conclusion that it is an abuse to proceed with the Bankruptcy Notice. It is evident they do so quite frequently. As is clear from the comments of Master Sanderson as to the reasonableness of the conduct of Murfett Legal, there cannot possibly be an abuse.

CONCLUSION

37    For those reasons, the application to set aside the Bankruptcy Notice must be dismissed with costs and the orders will be:

(1)    The application to set aside the Bankruptcy Notice be dismissed.

(2)    The applicants pay the costs of the respondent to be assessed if not agreed.

Associate:

Dated:    1 May 2018