Federal Court of Australia
Toogood v Gott [2023] FCA 1521
ORDERS
First Appellant JULIANNE TOOGOOD Second Appellant | ||
AND: | First Respondent CASSOWARY COAST REGIONAL COUNCIL Second Respondent TRACEY TAYLOR (and others named in the Schedule) Third Respondent | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The appellants’ interlocutory applications be dismissed.
3. The appellants pay the respondents’ costs of the appeal.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
RANGIAH J:
1 The appellants have appealed from the judgment in Gott v Toogood [2021] FedCFamC2G 149 which made a sequestration order against their estates.
2 The appellants are self-represented in the appeal, as they were at first instance.
3 I will discuss the factual background, primary judge’s reasons, the relevant legislation and two interlocutory applications made by the appellants, before turning to consider the grounds of appeal.
4 In 2017, the first respondent, James Gott, commenced proceedings for damages for defamation against the appellants in the District Court of Queensland. Mr Gott was then the Chief Executive Officer of the second respondent, the Cassowary Coast Regional Council (the Council).
5 In the defamation proceedings, the appellants filed a defence and counterclaim, joining the Council, John Kremastos (a former Mayor of the Council), Ricky Taylor (a former Councillor) and Tracy Taylor (Mr Taylor’s wife) as defendants to the counterclaim.
6 Mr Gott, the Council, Mr Kremastos, Mr Taylor and Ms Taylor ultimately became the petitioning creditors and are the respondents to the appeal. I will refer to them collectively as the petitioning creditors.
7 In the District Court, Mr Gott filed an application to strike out paragraphs of the appellants’ defence, as well as another application seeking various forms of relief. The petitioning creditors filed an application to strike out the counterclaim. On 26 April 2018, Judge Lynham ordered that most of the defence be struck out and the counterclaim be struck out in its entirety and that the other aspects of relief sought be dismissed or adjourned. The appellants were ordered to pay the petitioning creditors’ costs of the interlocutory applications.
8 Costs were assessed in a contested assessment process. On 24 January 2019, a Registrar ordered that the appellants pay the petitioning creditors’ costs of $74,157.96. The costs went unpaid by the appellants.
9 On 5 March 2019, the petitioning creditors caused a bankruptcy notice to issue against the appellants, relying on the costs orders made by the District Court.
10 On 3 April 2019, a Registrar of the Federal Court dismissed the appellants’ application to set aside the bankruptcy notice.
11 On 5 April 2019, the petitioning creditors filed a creditor’s petition.
12 On 31 October 2019, in Toogood v Gott [2019] FCA 1792, Greenwood J dismissed the appellants’ application for review of the Registrar’s decision dismissing the application to set aside the bankruptcy notice.
13 On 21 November 2019, in circumstances where the appellants had not appeared at the hearing, the primary judge made a sequestration order against the estate of each appellant.
14 On 24 December 2020, on the appellants’ application, his Honour set aside the sequestration order.
15 On 22 October 2021, following a contested hearing, the primary judge made a new sequestration order against the estate of each appellant. It is from that order that the appellants have appealed.
16 The progress of the appeal stalled in the Federal Court, including because the initial docket judge eventually recused himself. The matter was ultimately transferred to me.
17 Section 52 of the Bankruptcy Act 1966 (Cth) provides, relevantly:
52 Proceedings and order on creditor’s petition
(1) At the hearing of a creditor’s petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
…
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
…
(4) A creditor’s petition lapses at the expiration of:
(a) subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or
(b) if the Court makes an order under subsection (5) in relation to the petition—the period fixed by the order;
unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn.
(5) The Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor’s petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order.
The reasons of the primary judge
18 The primary judge’s reasons for judgment commenced by considering the appellants’ preliminary contention that the petition should be dismissed because it had lapsed under s 52(4) of the Bankruptcy Act.
19 The creditor’s petition was filed on 5 April 2019, but was not finally determined until 22 October 2021, which was more than 12 months later. In circumstances where a sequestration order had initially been made on 21 November 2019 and had been set aside by an order made on 24 December 2020, the primary judge rejected the appellants’ contention that the petition had lapsed.
20 The primary judge then considered the appellants’ arguments in opposition to the making of a sequestration order.
21 The appellants submitted that the primary judge should go behind the judgment debt upon which the creditor’s petition was based. His Honour noted that the costs order founding the creditor’s petition was made in contested proceedings. His Honour held there was nothing in the material to suggest that the process adopted by the petitioning creditors for the assessment of those costs and the subsequent issue of the costs order consequent upon that assessment was irregular.
22 The appellants also argued that because the petitioning creditors had their costs paid by the Council and because the Council had received a payment in respect of those costs from a mutual fund, there was no longer any debt due and owing by the appellants to the petitioning creditors.
23 His Honour concluded:
35 On the evidence, the only conclusion open is that Mr Gott and the other defendants to the counterclaim were liable to pay Connolly Suthers legal costs notwithstanding that the local Council might make those payments on their behalf.
36 To the extent that the Council has indemnified the other petitioning creditors for the solicitors’ costs, it is entitled to require the petitioning creditors to exercise their rights of recovery against the debtors. The local Council stands in the shoes of the petitioning creditors and is entitled to pursue proceedings in their names.
37 The evidence demonstrates and I am satisfied that LGM claims that it is subrogated to Council’s rights against the respondents with respect to the payment of $92,500 and that if the Council recovers any costs, those costs will be recoverable by LGM from the Council.
38 The indemnity provided by LGM to the Council and the payment by LGM on 18 March, 2020 does not displace the entitlement of the petitioning creditors to the benefit of the costs orders, to present the petition relying on a debt based on the costs order or to obtain a sequestration order relying on that debt.
24 His Honour also found it had not been demonstrated that the assessment of costs was unreliable or ought not be accepted.
25 Ultimately, his Honour was satisfied that the debtors had committed an act of bankruptcy on 26 March 2019 by failing to comply with terms of the bankruptcy notice, that the debt claimed in the petition was still owing, and that the petitioning creditors were entitled to a sequestration order.
26 In their Amended Notice of Appeal, the appellants advance 16 grounds of appeal:
(1) His Honour Judge Jarrett (as he was at that time) failed to provide adequate reasons for the 22 October 2021 judgment.
(2) His Honour Judge Jarrett erred in law and did not have the jurisdiction to make the judgment and orders on 22 October 2021 due to the fact that pursuant to s.52 (4) and also (5) of the Bankruptcy Act that the creditors petition had lapsed.
(3) His Honour Judge Jarrett erred in law and failed to find that the creditors petition was invalid due to a formal defect that could not be cured pursuant to s.306 (1) of the Bankruptcy Act 1966 Cwlth.
(4) His Honour Judge Jarrett erred in fact and law and failed to find that Bankruptcy Notice was invalid.
(5) His Honour Judge Jarrett denied the appellants procedural fairness.
(6) His Honour Judge Jarrett erred in law when he refused the appellants oral application to adjourn the hearing of the creditors petition.
(7) His Honour Judge Jarrett did not refuse to make the sequestration Order on the basis the appellants were solvent and the order should not be made pursuant to s.52 (2) (a) of the Bankruptcy Act.
(8) His Honour Judge Jarrett erred in law and failed to properly go behind the judgment.
(9) His Honour Judge Jarrett erred in fact in finding that the Counterclaim costs were reimbursed by the insurer JLT/LGM pursuant to the Scheme Rules.
(10) Judge Jarrett erred in fact and incorrectly found that the payment of the $100,000 (less deductible) was for the counterclaim only.
(11) Judge Jarrett erred in fact and incorrectly found that the Gott defamation proceeding was covered by Council resolution on 7 December 2017.
(12) Judge Jarrett erred in fact and incorrectly found that the alleged creditors Taylor, Taylor and Kremastos were liable to Connolly Suthers for the costs.
(13) Judge Jarrett erred in law and incorrectly found that the evidence demonstrated that each of the alleged creditors had provided an undertaking to the Council to remit any monies recovered to Council.
(14) His Honour Judge Jarrett erred in fact in finding that a contractual right of subrogation existed for the LGM payment of $100,000 as provided in Clause 29 of the Scheme Rules.
(15) His Honour Judge Jarrett erred in fact in finding that the discretionary payment made by LGM to Council was $92,500.
(16) His Honour Judge Jarrett erred in law in failing to find that the respondents had obtained the benefit of legal cost paid unlawfully and were a party to the misappropriation of public funds.
27 The appellants have indicated they do not press Grounds 6 and 15 as separate grounds of appeal.
The applications to adduce further evidence
28 I will consider the appellants’ two interlocutory applications to adduce further evidence in the appeal.
29 The Court has a discretionary power to receive further evidence in an appeal: s 27 of the Federal Court of Australia Act 1976 (Cth) (the FCA Act).
30 The appellants seek to adduce the following documents:
1. 6 and 7 April 2021 Emails to Judge Jarrett Appellants and respondents
2. SC669/21 Correspondence re s.54 Property Law Act 4/4/22
3. 8 April 2022 Judgment Justice Henry SC669/21
4. Councillor Conduct Tribunal decisions for:
a. John Kremastos 26/11/21
b. Wayne Kimberly 24/3/21
5. Excerpts of Council Annual Reports for the years:
a. 2018/2019
b. 2019/2020
6. Right to Information application Council decision 7/12/21
7. Councillor Conduct Tribunal Finding of misconduct against John Kremastos (fifth respondent) 9/5/22
8. Cassowary Coast Council Purchase Order PI032935 27/7/17
9. Bundle of Connolly Suthers Invoices matter no 170745
10. Bundle of Connolly Suthers Invoices matter no 171186
31 The appellants no longer seek leave to adduce the Councillor Conduct Tribunal (CCT) decision for John Kremastos as it is part of the material filed in the matter.
32 In Northern Land Council v Quall (No 3) [2021] FCAFC 2 at [16], the Full Court observed that to adduce further evidence under s 27 of the Federal Court of Australia Act, two conditions will normally be relevant: first, whether the further evidence is such that, had it been adduced at trial, the result would very probably have been different. Second, whether the party seeking to adduce the evidence demonstrates it was unaware of the evidence and could not have been, with reasonable diligence, made aware of the evidence.
33 It is not enough that the new evidence is relevant and otherwise admissible, instead it must be demonstrated that “at the lowest, ‘probability’, and at the highest, ‘certainty’, of a different result” would have arisen from the admission of the new evidence: NASB v Minister for Immigration and Multicultural Affairs & Citizenship [2004] FCAFC 24 at [42].
34 The petitioning creditors do not object to the admission of the purchase order or tax invoices issued by Connolly Suthers, the petitioning creditors’ solicitors. Those documents will be admitted into evidence in the appeal. The judgment of Henry J is not evidence, and I am able to have regard to it.
35 I am not satisfied that any of the other documents would probably have affected the outcome of the trial. Accordingly, they will not be admitted into evidence in the appeal.
36 An appeal to this Court from the Federal Circuit Court and Family Court (Division 2) (FCFCOA (Div 2)) under s 24(1)(d) of the FCA Act is an appeal by way of rehearing: see for example, Martires v Endura Paint Pty Ltd (No 2) [2021] FCA 179 at [6]. Such an appeal requires demonstration of error on the part of the primary judge: Minister for Immigration and Border Protection v SZVFW [2018] HCA 30; (2018) 264 CLR 541 at [30].
37 I do not propose to address all of the extensive grounds and submissions made by appellants. A number of them are subsumed by my consideration of grounds and submissions of greater generality. The appellants also make numerous assertions that comments made by the primary judge in the course of argument or the reasons were factually inaccurate, whereas any such errors made no difference to the outcome of the case. I will only address the grounds and submissions that are capable of making a material difference to the outcome.
Ground 5: The primary judge denied the appellants procedural fairness
38 The appellants’ fifth ground of appeal alleging denial of procedural fairness is, in substance, an allegation of apprehended bias on the part of the primary judge.
39 In Jorgensen v Fair Work Ombudsman (2019) 271 FCR 461, the Full Court, applying Concrete Pty Ltd v Parramatta Design and Developments Pty Ltd (2006) 229 CLR 577, held at [93] that where an appeal involves allegations of bias along with other substantive or discrete grounds, the appellate court should first deal with the issues of bias. That is because those grounds, if made out, would strike at the validity of the trial and require the matter to be remitted for retrial.
40 The appellants’ allegations of denial of procedural fairness are as follows:
42. Judge Jarrett unfairly refused to allow the appellants to appear by telephone prior to 17 January 2020 necessitating several further court days and hearings.
43. The appellants were compelled to file a recusal application to Judge Jarrett due to his demeanour, sarcasm, rudeness and apparent derision of the appellants.
44. For the hearing on 23 and 24 March 2021, Judge Jarrett refused to permit the appellants to cross examine the first and second respondents despite being present in the court room.
45. During the hearing, the appellant stated to Judge Jarrett that they believed they were entitled to be at the least treated civilly, Judge Jarrett replied in a loud angry tone “This is me being civil.”
46. His Honour did not at times permit the appellants to provide submissions.
47. His Honour appeared to be bored by appellants submissions and was writing something during submissions by the appellants which did not appear to relate to the proceedings.
48. His Honour did not consider the written and oral submissions given by the appellants on 23 And 24 March 2021 and failed to address the issues raised by the appellants in the written reasons for the 22 October 2021 Judgment and Orders.
49. His Honour addressed Counsel for the respondents with appropriate tone and courtesy. The same tone and courtesy was not extended to the appellants.
50. His Honour permitted the respondents to file further material without leave in contravention of the directions made on 25 January 2021.
51. His Honour permitted the respondents to strike out material he had previously relied upon to make the judgment in the same matter on 24 December 2020.
52. His Honour acted as the litigator rather than an impartial judge and made statements indicating he had prejudged the matter.
53. His Honour on 24/3/21 referred to several cases to Respondents Counsel that were not referred to the appellants.
54. His Honour appeared enraged when the appellants brought up the (Antoniolli) case and accused the appellants of misleading the court.
55. His Honor was rude and disparaging to the appellants…
(Footnotes and citations omitted)
41 It is necessary to explain more about the history of the proceeding before the primary judge.
42 The primary judge had originally made a sequestration order on 21 November 2019. The appellants, who reside in Far North Queensland, had sought leave to appear by telephone. His Honour’s associate attempted to telephone the appellants three times, but thought their phone appeared to be disconnected. The appellants maintained that they had answered their phone but that the caller had hung up. His Honour proceeded to determine the application for a sequestration order in the appellants’ absence.
43 The appellants then applied for the sequestration order to be set aside and the hearing was set down for 2 December 2019. The appellants had sought leave to appear by telephone again. The primary judge had the appellants’ number called but was informed by the Court officer that there was a single tone and then silence. His Honour proceeded to dismiss the application.
44 The appellants then made a further application to set aside the orders made on 21 November 2019, as well as the orders made on 2 December 2019. That application was part-heard on 6 December 2019. The appellants appeared by telephone. The application was adjourned to 19 December 2019, but there was no appearance by the appellants on that date.
45 It was brought to the primary judge’s attention that the appellants had applied for his recusal on the basis of apprehended and actual bias. His Honour adjourned the hearing of the applications, with the parties to appear in person in Townsville and his Honour to appear by video-link from Brisbane on 17 January 2020. During the hearing, the appellants maintained they were advised that his Honour had refused leave for them to appear by telephone on 2 December 2019. His Honour refused the application for recusal.
46 By a judgment delivered on 24 December 2020, the primary judge set aside the orders of 21 November and 2 December 2019. His Honour was satisfied the appellants had demonstrated a reasonable excuse for their failure to appear.
47 His Honour later made another sequestration order on 22 October 2021 after a further hearing on 23 and 24 March 2021.
48 The petitioning creditors’ submissions describe the appellants as having made two “real complaints”: first, concerning the primary judge’s refusal to allow the appellants to cross-examine the first petitioning creditor; and, second, discourteousness and anger attributed to the primary judge. I consider this to be a general but accurate summary of the appellants’ complaints.
49 I will first consider the appellants’ claim that they were denied procedural fairness by the primary judge’s refusal to permit them to cross-examine the petitioning creditors’ witnesses.
50 In Boensch v Somerville Legal (2021) 286 FCR 293, the Full Court held at [85]:
It is axiomatic that, in the exercise of judicial power, a judge is obliged to accord procedural fairness to litigants appearing before him or her and that the requirements of procedural fairness include the provision of a reasonable opportunity for litigants to present evidence and to make submissions.
(Citations omitted.)
[See also Minister for Immigration and Multicultural Affairs v Bhardwaj (2002) 209 CLR 597 at [40]; Sullivan v Department of Transport (1978) 20 ALR 323 at 343].
51 On the first day of the final hearing, the first appellant stated that he wished to cross-examine a number of the petitioning creditors’ witnesses. Counsel for the petitioning creditors informed the primary judge that those witnesses were not available because the appellants had indicated in correspondence that they did not wish to cross-examine any of them. The petitioning creditors tendered a series of emails, commencing with an email from the second appellant of 17 March 2021, which stated:
We will advise that we do not require any of the deponents for cross examination and will not be subpoenaing further parties.
52 In light of this correspondence, the primary judge refused the appellants leave to cross-examine the petitioning creditors’ witnesses.
53 A part of the appellants’ complaint is that Mr Gott, who was one of witnesses they wished to cross-examine, was in fact present in the courtroom during the hearing. Inferentially, the other witnesses, at least some of whom resided in Far North Queensland, were not present.
54 Prior to the hearing, the appellants had waived their right to cross-examine the petitioning creditors’ witnesses. During the hearing, they changed their minds, apparently without having provided prior notice to the petitioning creditors. The witnesses, other than the first petitioning creditor, were not present. It is apparent that the primary judge considered that it would be unfair to the petitioning creditors to have to accede to the appellants’ change of mind. It was also open to his Honour to consider it would be unfair for Mr Gott to be taken by surprise and be cross-examined, in circumstances where he had no opportunity to prepare.
55 Procedural fairness requires fairness to both sides. In light of the appellants’ express indication before the hearing that they did not require the petitioning creditors’ witnesses for cross-examination and the prejudice that would be caused by their late change of mind, the appellants have not demonstrated that they were denied procedural fairness by his Honour’s refusal to allow them to cross-examine the petitioning creditors’ witnesses.
56 The second aspect of the appellants’ argument is that the primary judge’s conduct gave rise to a reasonable apprehension of bias.
57 In Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337, the High Court held at [6] that apprehended bias is established:
…if a fair minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide.
58 In QYFM v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2023] HCA 15; (2023) 409 ALR 65 at [67], the High Court affirmed the test stated in Ebner.
59 In the present case, the appellants’ complaint is not of excessive intervention by the primary judge, but with the alleged discourteousness and anger directed towards them, in contrast to the way they say the petitioning creditors’ lawyers were treated. The appellants assert that the primary judge used a “loud angry” tone, was rude and disparaging and did not extend the same “appropriate tone and courtesy” given to the petitioning creditors to the appellants. They allege that the primary judge acted as the litigator rather than an impartial judge and made statements indicating he had prejudged the matter.
60 The material before me includes transcripts of the hearings before the primary judge on 17 January 2020 and 23 and 24 March 2021. I have read the transcripts. They reveal that his Honour was sometimes terse, but that was with both sides. His Honour was sometimes impatient with the appellants when they were repetitive, long-winded or failed to directly answer questions. That is nothing out of the ordinary for a judge attempting to efficiently manage a trial. I cannot see that his Honour made any comments indicating prejudgment. I am unable to detect the “sarcasm, rudeness and apparent derision” of which the appellants complain. Further, while it may be accepted that the transcript does not reflect tone, I am unable to detect the “anger and enragement” of which the appellants complain.
61 A fair-minded lay observer would not reasonably see any impropriety in the remainder of the matters complained of by the appellants. For example, it is common for a judge to be writing notes while submissions are being made and the assertion by the appellants that what his Honour was writing “did not appear to relate to the proceedings” is mere speculation. The allegation that his Honour did not consider or failed to address certain submissions and issues seeks to impermissibly infer an apprehension of bias from errors alleged to have been made: compare Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427 at [67].
62 In my opinion, a fair-minded lay observer would not reasonably apprehend that the primary judge might not have brought an impartial mind to the resolution of the question his Honour was required to decide.
63 The fifth ground must be rejected.
Ground 1: The primary judge failed to provide adequate reasons for judgment
64 The appellants submit that the primary judge did not discuss or give reasons for issues raised by the appellants in their oral and written submissions. In particular, they claim that the primary judge did not address the lack of jurisdiction of inferior courts, the invalidity of the bankruptcy notice, the application of s 52(5) of the Bankruptcy Act, the status of the third petitioning creditor, and the funds supplied to Ms Taylor by the Council.
65 The petitioning creditors argue that while the appellants raised many arguments, in dealing with the “kernel of [the appellants’] arguments”, the primary judge correctly recorded that the effect of their submissions was that there was no debt due and owing because the costs of the petitioning creditors had been paid by the Council or that the Council had been reimbursed.
66 Before the primary judge, the appellants filed submissions 48 pages in length, asserting nine “grounds” upon which the matter should be dismissed.
67 In CMU16 v Minister for Immigration and Border Protection [2020] FCAFC 104; (2020) 277 FCR 201, the Full Court explained at [89] that:
It may be accepted that the primary judge was under a duty to give adequate reasons for his decision, but what is adequate depends on the circumstances of the case. It is not the law that judicial reasons must deal with every detailed point which might have been put on behalf of one party or the other.
68 In DAO16 v Minister for Immigration and Border Protection (2018) 258 FCR 175 at [47], the Full Court held that:
Where, in the decision of an ordinary dispute, reasons are necessary, they are necessary because of the expectation that, being a judicial decision, a sufficient explanation will be given of why the order was made. And, in my opinion, it will ordinarily be sufficient if … by his [or her] reasons the judge apprises the parties of the broad outline and constituent facts of the reasoning on which he [or she] has acted.
69 The Court is not required to decide every matter which is raised in argument, and it can decide a case in a way which does not require the determination of a particular submission: Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 at 385; see also Payne v Long (2020) 280 FCR 362 at [57]; Kovan Engineering (Aust) Pty Ltd v Gold Peg International Pty Ltd [2006] FCAFC 117; (2006) 234 ALR 241 at [119].
70 The issue before the primary judge was whether a sequestration order should be made against the estates of the appellants. Broadly, this required the primary judge to determine whether the applicant had proved the matters required under s 52(1) of the Bankruptcy Act and whether there was any reason to go behind the Registrar’s order to determine whether there was a debt owing.
71 His Honour began his reasons by addressing the appellants’ submission that a sequestration order could not be made because the creditor’s petition was stale. The arguments raised by the appellants concerning the jurisdiction of inferior courts was concerned with this issue. His Honour set out the relevant facts and applicable law relied upon to come to his conclusion that the creditor’s petition had not lapsed. In my opinion, that reasoning subsumed and inferentially rejected the appellants’ submissions regarding jurisdiction of inferior courts.
72 The primary judge then proceeded to address the appellants’ substantive arguments regarding the sequestration order. His Honour noted that the appellants had raised “innumerable issues” relevant to the determination of these proceedings but took the “kernel” of their arguments as being that because the petitioning creditors had their costs paid for them by the Council, there was no debt due and owing by them to the petitioning creditors. The majority of his Honour’s reasons addressed this point.
73 In considering that issue, the primary judge set out the complex factual scenario, came to conclusions based on the evidence before his Honour and applied relevant case law. From this, his Honour concluded that the debt on which the petitioning creditors rely is still owing, pursuant to s 51(1)(c) of the Bankruptcy Act.
74 His Honour also addressed the appellants’ submissions regarding the alleged inappropriateness of the costs order. His Honour found that there was no demonstrable reason why the assessed costs ought not to be accepted.
75 Ultimately, his Honour concluded that he was satisfied of the matters stated in the petition, that the debtors had committed an act of bankruptcy, and the debt claimed in the petition was still owing to the petitioning creditors. His Honour also found that service of the petition was proved.
76 While his Honour did not explain why he was satisfied of the matters stated in the petition, s 52(1)(a) of the Bankruptcy Act states, “the Court may accept the affidavit verifying the petition as sufficient”. I infer that his Honour considered the verifying affidavit to be sufficient, but found it unnecessary to explain so in his reasons.
77 After the conclusion of the hearing before the primary judge, the appellants sent an unsolicited written submission to his Honour’s chambers concerning s 52(4) and (5) of the Bankruptcy Act. In my opinion, his Honour was not required to consider that submission.
78 It was unnecessary for the primary judge to explicitly address every submission made by the appellants. The primary judge addressed the issues required to be satisfied that a sequestration order should be made and decided the case in a way which did not require the determination of every submission.
79 I am satisfied that the primary judge apprised the parties of the broad outline and constituent facts of the reasoning on which he acted and provided adequate reasons for concluding that the creditor’s petition had not lapsed and ordering the sequestration order.
80 The first ground must be rejected.
Ground 2: The primary judge did not have the jurisdiction to make the judgment and orders because the creditors petition had lapsed
81 The appellants submit that the primary judge’s reasons did not properly canvas the arguments concerning lapsing of the creditor’s petition. They argue that the primary judge did not have the power to make the sequestration orders as the creditor’s petition had lapsed under s 52(4) and (5) of the Bankruptcy Act.
82 The petitioning creditors argue that the primary judge considered the appellants’ arguments regarding s 52(4) of the Bankruptcy Act. They submit there is no error in his Honour’s finding that the creditor’s petition had not lapsed.
83 Section 52(4) of the Bankruptcy Act provides, relevantly, that a creditor’s petition lapses at the expiration of 12 months commencing on the date of the presentation of the petition unless a sequestration order is made before the expiration of that period.
84 The primary judge applied Deputy Commissioner of Taxation v Clyne (1984) 4 FCR 156, where the Full Court held that a sequestration order which was subsequently set aside as beyond power was nevertheless a sequestration order for the purposes of s 52(4) of the Bankruptcy Act and accordingly, operated to prevent the creditor’s petition from lapsing. Toohey and Wilcox JJ held at 157-158:
Section 52(4) provides for the lapse of a petition unless “a sequestration order is made on the petition” within 12 months or time is extended. The petition was presented on 4 January 1983 and a sequestration order was made within 12 months of that date, namely on 7 October 1983. That sequestration order has now been set aside by the High Court as being beyond power, but that does not mean that the order was a nullity. The Federal Court is a superior court of record: see s 5(2) of the Federal Court of Australia Act. An order of a superior court of record which is, for any reason, irregular, is not a nullity, but merely voidable…
(Citations omitted.)
85 Their Honours at 158 rejected the debtor’s submission that the requirement of s 52(4) of the Bankruptcy Act was “for a valid sequestration order”.
86 In Menzies v Paccar Financial Pty Ltd [2011] FCA 460, Bromberg J ordered that a sequestration order made by the Federal Magistrates Court be set aside on the basis that the primary judge’s discretion miscarried when granting an application for substitution of the petitioning creditor. His Honour held at [58]:
I agree with the contention of Paccar that on the authority of Deputy Commissioner of Taxation v Clyne (1984) 4 FCR 156, the creditor’s petition has not lapsed despite the fact that more than twelve months has expired after its presentation. As a sequestration order was made by the Federal Magistrate, an exception to the operation of s 52(4) of the Bankruptcy Act is made out.
87 The creditor’s petition was filed on 5 April 2019. The initial sequestration order was made against the estate of each appellant on 21 November 2019, but was set aside on 24 December 2020. The sequestration order the subject of the appeal was made on 22 October 2021.
88 The appellants submit that as the FCFCOA (Div 2) is an inferior court, its order of 24 December 2020 setting aside the initial sequestration order renders that sequestration order a nullity. Their argument is that since, in law, no sequestration order was made on 21 November 2019, the creditors petition had lapsed prior to 22 October 2021. They submit that, accordingly, the primary judge lacked jurisdiction to make the ultimate sequestration order.
89 The primary judge made the sequestration order of 21 November 2019 when the appellants failed to appear at the hearing of the creditor’s petition. His Honour explained that attempts were made to telephone the appellants, but their phone appeared to be disconnected. It was within the jurisdiction of the Court to make that sequestration order. The primary judge subsequently set aside the order pursuant to r 16.05(2)(a) of the Federal Circuit Court Rules 2001 (Cth) on the basis that the appellants had provided a reasonable excuse for their failure to appear. The order was not set aside because of any error on the part of the Court, jurisdictional or otherwise. The sequestration order was not a nullity but was valid and effective until it was set aside by the primary judge on 24 December 2020.
90 The appellants contend that the primary judge in fact unreasonably rejected their application to appear by telephone on 21 November 2019. Even if this were correct and they were thereby denied procedural fairness, that does not assist their argument. In Boensch, the Full Court rejected an argument that if a sequestration order made in the FCFCOA (Div 2) was set aside for denial of procedural fairness it was as if the order had never been made, with the consequence that the creditor’s petition had lapsed. The Court held at [149] that, on a proper construction of s 52(4) of the Bankruptcy Act, the creditor’s petition will not lapse if in fact one of the specified events occurs, including that a sequestration order is made. Accordingly, even if there was jurisdictional error on the part of the primary judge in making the sequestration order of 21 November 2019, the order was effective to prevent the creditor’s petition from lapsing. The primary judge was correct to conclude that the creditor’s petition had not lapsed.
91 The appellants also submit that s 52(4) and (5) of the Bankruptcy Act operate together to impose an absolute limit of 24 months for the making of a sequestration order and that the creditor’s petition lapses if the order is not made by then.
92 Section 52(4) of the Bankruptcy Act provides, relevantly, that a creditor’s petition lapses at the expiration of 12 months commencing on the date of presentation of the petition, or the period fixed by an order made under s 52(5). Under s 52(5), the Court may, within 12 months of the date of presentation of a petition, order an extension “being a period…not exceeding 24 months, commencing on the date of presentation of the petition”. The appellants submit that these provisions mean that a creditor’s petition can have a life of no more than 24 months. I was not referred to any authority dealing directly with this question.
93 However, in Clyne, Toohey and Wilcox JJ held at 158:
Mr Clyne submits that the requirement of the subsection is for a valid sequestration order. He argues that, were it not so, the life of the petition would be extended indefinitely. This is the result of the view we take but it need not occasion concern; the court maintains control over the petition and may make such orders, including an order substituting a new creditor or dismissing the petition, as the circumstances require. The alternative position, which may accord to a debtor immunity in respect of a particular petition in relation to which an irregular order had been made, possibly with important consequences in respect of the commencement of the bankruptcy and the assets available for distribution to his creditors, is much more difficult to reconcile with the principles underlying the Act.
94 Their Honours accepted that a consequence of their construction of s 54(4) as not requiring a valid order was that the life of the creditor’s petition would be extended indefinitely. Accordingly, their Honours contemplated that a petition could have a life of more than 24 months.
95 If there were an absolute limit of 24 months in the life of a petition, there would be a great incentive for a debtor to drag out a proceeding as long as possible through repeated interlocutory applications and appeals in the hope that the petition would lapse. It would be surprising if the legislative intention was to encourage such conduct or to allow the injustice to the petitioning creditor that could result from such conduct. The appellants’ submission cannot be accepted.
96 Ground 2 must be rejected.
Ground 3: The primary judge failed to find that the creditors petition was invalid due to a formal defect that could not be cured under s 306(1) of the Bankruptcy Act
97 The appellants have not identified the formal defect which they claim invalidated the creditor’s petition.
98 Section 306(1) of the Bankruptcy Act states:
Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.
(Emphasis added.)
99 Even if there were a formal defect, the effect of s 306(1) of the Bankruptcy Act is that the proceedings would not be invalidated. Therefore, it is difficult to understand the appellants’ ground.
100 The appellants’ written submissions argue that there was no debt owing to the petitioning creditors. That argument will be dealt with in later grounds.
101 The appellants’ written submissions also argue that the creditor’s petition was filed prematurely as there was an extant review of the bankruptcy notice. The creditor’s petition was filed on 5 April 2019, after a Registrar of the Federal Court had dismissed the appellants’ application to set aside the bankruptcy notice on 3 April 2019. The creditor’s petition was filed before the appellants’ application for review of the Registrar’s order was filed on 22 April 2019. In any event, when the creditor’s petition was filed, there was an act of bankruptcy upon which the petition could be presented.
102 The appellants’ third ground must be rejected.
Ground 4: The primary judge failed to find that bankruptcy notices were invalid
103 The appellants submit that the primary judge failed to find that the bankruptcy notices were invalid. They also submit that the primary judge provided no reasons why this argument was not considered.
104 The argument the appellants sought to raise before the primary judge concerning the invalidity of the bankruptcy notices was that the petitioning creditors were not in fact creditors and therefore could not apply for or issue a bankruptcy notice. They argued that a local government could not lawfully incur or pay the legal costs of a private person in a private legal proceeding. One of the petitioning creditors was Ms Taylor, who had been joined as a defendant by counterclaim to the defamation proceedings. The appellants submitted that Ms Taylor was not a creditor and, on that basis, the bankruptcy notice was invalid. The same argument was deployed against Mr Gott in respect of his proceeding.
105 The primary judge observed that the appellants, “continue to argue that the bankruptcy notice…is invalid notwithstanding that that issue has been decided and determined against them”.
106 In Toogood v Gott [2019] FCA 1792, Greenwood J dismissed the appellants’ application for review of a Registrar’s decision to refuse to set aside the bankruptcy notice. The petitioning creditors argue that as a result of Greenwood J’s dismissal of the application for review, an issue estoppel arose as to the validity of the bankruptcy notice.
107 In Makhoul v Barnes (1995) 60 FCR 572, the Full Court held at 581-582:
Once the validity of the bankruptcy notice has been established in proceedings to set aside that notice, failure to comply with it will automatically give rise to an act of bankruptcy. In the present case, an issue estoppel would have arisen at the conclusion of the proceedings to· set aside the bankruptcy notice as to the validity of that notice. A court would not, at the petition stage, entertain a submission that no act of bankruptcy had been committed on the grounds that the bankruptcy notice was invalid for [a judge] had ruled on its validity.
108 That passage is applicable to the present case. Once Greenwood J ruled that the bankruptcy notice was valid, an estoppel arose as to that issue. There was no error in the refusal or failure of the primary judge to determine the merit of the appellants’ argument that the bankruptcy notice was invalid.
109 The appellants’ fourth ground must be rejected.
Ground 7: The primary judge ought to have refused to make the sequestration order on the basis the appellants were solvent pursuant to s 52(2)(a) of the Bankruptcy Act
110 The appellants contended before the primary judge that the Court should be satisfied under s 52(2)(a) of the Bankruptcy Act that they were able to pay their debts. They submitted that no new debts had arisen since 2019, that there were no other creditors, and that all bills had been paid as they became due. They submit in the appeal that the primary judge failed to consider this argument.
111 The petitioning creditors concede that the primary judge failed to consider the appellants’ argument as to solvency.
112 A judge may fall into error by overlooking and failing to consider a substantial argument: see Jess v Cooloola Milk Pty Ltd (2022) 292 FCR 284 at [21]. That occurred in the present case. The primary judge overlooked the appellants’ argument that the creditor’s petition should be dismissed under s 52(2)(a) of the Bankruptcy Act as they were able to pay their debts.
113 However, the petitioning creditors submit that the error made no difference to the outcome.
114 Section 28(1) of the FCA Act provides, relevantly:
28 Form of judgment on appeal
(1) Subject to any other Act, the Court may, in the exercise of its appellate jurisdiction:
(a) affirm, reverse or vary the judgment appealed from;
(b) give such judgment, or make such order, as, in all the circumstances, it thinks fit, or refuse to make an order;
(c) set aside the judgment appealed from, in whole or in part, and remit the proceeding to the court from which the appeal was brought for further hearing and determination, subject to such directions as the Court thinks fit;
…
(f) grant a new trial in any case in which there has been a trial, either with or without a jury, on any ground upon which it is appropriate to grant a new trial; or
…
115 The power under s 28(1)(f) allows the Court to dismiss an appeal on the ground that no substantial miscarriage of justice has actually occurred: Conway v The Queen (2002) 209 CLR 203 at [6]; Windoval Pty Ltd v Donnelly (2014) 226 FCR 89 at [95]. There can be no substantial miscarriage of justice where the identified error did not affect the outcome of the proceeding.
116 The petitioning creditors submit that, first, the appellants did not establish that they were able to pay their debts. Secondly, the appellants admitted that they did not have any money. Thirdly, even if the appellants could demonstrate solvency, the Court would not have exercised its discretion to dismiss the creditor’s petition because the appellants had not established that it was reasonably feasible that the petitioning creditors could levy execution against property of the appellants’ such that there would be sufficient money to pay the petitioning creditors’ debt.
117 The onus is on the debtor to adduce evidence that he or she is “able to pay his or her debts”: Sanders v Knudsen & Yates trading as The Hargreaves Practice [2004] FCAFC 305 at [14]. It must be demonstrated that there are assets that are available to be realised and that they are capable of ready realisation: Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 at [17]. Where it is shown that there are assets to which a judgment creditor might readily resort under civil judgment enforcement proceedings, then it is those processes which should be followed, not sequestration: Kitay, in the matter of Frigger (No 2) [2018] FCA 1032 at [107].
118 At first instance, the first appellant deposed that he received income support from Centrelink and supplemented that with paid work, while the second appellant received an Austudy payment. Their respective incomes were not specified. The first appellant deposed that the mortgage debt for their home is $326,000 and its “drive by value” is approximately $450,000. He did not suggest he had the expertise to make such a valuation or explain how that valuation was arrived at, so that little weight could be placed on it. The first appellant deposed that the bank has, “not initiated any enforcement action and will not due to Covid 19 hardships”, suggesting the appellants were presently unable to meet their repayment obligations. He produced evidence that about $52,000 is owed to the appellants by the Australian Taxation Office. The first appellant did not address their ability to pay the judgment debt of $74,157.96.
119 The appellants asserted in their submissions before the primary judge that they, “will also successfully challenge the Secure Funding judgment in the Victorian Supreme Court”. The first appellant failed to refer to that judgment in his affidavit. There was no evidence about the amount of that judgment before the primary judge.
120 The appellants failed to produce evidence as to the full extent of their debts. They failed to produce satisfactory evidence as to their ability to meet their debts. There is evidence that the first appellant said in a telephone conversation on 8 October 2019 that he “has no money”. The evidence was not capable of satisfying the primary judge that they were able to pay their debts. Accordingly, even if his Honour had considered the appellants’ argument that they were able to pay his or her debts, the argument would have been rejected.
121 In these circumstances, the primary judge’s error did not give rise to any substantial miscarriage of justice. In any event, I would determine that the appellants have failed to establish that they were able to pay their debts.
122 Ground 7 must be rejected.
Grounds 8, 9, 10, 11, 12, 13, and 14: The costs grounds
123 Grounds 8, 9, 10, 11, 12, 13, and 14 are interrelated as they are concerned with whether the primary judge erred in failing to hold that there was no debt owing to the petitioning creditors. I will consider these grounds together.
124 The primary judge at [16] described the appellants’ principal contention as follows:
At the kernel of their arguments, however, is the contention that because the petitioning creditors have had their costs paid for them by Cassowary Coast Regional Council (of which they were members or employees) and because the Council has received a payment in respect of those costs from a mutual fund, there is no debt due and owing by them to the petitioning creditors.
125 The appellants claimed that no amount remained owing to the petitioning creditors under the costs orders because the debt was extinguished when, on about 18 March 2020, the Council received a payment from the Queensland Local Government Mutual Fund (LGM). LGM is a pooled fund and scheme to manage liability of local councils arising in connection with the exercise of their powers, duties, or functions.
126 In 2019, the Council made a claim to LGM for legal fees incurred in the proceedings the Council and its staff were involved in with the appellants. On 22 January 2020, LGM determined to offer a payment to the Council for legal costs for the defence of the counterclaim, and only in respect of the Council, Mr Gott, Mr Kremastos and Mr Taylor, in the sum of $92,500 (after a deductible of $7,500). The primary judge found that Mr Gott’s costs in the defamation proceedings were not covered by the offer. The Council accepted the offer by LGM and $92,500 was paid to the Council.
127 By cl 29 of the Scheme Rules, LGM has a contractual right of subrogation in the event of a payment pursuant to the scheme to the extent of such payment. The right of subrogation extends to all rights of the member against any person or other entity legally responsible for the claim.
128 The appellants also argued that only the Council, but not the individual creditors, were liable under the costs agreements with Connolly Suthers, the solicitors who represented the petitioning creditors in the District Court.
129 There were two relevant costs agreements in evidence. The first was a costs agreement dated 7 July 2017 between Connolly Suthers and Mr Gott for his defamation case against the appellants. The primary judge found that under the terms of that agreement, Mr Gott was the client of Connolly Suthers; and that Mr Gott had given instructions to Connolly Suthers in relation to the commencement and prosecution of the defamation proceedings.
130 On 7 December 2017, the Council resolved to indemnify Mr Gott in the defamation proceedings and the Council subsequently paid Mr Gott’s legal costs. The primary judge found that this did not detract from the express terms of the costs agreement to the effect that Mr Gott was personally liable for the legal costs of his solicitors.
131 The second costs agreement was between Connolly Suthers and the defendants to the appellants’ counterclaim and was dated 26 September 2017. The primary judge found that each of the petitioning creditors was a client of Connolly Suthers and they each provided instructions to the firm with respect to the counterclaim. His Honour found that, under the agreement, each of the petitioning creditors was liable for the costs of Connolly Suthers, and their liability was not affected by the Council’s agreement to guarantee due and punctual performance by the clients and indemnify Connolly Suthers for any loss or damage suffered by that firm. His Honour found there was no agreement that the individual petitioning creditors would not be liable in any circumstances to Connolly Suthers for legal costs incurred with respect to the counterclaim. The Council paid the legal costs of the petitioning creditors due to Connolly Suthers in respect of the counterclaim.
132 The primary judge found that each of the individual petitioning creditors had provided an undertaking to the Council that any monies recovered from the appellants with respect to the costs order would be remitted to the Council.
133 The primary judge noted that the fact that a party’s legal costs are to be paid, or have been paid, by a third person does not preclude that party obtaining an order for costs, but that a party which is not liable to their solicitors for costs cannot recover costs against an unsuccessful party. His Honour observed that the fact that a third party has paid, or has undertaken to pay, a party’s legal costs does not mean that a costs order in favour of the party is improperly made; and that a successful party can recover costs if they have an obligation to pay their solicitors, notwithstanding that a third person may or will relieve them of that obligation.
134 The primary judge observed that the appellants relied heavily upon Lowbeer v De Varda [2018] (2018) 264 FCR 228, where the judge had made a factual finding at first instance that the solicitor and a third party had agreed that the solicitor would look only to the third party for costs and there had been no agreement requiring the petitioning creditor to pay the solicitor’s costs. The Full Court dismissed the appeal, holding that the petitioning creditor had no liability to pay costs and, therefore, had no entitlement to a costs order. The primary judge distinguished the facts of the case.
135 The primary judge observed that in Noye v Robbins [2010] WASCA 83, where a police officer’s legal costs had already been paid by the Police Service prior to the relevant costs order, it was held that a successful party can recover costs even if its liability to pay the costs has been discharged prior to the making of the order.
136 The primary judge held that the application of these principles meant that the fact that the Council would pay, or had paid, Mr Gott’s costs and the costs of defending the counterclaim, did not mean that the petitioning creditors were not entitled to a costs order, provided they were liable to pay Connolly Suthers’ costs. His Honour found that Mr Gott and the other defendants to the counterclaim were liable to pay Connolly Suthers’ costs notwithstanding that the Council paid the costs on their behalf.
137 The primary judge also held that to the extent that the Council indemnified the other petitioning creditors for the solicitors’ costs, it was entitled to require the petitioning creditors to exercise their rights of recovery against the debtors. His Honour held that LGM was subrogated to the Council’s rights against the petitioning creditors with respect to the payment of $92,500 and that if the Council recovered any costs, those costs would be recoverable by LGM from the Council. His Honour held that the indemnity provided by LGM to the Council and the payment by LGM on 18 March 2020 did not displace the entitlement of the petitioning creditors to the benefit of the costs orders, or to present the petition relying on a debt based on the costs order, or to obtain a sequestration order relying on that debt.
138 The appellants’ grounds allege that the primary judge erred in:
failing to properly go behind the judgment (Ground 8);
finding that the counterclaim costs were reimbursed by the insurer “JLT/LGM” pursuant to the Scheme Rules (Ground 9);
finding that the payment of the $100,000 (less the deductible) was for the counterclaim only (Ground 10);
finding that the Gott defamation proceeding was covered by the Council resolution on 7 December 2017 (Ground 11);
finding that the alleged creditors Mr Taylor, Ms Taylor and Mr Kremastos were liable to Connolly Suthers for the costs (Ground 12);
finding that the evidence demonstrated that each of the alleged creditors had provided an undertaking to the Council to remit any monies recovered to Council (Ground 13);
finding that a contractual right of subrogation existed for the LGM payment of $100,000 as provided in Clause 29 of the Scheme Rules (Ground 14).
139 The appellants’ submissions are somewhat disjointed and difficult to understand. Nevertheless, I understand them to argue that the primary judge erred in finding that petitioning creditors are not “creditors” principally for the following reasons:
The payment made on about 18 March 2020 to the Council from LGM extinguished the debt.
Clause 12.1 of the costs agreements was not binding on the first, third, fourth or fifth petitioning creditors pursuant to s 54(1)(a) of the Property Law Act 1974 (Qld), and the only petitioning creditor liable to pay costs is the Council (as is said to have been held by Henry J in Toogood v Graffen [2022] QSC 053).
The costs agreements entered expressly provided that only the Council would be liable for any and all legal costs and there was no valid costs agreement with the first, third, fourth or fifth petitioning creditors.
No legal accounts or invoices were ever given to the first, third, fourth or fifth petitioning creditors and the legal costs are therefore unenforceable against those parties.
The evidence did not establish that the Council was paid pursuant to the LGM Scheme Rules.
The primary judge erred in finding that LGM had offered to make a payment to the Council only for legal costs for the defence of the counterclaim in light of a letter from LGM dated 22 February 2020 which demonstrates that LGM made a discretionary ex gratia payment for reimbursement for both the defamation claim and the counterclaim as it could not differentiate between the two.
The primary judge erred when he stated during the hearing on 24 March 2021 that the solicitors had not been paid before the costs order was made by the District Court on 26 April 2018.
140 The appellants’ arguments coalesce into two primary submissions, namely that the primary judge erred failing to find that:
(1) the individual petitioning creditors were not liable to pay any costs to Connolly Suthers under the costs agreements;
(2) the payment by LGM operated to extinguish the debt.
141 At the heart of these issues is the indemnity principle. In broad terms, the indemnity principle is that a party ordered to pay another party’s costs is obliged to pay only those costs which the other party is legally obliged to pay to his or her lawyers: Mainieri v Cirillo (2014) 47 VR 127 at [43]. The indemnity principle does not require that the costs have been paid, but it does require that there be a legal liability to pay costs: Wentworth v Rogers (2006) 66 NSWLR 474 at [126]; Royal v El Ali (No 3) [2016] FCA 1573 at [37]; In Re Ryals Hotel Pty Ltd [2021] NSWSC 42 at [6]. The indemnity principle is flexible, and is designed to allow for a just and fair result: Hancock Prospecting Pty Ltd v Hancock (No 3) [2016] WASC 423 at [19].
142 The indemnity principle will not be displaced merely because a third party has undertaken to pay the client’s legal costs: Hancock Prospecting Pty Ltd v Hancock (No 3) at [23]. A party indemnified, whether by insurance or otherwise, against their liability to pay costs is still entitled to a costs order, even if the costs have been paid prior to the date of the costs order: Coshott v Woollahra Municipal Council [2008] NSWCA 176 at [11], [13]; Cristovao v Tan & Tan Lawyers Pty Ltd [2018] FCAFC 41 at [35]-[44].
143 For a party to be disentitled to costs under the indemnity principle, it must be demonstrated that there was no retainer, or alternatively, that there was an agreement that under no circumstances would the client be liable for costs: Hancock at [26]; Cristovao v Tan & Tan Lawyers at [38]. The onus of establishing these matters rests upon the party seeking to resist the making of a costs order or the payment of costs pursuant to such an order: Hancock at [27].
144 There was a costs agreement dated 7 July 2017 between Connolly Suthers and Mr Gott in respect of his defamation proceedings against the appellants and a second costs agreement dated 26 September 2017 between Connolly Suthers and each of the petitioning creditors in respect of the counterclaim.
145 The second costs agreement names each of the five petitioning creditors. In the agreement, they are referred to collectively as “you”.
146 Clause 2.1 of the second costs agreement provides:
This document is an offer to enter into a costs agreement with you. If you accept this offer you will be regarded as having entered into a costs agreement. This means you win be bound by the terms and conditions set out in this document, including being billed in accordance with it. Acceptance may be by any one of the following ways:
(a) signing and returning a copy of this document; or
(b) giving us instructions after receiving this document; or
(c) contacting us and advising of your acceptance
147 Under cl 2.2 Connolly Suthers agrees to provide the petitioning creditors with legal services. Clause 3.1 sets out Connolly Suthers’ professional fees. Clause 5.1 states that bills will be sent to “you” containing information of professional fees, other charges, disbursements and expenses and GST at such times as Connolly Suthers considers it appropriate to do so.
148 Clause 12.1 provides:
The Cassowary Coast Regional Council, being the signatory to this Agreement, acknowledge that they have all necessary authority to bind you and that they requested us to enter into this Agreement with you and in consideration of that agreement hereby (and if more than one jointly and severally) guarantee to us the due and punctual performance by the client of all the terms and conditions of this Agreement and further agree to indemnify and keep us indemnified against any loss or damage however arising which we may suffer in consequence of any failure by you to perform your obligations under this Agreement (including those relating to the payment of the Fee, interest, costs and expenses) or for any other reason whatever and this guarantee shall not be effected or discharged by the granting to you of any time or other indulgence or consideration or transaction whereby the liability of those signatories would, but for the provisions of this clause. have been effected or discharged.
149 The costs agreement between Connolly Suthers and Mr Gott was in materially identical terms.
150 The appellants argue that the effect of cl 12.1 of the costs agreement for the counterclaim is that only the Council is liable to pay Connolly Suthers’ costs and the individual petitioning creditors are not liable. They also argue that as the costs agreement was only signed by Mr Gott on behalf of the Council and was not signed by the other individual petitioning creditors, they are not parties to the agreement and are not bound by it.
151 Under cl 12.1, the Council acknowledged that it was authorised to bind the other petitioning creditors. In other words, the Council warranted that it was acting as the authorised agent of the other petitioning creditors. There is no evidence suggesting the Council lacked that authority. In any event, the solicitor who acted for the petitioning creditors deposed that he took instructions concerning the matter from all the petitioning creditors. It follows that under cl 2.1 they accepted the agreement. The solicitor also deposed that while the Council paid the petitioning creditors’ legal fees and costs, there was no agreement that the individual petitioning creditors would not be liable in any circumstances for Connolly Suthers’ fees.
152 There was ample evidence before the primary judge that each of the petitioning creditors entered a binding agreement with Connolly Suthers under which they were liable to pay Connolly Suthers’ fees. Under cl 12.1, the Council provided a guarantee and indemnity in respect of the individual petitioning creditors’ payment of Connolly Suthers’ fees. That did not have the effect that the individual petitioning creditors were not themselves liable to pay the fees.
153 What is important for the application of the indemnity principle is an obligation to pay lawyers’ fees. In this case, the individual petitioning creditors were liable to pay Connolly Suthers’ fees under the costs agreements even though the Council provided a guarantee and indemnity and in fact paid those fees. There was no agreement that under no circumstances would the individual petitioning creditors be liable for Connolly Suthers’ costs.
154 Similarly, the payment by LGM to the Council did not operate to relieve any of the petitioning creditors of their obligations under the costs agreements. As the cases I have cited indicate, a party which is indemnified, whether by insurance or otherwise, against their liability to pay costs is still entitled to recover costs, even if the costs have been paid prior to the date of the costs order.
155 In these circumstances, the primary judge was correct to reject the appellants’ argument that there was no debt owing to the petitioning creditors.
156 It is unnecessary to address all the grounds and submissions advanced by the appellants. Many of them, including alleged mistakes of fact, could make no difference to the correctness of primary judge’s rejection of the appellants’ arguments that there was no debt at the date of the creditor’s petition.
157 I will, however, address some particular submissions made by the appellants.
158 The appellants submit that the primary judge in his judgment of 24 December 2020 setting aside the initial sequestration order found there was not in truth a debt owing to the petitioning creditors and no right of subrogation existed as the relationship between the Council and LGM was not one of “insured and insurer”. In his reasons, his Honour stated there were substantial reasons to think that there may not be a debt truly owed to the petitioning creditors. However, that was merely an interlocutory judgment and his honour did not purport to finally decide the issue. The issue was finally determined in his Honour’s ultimate reasons and judgment.
159 The appellants submit that in Toogood v Graffen, Henry J accepted that cl 12.1 of the costs agreement was not binding on the individual petitioning creditor pursuant to s 54(1)(a) of the Property Law Act. In that proceeding, the first appellant sought review under the Judicial Review Act 1991 (Qld) of two decisions. The first was a decision of the then Chief Executive Officer of the Council to authorise a costs agreement with Connolly Suthers to represent the petitioning creditors in the current appeal. The second was a resolution of the Council to oppose the appeal and make a security for costs application.
160 The first decision concerned an agreement between Connolly Suthers and the petitioning creditors dated 11 November 2021. It was signed by the CEO. The first appellant had argued that the CEO did not have power or authority to enter into the costs agreement, and only the Council had that power. Justice Henry rejected that submission by reference to s 240 of the Local Government Act 2009 (Qld) (the LGA).
161 The first appellant had also argued that the Council’s funding of the litigation costs of the individual petitioning creditors involved an unlawful loan, guarantee or indemnity by the Council. He relied on cl 12.1 which was in relevantly identical terms to the costs agreements of 7 July 2017 and 26 September 2017. The first appellant argued the costs agreement breached s 111(1) of the LGA, which he contended prohibits a local government from making or guaranteeing a loan to an individual. Justice Henry held that cl 12 was not, and did not provide evidence of, a guarantee of a loan. His Honour also rejected various other arguments made by the first appellant. The proceeding was summarily dismissed.
162 The appellants rely upon the following passage from the judgment of Henry J at [32]:
Moreover, the words of clause 12.1 are inconsistent with a co-ordinate right to seek contribution from co-obligors. Section 54 (1) Property Law Act 1974 (Qld), in speaking of a promise by two or more persons being construed as a promise made jointly and severally, does so “unless a contrary intention appears”. Clause 12.1’s indemnity evidences such contrary intention.
163 The appellants submit that in this passage Henry J held that, “the only liable party is the Council”. However, his Honour was only addressing the appellants’ particular argument that the Council had unlawfully guaranteed a loan. His Honour’s reasoning does not touch upon the primary obligation of the petitioning creditors that arose under the cll 2.1 and 5.1 of the costs agreements to pay the fees incurred by Connolly Suthers. Contrary to the appellants’ submission, his Honour did not find that the only party liable to pay fees under the costs agreement was the Council. In any event, I have rejected the submission that the individual petitioning creditors were not liable to pay Connolly Suthers’ fees under the respective costs agreements of 7 July 2017 and 26 September 2017.
164 The appellants also submit that on 21 February 2019, Mr Gott, by a written undertaking given to Mayor Kremastos, “made an equitable assignment to transfer to the second Respondent Council conditional upon any future monies being awarded to him (fruits of the judgment) which could be recovered from the Appellants”. They submit that on 28 February 2019, Mr Gott procured a similar equitable assignment from each of the other individual petitioning creditors.
165 The appellants submit that the assignments effected a change in the identities of the creditors. They rely on r 799(2)(b) of the Uniform Civil Procedure Rules 1999 (Qld) which provides that, “an enforcement creditor requires a court’s leave to start enforcement proceedings if…there has been a change in an enforcement creditor or enforcement debtor, whether by assignment, death or otherwise”. The expression “enforcement creditor” is defined to mean a person “entitled to enforce an order for the payment of money”, or, “to whom the benefit of part of the order has passed by way of assignment or in another way”. The appellants submit that as there was a change in the enforcement creditor, the leave of the District Court to start enforcement proceedings was required.
166 The appellants also submit that the petitioning creditors were, “not a person who for the time being entitled to enforce [a] final order for the payment of money”, within s 40(3)(d) of the Bankruptcy Act. They submit that the bankruptcy notices were invalid and the creditor’s petition should have accordingly been dismissed.
167 Mr Gott’s undertaking was in the following terms:
I hereby give my absolute undertaking and warrant that any monies awarded to me in respect of any costs order, settlement or judgment (whether by way of award of standard or indemnity costs and/or damages on any basis) will, if recovered from Mr & Mrs Toogood, be remitted by me to Council immediately after receipt thereof from Mr & Mrs Toogood.
To remove any doubt, I warrant that I will not be personally enriched by virtue of this proceeding, over which I have been indemnified by Council.
168 The terms of the undertaking given by Mr Kremastos, Mr Taylor and Ms Taylor were as follows:
I give my undertaking that any monies whatsoever which may be awarded to me in relation to this matter, if recovered from Mr & Mrs Toogood will be remitted by me to Council immediately after receipt thereof from Mr & Mrs Toogood.
169 The undertakings do not assign the benefit of the orders of the District Court. They effect an assignment of any monies that may be recovered from the appellants under the costs orders.
170 In FTV Holdings Cairns Pty Ltd v Smith [2014] QCA 217, Fraser JA explained at [43]:
…There can be no immediate assignment in law or in equity where the property to be assigned does not yet exist. What purports to be a present assignment of future property must be contingent, in the sense that the assignment can occur only when the property is brought into existence. Where that contingency is not expressed in the contract, equity gives effect to the parties’ intention by construing what purports to be a present assignment of future property as a contract to assign the property when it comes into existence; where the contingency is expressed, the contract takes effect in equity according to its terms…
171 There has not yet been any recovery of monies from the appellants. There is no relevant property in existence that an assignment could operate upon. I reject the appellants’ submission that the petitioning creditors were required to seek leave under r 799(2) of the Uniform Civil Procedure Rules or that the petitioning creditors did not come within s 40(3)(d) of the Bankruptcy Act.
172 I reject Grounds 8, 9, 10, 11, 12, 13, and 14.
Ground 16: The primary judge failed to find that the petitioning creditors had obtained the benefit of legal cost paid unlawfully and were a party to the misappropriation of public funds
173 The appellants submit that the petitioning creditors, “had no lawful authority to receive the personal benefits of legal costs paid on their behalf”.
174 The appellants’ argument is based on s 9 of the LGA. That section provides, relevantly:
9 Powers of local governments generally
(1) A local government has the power to do anything that is necessary or convenient for the good rule and local government of its local government area.
...
(2) However, a local government can only do something that the State can validly do.
…
175 The appellants submit that s 9(1) of the LGA does not authorise the Council to pay the legal fees of an employee who is taking personal legal proceedings against a member of the community. They assert that, “the stolen funds” that have been paid to Connolly Suthers are held on trust for the Council. They submit that the legal costs incurred and paid under this ultra vires authorisation cannot be enforced against the appellants.
176 The appellants submit that the restriction under s 9(2) applies because the State could not validly fund private legal proceedings brought by one of its employees. However, s 2 of the Constitution Act 1867 (Qld) provides that:
Within the said Colony of Queensland Her Majesty shall have power by and with the advice and consent of the said Assembly to make laws for the peace welfare and good government of the colony in all cases whatsoever.
177 I am unable to understand the basis upon which the State or the Council lack power to fund private legal proceedings bought by an employee. It may also be noted that Mr Gott’s proceedings were not strictly “private” in circumstances where Mr Gott alleged he was defamed as a result of the performance of his duties as CEO of the Council. The Council had ample power under s 9(1) of the LGA to resolve to pay the legal costs incurred by Mr Gott, as well as the other individual petitioning creditors.
178 The appellants relied on the Statutory Bodies Financial Arrangements Act 1982 (Qld). They did not refer to any specific section of that Act, and I am unable to see its relevance.
179 Even if the Council’s resolutions to pay the individual petitioning creditors’ legal fees was ultra vires, that would not affect their liability under the costs agreement with Connolly Suthers and would not affect the validity of the orders made in their favour by the District Court.
180 Ground 16 must be rejected.
181 The appellants have not established any of their grounds of appeal.
182 The appeal must be dismissed with costs.
I certify that the preceding one hundred and eighty-two (182) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rangiah. |
Associate:
QUD 362 of 2021 | |
RICKY KENNETH TAYLOR | |
Fifth Respondent: | JOHN KREMASTOS |
