Hope springs eternal in the debtor’s breast

Professor Reinhardt educated me about litigation, twice, once at law school and then in my Masters.  He had a fondness for the ingenuity of debtors and used to say ‘Hope springs eternal in the debtor’s breast’, a corruption of an Alexander Pope poem, very often. (His second most favourite phrase was ‘sticks out like a dog’s proverbials’.) Anyway, this post, the subject matter of which is a debtor’s exquisitely technical argument about that most arcane of orders, order 63 of the Supreme Court Rules, is dedicated to Professor Reinhardt.  But for those who like to know the take-home message without savouring the nice arguments which produced it, it is this: however you got before the Taxing Master, his orders operate as a final judgment which may themselves be enforced, but before you go out executing on them, you have to get them authenticated: Scott v Evia Pty Ltd [2008] VSC 324, a decision of Justice Hansen.

Maybe you, like me, figured that all along, but you probably did not know that Justice Finkelstein over in the Federal Court has seen it differently. He said a Taxing Master’s order was not a final judgment for the purposes of bankruptcy legislation capable of supporting a bankruptcy notice. It is conceivable I suppose that both Justice Finkelstein’s and Hansen’s views are correct, since what may be executed on as a judgment under the Supreme Court Rules may not be identical as a concept to a final judgment capable of founding a bankruptcy notice; the answer may soon be known to that fascinating question when the parties’ stoush reprises in the Federal Court.  Now that I know Justice Hansen figures it the same way, it revived what I had been wondering for some time.  What does the Legal Profession Act, 2004‘s s. 3.4.17(2) mean when it says:

‘A law practice that does not disclose to a client anything required by [the costs disclosure provisions] to be disclosed may not maintain proceedings against the client for the recovery of legal costs unless the costs have been reviewed under Division 7 [i.e. in a solicitor-client taxation before the Taxing Master].’

What proceedings could be maintained once the Taxing Master had reviewed the costs? Wouldn’t the matter be res judicata?  Wouldn’t it be an abuse of process to sue?  Coincidentally, just as I was pondering that question, VCAT published Senior Member Howell’s reasons in Katrakazas v Cameron [2008] VCAT 1786. There, a man was involved in a taxation of his solicitor’s fees.  The Taxing Master reduced them a bit on taxation.  The man sued his solicitor in a subsequent proceeding in VCAT under the Fair Trading Act, 1999. He asked VCAT to diminish the amount he was obliged to pay because of alleged costs disclosure defaults on the part of the solicitor.  Mr Howell said — No way! Either you raised that issue already before the Taxing Master like the solicitor claims and the matter is res judicata, or you could have and should have so it’s now too late: it’s called Anshun estoppel.

But after discussing the matter with costs guru Richard Antill, I think the answer is that the Taxing Master will not necessarily make an order like the one under consideration in Scott v Evia, which directed one party to pay another.  He might make an order simply fixing the amount of costs and leave it at that, especially if a suit for fees had been brought and stayed pending the taxation.  But does that ever happen, readers?

What happened in Scott v Evia was that a bloke disobeyed a judgment of the Supreme Court. The judgment creditor sued for contempt, and spent a great deal of money doing so.  The bloke was convicted of contempt and ordered to pay solicitor client costs.  $120,000 of them, in fact, as taxed (curiously, a shadow of the $300,000 estimated at the time of the costs order: see [2007] VSC 110).

The bloke didn’t pay, so the judgment creditor issued a bankruptcy notice.  It didn’t attach the trial judge’s order that the bloke pay the costs.  Rather, it attached the Taxing Master’s order quantifying the costs. As it happened, the Taxing Master’s order did direct the judgment debtor to pay the costs, as opposed to limiting itself to certifying the amount which was payable by operation of the trial judge’s order.

In response to the bankruptcy notice, the bloke was no more cooperative than before.  So the judgment creditor sought a sequestration order. There was a line of Federal Court cases which said that the order of the Taxing Master of the Supreme Court of Victoria in these circumstances is not a final judgment of the kind which it is appropriate to attach to a bankruptcy notice and complain about non-payment of.  The bloke waited until the last minute (naturally) and then sought to derail the bankruptcy proceedings by pointing out that the judgment relied on was beyond power.  He said the Taxing Master’s job was to quantify the amount of the costs which a judge had previously ordered the judgment debtor to pay, not to go around exercising judicial power above his station telling people to pay other people. His role, the bloke said, was as bean counter, not liability generator.  If it were otherwise, the weird old situation would arise where there would be two judgments doing the same thing — telling the judgment debtor to pay the judgment creditor — rather than one judgment telling him to pay the judgment creditor and one telling him how much to pay.

The argument failed, which is just as well for creditors, because had it succeeded, every bankruptcy notice based on non-payment of a costs order of the Supreme Court’s Taxing Master following a taxation of a judgment for costs might have been derailed.  The debtor did have a point.  Rule 63.11 says ‘Where costs are taxed otherwise than under a judgment or order for costs, an order of the Taxing Master for payment of any amount found to be due may be enforced in the same manner as a judgment for the payment of money.’  This was a taxation under a judgment, and it is not unreasonable to read sub-rule 11 and figure that the drafters must have envisaged that the judgment for costs was enforceable in its own right, and so did not need the magic worked by sub-rule 11.  But no, analysis of the history of the Rules revealed that that was not what it meant, and that sub-rule 11 was facilitatory rather than limiting in its ambition.  The fact that it said you could do something in some circumstances, in other words, was designed to show there was no doubt about that, not to limit by implication the entitlement of people to do it in all the other circumstances.

The Federal Court cases mentioned above were:

  • Commonwealth Bank of Australia v Horvath (Junior) [1999] FCA 143, (1999) 161 ALR 441 (Finkelstein J);
  • Franks v Warringah Council (2003) 131 FCR 287;
  • Moran v Lydiard Financial Services Pty Ltd (2005) 222 ALR 333.
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