Trustee has standing to apply to set aside costs agreement between bankrupt and solicitor

McVeigh’s Case [2005] VCAT 2917

McVeigh was the trustee in bankruptcy of the solicitor’s former client. The solicitor said he had no standing because only a client, defined for the purposes of s. 103 to mean “a person who retains a legal practitioner or firm to provide legal services for fee or reward”, can bring an application to set aside a costs dispute.

Under a costs agreement, the client mortgaged his house to secure the solicitor’s fees, and subsequently went bankrupt, so that the house vested in his trustee subject to the mortgage. The Bankruptcy Act gave the trustee the power to “bring, institute, or defend any action or other legal proceeding relating to the administration of the estate”. Butcher DR found at [8] that that was what the trustee was doing:

“the … trustee … has power to bring an action relating to the administration of the estate insofar as it relates to property. As the property is subject to a mortgage to the legal practitioner which rests upon costs owing to the legal practitioner, which in turn rest upon the costs agreement, this power extends as far as the costs agreement.”

Deputy Registrar Butcher held that the trustee “may be said to be the client for the purposes of s. 103” at [9], [17] by reference to Cummings v Claremont Petroleum NL [HCA], McCallum v Commissioner of Taxation [FCA], and Official Receiver in Bankruptcy v Todd [FCA], and it made no difference that at the time of the s. 103 application, the client was no longer bankrupt as his house was still part of the bankrupt estate.

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