FEDERAL COURT OF AUSTRALIA

Lowbeer v De Varda [2018] FCAFC 115

Appeal from: Lowbeer v De Varda and Lowbeer v Tov-Lev [2017] FCCA 1658

File number(s):NSD 1359 of 2017

Judge(s): REEVES, FARRELL AND COLVIN JJ

Date of judgment: 24 July 2018

Catchwords: BANKRUPTCY AND INSOLVENCY - appeal from Federal Circuit Court dismissing creditor's petitions based on certificates of taxation and costs order made in favour of petitioning creditor against the respondents - where primary judge found in truth and reality no debt due and payable because costs had been incurred by third party - principles to be applied when court invited to go behind a judgment to determine whether in truth and reality there was a debt behind the judgment relied upon as basis for petition - whether a costs agreement existed between petitioning creditor and solicitor acting in proceedings where costs order obtained - no factual error in finding by primary judge - appeals dismissed

EQUITY - where primary judge rejected claim that third party paid costs in recognition of an obligation to indemnify petitioning creditor - consideration of matters required to establish a right of subrogation - whether payment by third party of costs discharged obligation to indemnify petitioning creditors - no error by primary judge

Legislation: Bankruptcy Act 1966 (Cth) ss 43(1), 52Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) r 4.06(2)

Cases cited: Abigroup Ltd v Abignano (1992) 39 FCR 74Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495AFG Insurance Ltd v City of Brighton (1972) 126 CLR 655Aldi Foods Pty Ltd v Moroccanoil Israel Ltd [2018] FCAFC 93Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221

Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654Cheung v Burness (Trustee) [2016] FCA 1381Corney v Brien (1951) 84 CLR 343Coshott v Woollahra Municipal Council [2008] NSWCA 176DiMella v Rudaks (2008) 102 SASR 582; [2008] SASC 345Ernst & Young (Reg) v Tynski Pty Limited (2003) 47 ACSR 433; [2003] FCAFC 233Esso Petroleum Co Ltd v Hall Russell & Co Ltd [1989] AC 643Fox v Percy [2003] HCA 22; (2003) 214 CLR 118Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCACF 18Gerrard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453Halliday v High Performance Personnel Pty Ltd (in liq) (formerly Sacs Group Pty Ltd) (1993) 113 ALR 637In re a Debtor [1929] 1 Ch 125Linsley v Petrie [1998] 1 VR 427Lowbeer v Tov-Lev [2013] FCCA 1813Marsh v Baxter [No 2] [2016] WASCA 51Midland Banking Co v Chambers (1869) LR 4 Ch App 398Noye v Robbins [2010] WASCA 83O’Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200Orakpo v Manson Investments Ltd [1978] AC 95Petrie v Redmond [1943] St R Qd 71Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28Re Goldring; Ex parte Harper (1888) 22 QBD 87Re Vassis; Ex parte Leung (1986) 9 FCR 518Robinson Helicopter Company Inc v McDermott [2016] HCA 22Saraceni v Mentha [No 2] (2012) 269 FLR 12; [2012] WASC 336Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd (2009) 226 FLR 306; [2009] WASCA 31Starkey on behalf of the Kokatha People v State of South

Australia [2018] FCAFC 36State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15Tov-Lev v Lowbeer (No 2) [2014] FCA 379Workcover Queensland v Seltsam Pty Ltd (2001) 53 NSWLR 518; [2001] NSWCA 457Wren v Mahony (1972) 126 CLR 212Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391; [2009] HCA 50

Date of hearing: 15 May 2018

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: General and Personal Insolvency

Category: Catchwords

Number of paragraphs: 102

Counsel for the Appellant: Dr RP Austin & Mr DE Thomas

Solicitor for the Appellant: Eddy Neumann Lawyers

Counsel for the Respondents: Mr F Asaaf & Mr PR Gaffney (Pro Bono)

ORDERS

NSD 1359 of 2017

BETWEEN: JOHN JOSEPH LOWBEERAppellant

AND: JOSEPH DE VARDARespondent

NSD 1360 of 2017

BETWEEN: JOHN JOSEPH LOWBEERAppellant

AND: SAMUEL TOV-LEVRespondent

JUDGES: REEVES, FARRELL AND COLVIN JJ

DATE OF ORDER: 24 JULY 2018

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant do pay the respondents’ costs of the appeal, confined to those costs

which may be recovered by a litigant in person.

3. There be liberty to apply within 14 days to vary the order as to costs.

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

REASONS FOR JUDGMENT

THE COURT:

1 Mr Lowbeer sought sequestration orders against Rabbi Tov-Lev and Mr De Varda on the

basis that they had not paid two certificates of taxation quantifying an order for costs. The

order was made by Rares J in Mr Lowbeer's favour on 11 March 2014. The certificates were

for an aggregate amount of $75,950. The Federal Circuit Court dismissed the petitions

upholding what the primary judge described as the principal ground of opposition. The

principal ground was that the costs the subject of the 2014 costs order had been paid by the

Strathfield and District Hebrew Congregation (Congregation) and therefore there was no

debt that was due and payable.

2 Mr Lowbeer now appeals against the dismissal of each of the creditor’s petitions. The

appeals concern only matters relating to the principal ground.

3 In the Federal Circuit Court, it was common ground that the costs that were the subject of the

2014 costs order and taxation certificates had been met by the Congregation. However, for

Mr Lowbeer, it was said that the Congregation had paid the costs in recognition of an

obligation to indemnify Mr Lowbeer. On that basis, it was submitted that the Congregation

was subrogated to the rights of Mr Lowbeer and there was still a debt due by Rabbi Tov-Lev

and Mr De Varda to Mr Lowbeer.

4 The primary judge found that there were substantial reasons to question whether the

certificates of taxation represented a true debt due to Mr Lowbeer. His Honour then found

that in truth and reality there was no debt due to Mr Lowbeer because the costs had been

incurred by the Congregation and not Mr Lowbeer.

5 For the following reasons, it has not been demonstrated that the decision by the Federal

Circuit Court was in error. The appeals should be dismissed.

Previous sequestration proceedings

6 There have been two sequestration proceedings involving the present parties. Prior to the

petition that was dismissed by the primary judge (the subject of the present appeal), there

were earlier proceedings in 2013 in which sequestration orders were made against Rabbi

Tov-Lev and Mr De Varda. Those proceedings were based upon an unpaid costs order in

proceedings in the Supreme Court of New South Wales. In those Supreme Court

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proceedings, Rabbi Tov-Lev, Mr De Varda and David Cliffe were among the unsuccessful

plaintiffs in claims against the directors of the Congregation and Mr Lowbeer (its auditor). A

costs order was made in Mr Lowbeer's favour. It was assessed in an amount of $48,212.62

and the assessment was entered as a judgment of the Supreme Court on 24 April 2013. Based

on their failure to comply with the costs order of the Supreme Court, Mr Lowbeer filed three

creditor’s petitions. Sequestration orders were made against Rabbi Tov-Lev, Mr De Varda

and Mr Cliffe on 20 December 2013: Lowbeer v Tov-Lev [2013] FCCA 1813.

7 Rabbi Tov-Lev, Mr De Varda and Mr Cliffe appealed that decision and applied to have the

sequestration orders annulled. That appeal and the application were dismissed by Rares J and

the 2014 costs order was made: Tov-Lev v Lowbeer (No 2) [2014] FCA 379.

8 On the appeal, Rares J noted that in opposing the petitions, Rabbi Tov-Lev and Mr De Varda

claimed, amongst other things, that Mr Lowbeer had been paid his costs by the Congregation

so that the debt arising from the Supreme Court costs order had been satisfied: at [37].

9 Rares J considered an exchange of emails between Mr Neumann (on behalf of the

Congregation) and Mr Lowbeer in relation to payment of Mr Lowbeer’s defence costs in the

Supreme Court proceedings. Some of the emails were copied to Mr Austin of Austin Legal

who had been the solicitor for the Congregation (but not Mr Lowbeer) in those proceedings.

10 At [50]-[51] Rares J made the following findings concerning the payment of the costs the

subject of the order made in favour of Mr Lowbeer by the Supreme Court:

Mr Lowbeer then tendered correspondence entered into between himself and Mr Neumann in early May 2013. Mr Lowbeer wrote, in an email of 2 May 2013, that he was very disappointed that the old board had not sent a cheque for the whole of the legal costs that Caunt and Lowbeer had incurred, having previously been advised that the old board had approved full payment of those costs. He inquired whether Mr Neumann would give Mr Austin instructions to commence bankruptcy proceedings since no one had responded to letters of demand for the payment of the 2013 costs order sent to “everyone (except the Rabbi ???) [sic]” so that the appellants could be made bankrupt as soon as possible. Mr Neumann responded the next day saying that he had not been able to get consensus without a face to face board meeting, other than to pay the difference between the party/party and solicitor/client costs, being $13,635.12. He observed that, since Mr Austin was acting for Mr Lowbeer in the enforcement of the 2013 costs order and the time given in the letters of demand had expired, Mr Lowbeer could instruct Mr Austin to commence bankruptcy proceedings against such persons as Mr Lowbeer chose to sue, whom he said should include Mr de Varda and Mr Cliffe. Mr Neumann wrote that Mr Lowbeer could then look to the company for the costs that had not been recovered and that Mr Austin would be put in the funds necessary for issuing and serving bankruptcy notices. On 6 May 2013, Mr Lowbeer responded, voicing his disappointment, but accepting the interim payment. He noted that Caunt and

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Lowbeer did not have any cost agreement with Mr Austin, and sought confirmation that the company would cover the costs of recovery from all the people that his company decided to sue.

Mr Lowbeer gave evidence that he had not been paid any money, and that Caunt and Lowbeer had only received the $13,635.12 in respect of the costs. He understood that Caunt and Lowbeer, from which he had retired in mid-2011, had incurred all of the legal costs the subject of the assessment under which the 2013 costs order had been assessed. I accept Mr Lowbeer’s evidence.

11 It can be seen that Rares J found that $13,635.12 of Mr Lowbeer’s costs had been paid by the

Congregation and the assessed amount of the Supreme Court costs order had not been

reimbursed by anyone. Therefore, on those findings, the costs claimed in the bankruptcy

notice had not been paid by the Congregation and were still outstanding. No issue was raised

before Rares J concerning the arrangements whereby Caunt and Lowbeer (as distinct from

Mr Lowbeer personally) had paid the costs of the Supreme Court proceedings.

12 The same email correspondence was again in evidence before the Federal Circuit Court on

the hearing of the creditor’s petitions the subject of the present appeal. Its relevance in the

present proceedings is considered below.

13 The 2014 costs order made by Rares J against Rabbi Tov-Lev and Mr De Varda simply

followed from his conclusion that the appeal and the application for annulment should be

dismissed: at [88]. There was no consideration as to whether Mr Lowbeer had a liability to

pay costs to Austin Legal being the firm of solicitors on the record for Mr Lowbeer in the

proceedings. It would not be usual for the Court in dismissing an application to make any

inquiry as to whether this was the case. That is because, in the absence of proof of an

agreement to the contrary, a solicitor who acts on instructions for a party on the record is

taken to be entitled to look to that party for costs, even if the instructions have come to the

solicitor from another party or from some non-party interested in the litigation: Marsh v

Baxter [No 2] [2016] WASCA 51 at [37]. On that basis, the requirements of the indemnity

principle whereby a party who does not have a liability to the solicitor on the record for costs

cannot recover costs against the unsuccessful party (Adams v London Improved Motor Coach

Builders Ltd [1921] 1 KB 495) may be presumed to have been met.

14 It was common ground in the appeal that the assessed amount of the Supreme Court costs

order was paid out of the bankrupt estates of Mr De Varda and Mr Cliffe. It appears that

further sequestration orders are sought because the 2014 costs orders were made after the

sequestration orders in respect of the estates of Rabbi Tov-Lev, Mr De Varda and Mr Cliffe.

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Sequestration orders sought in Federal Circuit Court based on 2014 costs orders

15 As already noted, the costs that were the subject of the orders made by Rares J were assessed

at $75,590. (It appears that the costs of the appeal and the application to annul were assessed

separately, but the total of the two certificates of taxation in respect of the single costs order

was $75,590).

16 Mr Lowbeer applied in the Federal Circuit Court for sequestration orders on the basis that

there was a debt due to Mr Lowbeer because Rabbi Tov-Lev and Mr De Varda did not pay

the assessed amount of the 2014 costs order.

17 At the hearing, Rabbi Tov-Lev and Mr De Varda appeared in person. They said that there

was no outstanding debt owed to Mr Lowbeer because the assessed amount of the 2014 costs

order had been paid by the Congregation. Counsel for Mr Lowbeer explained his position as

being that the payment by the Congregation had been made “by way of indemnity” and was

“subject to equitable subrogation and a right of recoupment”.

18 The reliance upon principles of equitable subrogation gave rise to a need to establish a basis

for the application of the doctrine. Where a claim is made on the basis of a right to

subrogation it is important to be precise as to the nature of the claim because subrogation is

not a cause of action and the relevant equitable considerations respecting a claim to

subrogation may differ depending upon the basis upon which subrogation is said to arise:

Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [6] and [90]-[94].

19 It has been recognised that an indemnifier has a right to reimbursement of all monies paid

under an indemnity and a right of subrogation to all the rights and remedies of the party

indemnified: Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15

at [50].

20 Importantly, in the absence of a contractual right to exercise a right of subrogation in respect

of a partial indemnity, there is no right to subrogation until the obligation to indemnify has

been performed by paying the indemnified amount: AFG Insurance Ltd v City of Brighton

(1972) 126 CLR 655 at 663; Halliday v High Performance Personnel Pty Ltd (in liq)

(formerly Sacs Group Pty Ltd) (1993) 113 ALR 637 at 640; Linsley v Petrie [1998] 1 VR 427

at 440; Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd

(2009) 226 FLR 306; [2009] WASCA 31 at [32] (McLure JA), [182]-[211] (Beech AJA) (an

appeal against the decision was dismissed by the High Court in Zurich Australian Insurance

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Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391; [2009] HCA 50 (where the

subrogation question was not considered).

21 Where the right of subrogation is said to arise by reason of a contract (such as in the case of a

contract of insurance), the terms of the contract may waive or limit the circumstances in

which a right of subrogation may arise: Midland Banking Co v Chambers (1869) LR 4 Ch

App 398; O’Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200 at 219-220

(Dixon J, Rich J agreeing), 221-222 (Evatt J), 223 (McTiernan J); and Buckeridge v

Mercantile Credits Ltd (1981) 147 CLR 654 at 675 (Brennan J, with Gibbs CJ, Murphy and

Wilson JJ agreeing). Further, the contract itself may confer a right to take over the conduct

of litigation in the name of the insured. So, costs incurred in the exercise of such a

contractual right may be incurred on behalf of the insured: Halliday at 40.

22 However, it must be noted that subrogation necessarily involves multilateral, rather than

bilateral, relationships: Bofinger at [97]. Therefore, although it may arise in circumstances

where there is a contractual relationship, the extent of the application of the doctrine is not

determined solely by contractual terms.

23 For all these reasons, it was important to know the precise basis upon which the alleged

obligation of the Congregation to indemnify Mr Lowbeer was said to arise in order to

determine whether the doctrine of subrogation applied.

24 The importance of identifying the precise nature of the circumstances in which a payment

was made in determining whether there is a right to subrogation is illustrated by the cases

concerned with whether there is a subrogated claim to a secured interest where money is

advanced to a party to pay off a mortgage: see the review of the authorities by Corboy J in

Saraceni v Mentha [No 2] (2012) 269 FLR 12; [2012] WASC 336 at [240]-[245].

25 The fact that the application for sequestration orders based on the assessed amount of the

2014 costs order was said to be brought in the exercise of a right of subrogation or

recoupment necessarily required a consideration of whether there were circumstances that

gave rise to such a right.

26 Notably, the claim made as to why there was a debt due to Mr Lowbeer even though the costs

had been paid by the Congregation was of a kind that depended upon (a) an obligation to

indemnify Mr Lowbeer by reason of a provision in the articles of association of the

Congregation; (b) the existence of a liability on the part of Mr Lowbeer for the costs of

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Austin Legal; and (c) payment of the costs by the Congregation in discharge of the obligation

to indemnify.

Issues in the Federal Circuit Court as to subrogation

27 On appeal, counsel for Mr Lowbeer contended that there had been no issue in the Federal

Circuit Court concerning the existence of a retainer between Mr Lowbeer and Austin Legal.

It is true that Rabbi Tov-Lev and Mr De Varda, appearing in person, did not raise such a

claim in terms. However, that did not mean that it was not an issue. The position of Rabbi

Tov-Lev and Mr De Varda was that the 2014 costs order had been paid and they opposed the

sequestration order. There was no concession by them of any matter that had to be

established in order for the sequestration orders to be made. Therefore, there was only a

proper basis for the sequestration orders if Mr Lowbeer could demonstrate that there was still

a debt due to him by Rabbi Tov-Lev and Mr De Varda even though the Congregation had

paid the assessed costs under the 2014 costs order to Austin Legal.

28 Further, for the following reasons, the significance of the precise arrangements between

Mr Lowbeer and Austin Legal as well as the provisions in the articles of association of the

Congregation was recognised by counsel appearing for Mr Lowbeer in the Federal Circuit

Court.

29 In written submissions filed for Mr Lowbeer in the Federal Circuit Court, the position of

Rabbi Tov-Lev and Mr De Varda was described in the following terms:

… The Respondents say that no debt is owing in respect of the costs orders upon which the Applicant relies, because Mr D Austin’s legal fees have been met by the … Congregation pursuant to an indemnity in clause 116 of the Articles of Association of [the Congregation] … .

30 The submissions then set out a response to that contention in the following terms:

The Applicant replies to these contentions of the Respondents as follows:

(a) in principle, as costs are awarded by way of indemnification, a party who does not have a legal liability to their solicitors for costs cannot recover costs against an unsuccessful party to litigation (Marsh v Baxter [No 2] [2016] WASCA 51 … at [31], citing cases including Cachia v Hanes (1994) 179 CLR 403, at 410);

(b) however, in a case such as the present case, it is necessary to investigate whether a successful litigant’s liability to pay his solicitor’s costs has truly been extinguished when a third party pays the litigant’s solicitor;

(c) the pertinent facts in the present case are as follows:

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(i) [the Congregation] is a company limited by guarantee … ;

(ii) article 116 of the Constitution of the Congregation says:

Every member of the Board of Management or officer of the Association, or any person (whether an officer of the Association or not) employed by the Association as Auditor shall be indemnified out of the funds of the Association against all liability incurred by him as such member or officer or Auditor in defending proceedings whether civil or criminal in which judgement is given in his favour or in which he is acquitted or in connection with any application under Section 361 of the Companies Act 1936 in which relief is granted to him by the Court [emphasis in original];

(iii) the Applicant was the Auditor appointed by the Congregation at the time of the facts and circumstances that gave rise to the proceedings brought against him in the Supreme Court of New South Wales, … ;

(iv) accordingly, the Congregation was liable under article 116 to indemnify the Applicant in respect of his liability to pay Mr D Austin’s legal costs of the Respondents’ unsuccessful appeal against, an application for annulment of, the sequestration orders made against them;

(v) the Congregation discharged that liability to the Applicant by paying those costs … ;

(vi) the Applicant also says that the Congregation became liable to indemnify him in respect of Mr D Austin’s legal costs and disbursements of the Proceedings because of the express and implied terms of his contract of retainer as Auditor of the Congregation and the instructions he received by an authorised agent of the Congregation with respect to his involvement in the Proceedings … ;

(vii) there is no evidence to suggest any agreement between the Applicant and his solicitor Mr D Austin, or between the Congregation and Mr D Austin, to the effect that in no circumstances would Mr D Austin be entitled to recover his costs from the Applicant;

31 The written submissions then dealt in some detail with the decision in Marsh v Baxter [No 2]

stating, amongst other things, the following propositions as being established by that

decision:

(i) where it is established that the solicitors for a litigant are acting with the knowledge and assent of the litigant, the litigant becomes liable to the solicitors for costs, and that liability is not excluded merely because a third party has also undertaken to pay the costs; it is necessary to go a step further and prove that there was a bargain, either between the third party and the solicitors, or between the litigant and the solicitors, that under no circumstances was the plaintiff to be liable for costs …;

(ii) … the indemnity principle … will permit recovery of costs by a successful party who is under legal liability to his solicitors to pay them even though the likelihood of being called upon to do so is remote …;

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(iii) the position is no different when, at the time the costs order is sought, the costs of the successful party have already been paid by a third party …;

(iv) the onus of establishing that a litigant has no liability to his solicitors for their costs, and hence no entitlement to an order for costs, rests upon the party seeking to resist compliance with the costs order …;

(v) in the absence of proof of an agreement to the contrary, a solicitor who acts on instructions from a party on the record is taken to be entitled to look to that party for costs, even if the instructions have come to the solicitor from another party or from some non-party interested in the litigation …

32 It was then submitted that Marsh v Baxter [No 2] was indistinguishable from the facts in the

present case and “this Court should find that the Applicant has at all relevant times remained

legally liable to pay the legal costs incurred by Mr D Austin … notwithstanding the

Applicant's indemnity arrangements with the Congregation”.

33 Further, in the course of oral submissions for Mr Lowbeer, counsel referred to the written

submissions described above and then said:

In a case such as the present case it’s necessary to investigate whether a successful litigant’s liability to pay his solicitor's costs has truly been extinguished when a third party pays the litigant’s solicitor.

34 A submission was then advanced that there was no evidence in the case that there was a

bargain that Mr Lowbeer would under no circumstances be liable for the costs. Then, later,

the following submission was advanced after referring to Marsh v Baxter [No 2]:

The onus of establishing that a litigant has no liability to his solicitors for their costs and hence no entitlement to an order for costs rests upon the party seeking to resist compliance with the costs order, and, of course, we say that the respondents here have gone nowhere near discharging that onus. In fact, there's really no evidence on it at all. In the absence of proof of an agreement to the contrary a solicitor who acts on instructions from the party on the record is taken to be entitled to look to that party for costs even if the instructions have come to the solicitor from another party or from some non-party interested in the litigation.

35 Then reliance was placed upon the written submissions to the effect that an agreement that in

no circumstances could the solicitor look to the litigant for its costs would be most unusual

and there was nothing to that effect in the evidence and, in particular, cl 116 of the articles of

association which would affect the liability of Mr Lowbeer to the solicitor Mr Austin.

36 Two matters of significance emerge from these submissions.

37 First, they demonstrate that there was an issue before the primary judge as to the nature of the

arrangements between Mr Lowbeer and Mr Austin of Austin Legal. The submissions

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advanced by Mr Lowbeer recognised that there was such an issue and addressed it in some

detail. They sought to persuade the Court to conclude that in truth and reality there was a

debt due to Mr Lowbeer because he had incurred a liability for the costs of the proceedings

before Rares J.

38 Therefore, the submission advanced in support of the appeal that “nothing happened at the

hearing presently under appeal that would have suggested to a reasonable observer that

Mr Austin’s retainer by [Mr Lowbeer] was a contested fact” should be rejected.

39 Second, before the primary judge the case advanced relied significantly upon the proposition

that in the absence of proof of an agreement to the contrary, a solicitor who acts on

instructions from the party on the record is taken to be entitled to look to that party for costs.

The submission was not advanced on the basis of evidence from Mr Lowbeer or Mr Austin as

to what had been agreed between them. Indeed, there was no evidence of that kind led for

Mr Lowbeer.

40 Mr Austin was cross-examined by Mr De Varda. He was asked whether Mr Austin was

working for Mr Lowbeer or the Congregation. The answer given by Mr Austin was:

The true answer is that I’m acting for Mr Lowbeer as trustee for the [C]ongregation. That's the legal analysis. If you want it.

41 Mr De Varda then asked how Mr Lowbeer could be a trustee to the Congregation if he is no

longer working for the Congregation. Mr Austin answered:

That’s because what has happened to your debt is what’s called an equitable assignment. But we're really not talking about matters of evidence. I don’t know if his Honour wants me to carry on like that.

42 These answers do not cast any light on the actual arrangements that were made concerning

the legal representation of Mr Lowbeer in the proceedings before Rares J. They appear to be

attempts by Mr Austin to place a legal characterisation on those arrangements.

43 The language used by Mr Austin in his answers is not consistent with the language of

subrogation. Subrogation is not an assignment by operation of equity. In England, it has

been described by Lord Diplock as a transfer “by operation of law”, without “assignment or

assent of the person from whom the rights are transferred”: Orakpo v Manson Investments

Ltd [1978] AC 95 at 104. The essence of subrogation in equity is that a party has a right in

equity to stand in the shoes of another party and to enforce the rights of another party in the

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name of that party. This might be described as a form of transfer by operation of law, but the

essential character of subrogation is that it does not depend upon an assignment. Further, as

the High Court has said in Bofinger at [97], it does not depend upon the bilateral dealings

between the party indemnifying and the party being indemnified. Subrogation will even

operate in equity to revive a right that has been extinguished (such as a right to a security

discharged by payment): Saraceni v Mentha [No 2] at [238]. Therefore, it is not properly

characterised as a form of assignment. It is a right to enforce that which might have been

enforced by the indemnified party if there had been no performance of the obligation to

indemnify.

44 The essence of subrogation is that the rights that were held by the indemnified party may be

enforced by the subrogated party in the absence of an assignment: DiMella v Rudaks (2008)

102 SASR 582; [2008] SASC 345 at [20]-[34]. It is a right to have the benefit of the rights of

the indemnified party in respect of the subject matter of the payment made under the

indemnity: State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969)

123 CLR 228 at 240-243. For that reason, “it is a matter to the core of a right of subrogation

that a person exercising that right must sue in the name” of the person who has been

indemnified: Workcover Queensland v Seltsam Pty Ltd (2001) 53 NSWLR 518; [2001]

NSWCA 457 at [19] applying Esso Petroleum Co Ltd v Hall Russell & Co Ltd [1989] AC

643.

45 Therefore, to the extent that the evidence of Mr Austin indicates anything about the nature of

the arrangements that were made as to his engagement, it points to the Congregation being

involved in some way other than in the exercise of a right of subrogation. It suggests that

there has been some other arrangement made with the Congregation by which it took over the

claim to costs as assignee or beneficiary.

The process of reasoning by the Federal Circuit Court

46 The following facts were found by the Federal Circuit Court:

(1) Mr Lowbeer incurred legal costs and disbursements of $61,847.74 in defending

proceedings brought in the Supreme Court of New South Wales by Rabbi Tov-Lev,

Mr De Varda and six others as plaintiffs against the Congregation and Mr Lowbeer;

(2) Mr Lowbeer had been sued on the basis that he was the auditor of the Congregation;

(3) Mr Lowbeer’s solicitor in the Supreme Court proceedings was Mr Peter Arnott;

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(4) Caunt and Lowbeer, a company of which Mr Lowbeer was a director, paid legal costs

of some $61,847.74 to Mr Peter Arnott;

(5) Mr Lowbeer sought reimbursement from the Congregation of the amount of

$61,847.74 on the basis of a provision in the constitution of the Congregation to the

effect that there was an obligation to indemnify an auditor of the Congregation out of

the funds of the Congregation against all liability incurred by him as auditor in

defending proceedings;

(6) On 2 May 2013, Mr Lowbeer wrote to Mr Neumann (a representative of the

Congregation) expressing disappointment about the costs not being paid by the

Congregation and asking whether Mr David Austin (a solicitor who had acted for the

Congregation in the Supreme Court proceedings) had been given instructions to

commence the bankruptcy process so those who were liable to pay the costs could be

made bankrupt as soon as possible;

(7) On 3 May 2013, Mr Neumann responded (and copied in Mr Austin):

I have not been able to get consensus without a face to face meeting (which now does not seem likely until 2 June 2013) except in respect of the difference between the costs awarded and your actual costs being $13,635.12.

Since David is acting for you in the enforcement of the costs order and the time given has expired you can instruct him to institute bankruptcy proceedings against those you determine (and we agree de Varda and Cliffe should be included) and then look to the [Congregation] for costs not recovered.

Alf is sending David an advance against your costs of issuing and serving Notices.

(8) On 6 May 2013, Mr Lowbeer responded (and copied in Mr Austin):

I am again disappointed in how this is going but it seems I have no choice but to wait till the 2 June 2013.

In the meantime, we will accept $13635.12 as part payment ...

As Caunt and Lowbeer nor I have any cost agreement with David, would you please confirm that you, [the Congregation], will cover all costs of recovery of all the people we determine to claim against.

Do you require us to make a claim against everyone and bankrupt everyone, before you will comply with your constitution and pay out the balance of our costs or are there a minimum number of people ...

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(9) On 10 May 2013, Mr Neumann responded: “I confirm [the Congregation] will meet

the costs of recovery action. We have sent the cheque for the difference out to you

today”; and

(10) The legal costs of the proceedings before Rares J were paid by the Congregation.

47 On the basis of these facts the Federal Circuit Court found at [18]-[19]:

… The substance of the agreement [with Mr Austin] was that [the Congregation] would engage Mr Austin to recover the Supreme Court Assessed Costs (namely, $48,212.62) by commencing bankruptcy proceedings in the name of Mr Lowbeer, but at the cost of [the Congregation]; and that [the Congregation] would pay to Mr Lowbeer out of its own funds so much of the $48,212.62 as would not be recovered as a consequence of the contemplated bankruptcy proceedings against the plaintiffs in the Supreme Court proceedings, including Mr De Varda and Rabbi Tov-Lev (Costs Recovery Agreement).

Pursuant to the Costs Recovery Agreement Mr Austin took steps in the name of Mr Lowbeer to enforce the Supreme Court Assessed Costs by commencing bankruptcy proceedings that resulted in the making of the Sequestration Orders (Bankruptcy Proceedings). There is no direct evidence of the person or entity to whom Mr Austin issued invoices for the work he performed in the Bankruptcy Proceedings or the [proceedings heard by Rares J]. Given, however, that in his email of 6 May 2013 to Mr Neumann Mr Lowbeer noted Caunt and Lowbeer did not have a costs agreement with Mr Austin, and it is acknowledged [the Congregation] paid Mr Austin’s costs, it is reasonable to infer, and I do infer, that Mr Austin issued to [the Congregation] rather than Mr Lowbeer invoices for work Mr Austin performed in the Bankruptcy Proceedings and in the [proceedings heard by Rares J].

48 It is evident that the finding as to the substance of the agreement made between the parties

concerning the costs of the bankruptcy proceedings the subject of the 2014 costs order made

by Rares J was based on inferences from the facts as found.

49 In subsequent reasoning, the Federal Circuit Court found that there were substantial reasons

for questioning whether behind the certificates of taxation in respect of the 2014 costs order

there was in truth and reality a debt due to Mr Lowbeer: at [47] and [58]. The primary judge

dealt with the evidence in the emails (quoted above). In particular, reliance was placed on the

evidence that it was the Congregation’s lawyer, Mr Austin (who the primary judge described

as the person with whom Mr Lowbeer did not have a costs agreement) who was retained and

it was the Congregation who retained Mr Austin to provide the relevant legal services

(reflecting the finding that had been made earlier): at [48].

50 The primary judge then found that the petitioning creditor, in this case Mr Lowbeer, bore the

legal burden of demonstrating that he was entitled to the 2014 costs order: at [55]-[56].

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However, his Honour found that the case did not turn on burden of proof: at [57]. Rather, he

found affirmatively that Mr Austin and the Congregation agreed that Mr Austin would look

to the Congregation and only the Congregation for payment of the legal costs of recovering

the assessed amounts of the Supreme Court costs order: at [57]. Therefore, the amount in the

certificates of taxation for the 2014 costs order did not represent a true debt: at [58].

Mr Lowbeer and Mr Austin did not agree that Mr Lowbeer would have some liability,

however remote or contingent, to pay Mr Austin's legal costs for work he was to perform in

the proceedings heard by Rares J: at [56].

The grounds of appeal

51 The submissions for Mr Lowbeer on the appeal identified four issues (each corresponding

with a ground of appeal). The fourth issue only arises for consideration if Mr Lowbeer is

otherwise successful in the appeal. The other issues were expressed by counsel for

Mr Lowbeer in the following terms:

1. Whether the primary judge erred by making a finding that the appellant did not assume any potential liability for Mr Austin’s costs of acting for him in two Federal Court proceedings which the appellant brought against the respondent.

2. Whether the primary judge erred in law in holding that the appellant bore the onus of proving that he and Mr Austin did not reach an agreement that he would not, in any circumstances, become liable to pay Mr Austin’s fees in the proceedings the subject of the certificates of taxation issued by the Federal Court of Australia (Certificates of Taxation).

3. Whether the primary judge erred in law in finding that there were substantial reasons for questioning whether the Certificates of Taxation represented a true debt and the amounts recorded in the Certificates did not represent a true debt.

(Footnotes omitted)

52 In considering the merits of these grounds, it is important to bear in mind the nature of the

task before the Federal Circuit Court on the hearing of the creditor’s petitions, particularly in

relation to the debt upon which the petitions were based.

General principles concerning proof of petitioning creditor's debt

53 On the hearing of a creditor’s petition, the court has a statutory duty to be satisfied for the

purposes of s 52 of the Bankruptcy Act 1966 (Cth) as to the existence of the petitioning

creditor's debt. Therefore, on such an application, a judgment or order is never conclusive of

the existence of a debt. Rather, the court must decide whether to accept the judgment or

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order as proof of the debt or to go behind the judgment or order (sometimes described as a

discretion). Usually, a determination after a contested hearing will provide a practical

guarantee of reliability that will mean that the court will not go behind the judgment or order.

The court looks with suspicion on consent judgments and default judgments. However, all

depends upon the circumstances. If the court is persuaded to go behind the judgment or order

then it will investigate the debt upon which the creditor’s petition is based. For a creditor’s

petition to be dismissed on the basis that in truth and reality there is no debt behind the

judgment, there must first be a proper basis to exercise the discretion to go behind the

judgment and then an assessment that, in truth and reality, there is no debt. These are

separate questions that might be determined separately. As to these matters, see the judgment

of Kiefel CJ, Keane and Nettle JJ in Ramsay Health Care Australia Pty Ltd v Compton

[2017] HCA 28 at [16], [37]-[38], [65]-[71].

54 The test or standard to be applied in deciding whether to accept a judgment order as proof of

the debt for the purposes of a petition for sequestration orders has been variously expressed.

55 In Petrie v Redmond [1943] St R Qd 71 at 75-76, Latham CJ (with whom Rich and

McTiernan JJ agreed) said that “special circumstances” must be established. In Corney v

Brien (1951) 84 CLR 343 at 347, the plurality quoted with approval a passage in In re a

Debtor [1929] 1 Ch 125 at 127 in which it was said that the court may, “upon a prima-facie

case being shown, go behind a judgment for the purpose of satisfying itself” that there was a

real debt (see also Fullager J in Corney v Brien at 356-357). In Ramsay Health Care at [20],

the plurality quoted with apparent approval a passage from Wren v Mahony (1972) 126 CLR

212 at 224-225 in which Barwick CJ said that the discretion to accept the judgment as proof

is not well exercised where there are “substantial reasons” to go behind it, but in an earlier

passage (also quoted in Ramsay Health Care at [42]), Barwick CJ referred to going behind a

judgment “where reason is shown”.

56 The plurality in Ramsay Health Care accepted the argument for the respondent that the Court

should go behind a judgment where “sufficient reason is shown for questioning whether

behind the judgment there is in truth and reality a debt due to the petitioning creditor”: at

[37]-[38]. Edelman J in a separate judgment supporting the result referred to authorities

where courts exercising bankruptcy powers had been “extremely cautious” before going

behind a common law judgment: at [108]-[109]. His Honour said that “in the absence of

some evidence of fraud, collusion, or miscarriage of justice, a court exercising bankruptcy

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jurisdiction will rarely have substantial reasons to investigate whether the debt which merged

in the judgment is truly owed”: at [111].

57 However, there appears to be no magic in any of these formulations. As Fullager J said in

Corney v Brien at 356, “[n]o precise rules exist as to what circumstances call for an exercise

of the power”. That is because in each case there must be a contextual consideration as to

whether, for the purposes of s 52 of the Bankruptcy Act, the debt has been proven. In all

cases, it must be borne in mind, as was stated by the plurality in Ramsay Health Care at [55],

that:

The scrutiny required by s 52 as to whether there is, in truth and reality, a debt owing to the petitioning creditor serves to protect the interests of third parties, particularly other creditors of the debtor. It is of critical importance to appreciate that such persons were not parties to the proceedings that resulted in the judgment debt. It has long been recognised that their interest in being paid their debts in full should not be prejudiced by the making of a sequestration order in reliance on a judgment debt which does not reflect the true indebtedness of the debtor to the petitioning creditor …

58 The three issues raised seek to challenge findings made by the Federal Circuit Court to

support the conclusion that in truth and reality there was no debt due by Rabbi Tov-Lev and

Mr De Varda to Mr Lowbeer in respect of the 2014 costs order because Mr Lowbeer had no

liability to pay those costs.

Issue 1: The finding that Mr Lowbeer was not liable for Mr Austin's costs

59 The first issue concerns a challenge to the factual finding by the primary judge that Mr Austin

was engaged by the Congregation and Mr Lowbeer had no liability, however remote or

contingent, to pay Mr Austin's legal costs.

60 An appeal to this Court is by way of rehearing. Within the constraints marked out by the

nature of the appellate process, there must be real review: Fox v Percy [2003] HCA 22;

(2003) 214 CLR 118 at [25]. The task of this Court is to correct error. Where factual

findings are challenged, they must be demonstrated to be wrong: Branir Pty Ltd v Owston

Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 at [22]-[30].

61 Where the relevant facts are incontrovertible facts or are the subject of uncontested testimony

then an appeal court may interfere with findings that have been shown to be contrary to those

facts. The court may also intervene if the factual findings at first instance were “glaringly

improbable” or “contrary to compelling inferences”: Robinson Helicopter Company Inc v

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McDermott [2016] HCA 22 at [43]. The quoted phrases are from the reasons of Gleeson CJ,

Gummow and Kirby JJ in Fox v Percy at [28]-[29] where their Honours were dealing with

those instances where there was a contest between performing the function of undertaking a

real review, on the one hand, and recognising the limits of the appellate process, on the other.

In such instances, the court in dealing with challenges to factual findings below will need to

evaluate the extent to which the finding depends upon an advantage enjoyed by the trial

judge: Aldi Foods Pty Ltd v Moroccanoil Israel Ltd [2018] FCAFC 93 at [2]-[10]

(Allsop CJ) and [45]-[54] (Perram J), both of with whom Markovic J agreed. Where the

advantage is considerable, the court will generally confine any interference with those

findings to cases where the findings are glaringly improbable or contrary to compelling

inferences.

62 As we have noted, the factual finding as to the terms of the engagement of Mr Austin was

made by inference. The inference was drawn from facts that were not really in contest. The

relevant facts were of narrow compass. Therefore, it may be accepted that this is a case

where the primary judge had no special advantage over this appeal court in drawing

inferences from those facts. In the language used by Gleeson CJ, Gummow and Kirby JJ in

Fox v Percy, in this case there are no “constraints” as to the review of the factual findings that

arise from the nature of the appellate process. So, issues of the kind considered in Starkey on

behalf of the Kokatha People v State of South Australia [2018] FCAFC 36 at [13]-[31], [355],

[402] do not arise here.

63 For the following reasons, it has not been demonstrated that there was error in the factual

finding by the primary judge as to what was agreed concerning the engagement of Mr Austin.

64 Much of the argument advanced in support of the appeal on issue 1 was to the effect that

there was no issue before the primary judge as to whether there was a valid costs agreement

between Mr Lowbeer and Mr Austin. For reasons already given, we do not accept that was

the case.

65 Otherwise, the submissions for Mr Lowbeer relied upon the fact that Mr Austin was on the

record for Mr Lowbeer in the proceedings determined by Rares J and the costs order was

made in favour of Mr Lowbeer.

66 However, the arrangements that had been made concerning the legal costs of those

proceedings were not scrutinised by Rares J. As we have explained, Rares J proceeded on the

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usual basis in making such costs orders, which is to assume the existence of a retainer unless

an issue is raised. Therefore, there was no forensic inquiry or determination of the issue as to

who was liable for those costs. In those circumstances, the 2014 costs orders did not reflect a

determination after a considered hearing of a kind that provides a practical guarantee of

reliability.

67 Then it was submitted in support of Mr Lowbeer’s appeal that the content of the email

communications was explained by the Congregation’s obligation to indemnify. However,

there are a number of difficulties with that submission given the terms of the emails and the

state of the other evidence.

68 First, the Congregation was not acting as an indemnifying party because it was not agreeing

to pay all the costs that had been incurred in the Supreme Court proceedings. Rather, it was

seeking to make a different arrangement whereby action would be taken against Rabbi

Tov-Lev, Mr De Varda and others at the Congregation’s cost to enforce the Supreme Court

costs order and Mr Lowbeer would be paid out of the monies recovered from that action.

69 This was not the exercise of a right of subrogation. Further, as already noted, a party who has

not paid the amount required by the indemnity is not subrogated.

70 Second, Mr Austin had acted for the Congregation in the Supreme Court proceedings and

Mr Lowbeer had been represented by other lawyers. This historical context supported an

inference that Mr Austin was engaged by the Congregation.

71 Third, it was a simple matter for Mr Austin to give evidence as to the actual arrangements

made concerning his engagement and to produce any agreement and any invoices, but he did

not do so.

72 Fourth, when questioned by Mr De Varda, Mr Austin did not say that he had been engaged

by Mr Lowbeer. Rather, he said that he was acting for Mr Lowbeer “as trustee for” the

Congregation and there had been an equitable assignment of the debt. Of course, an

equitable assignment of the right to recover the costs would mean that it was the

Congregation that was ultimately entitled to the monies paid under those orders and that the

liability, at least in equity, was to the Congregation, not Mr Lowbeer.

73 Fifth, in the email exchange set out at [46] above there was first an inquiry as to whether the

Congregation had given instructions to Mr Austin to commence bankruptcy proceedings

(2 May 2013). Then there was a response from the Congregation saying that as Mr Austin

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was acting for Mr Lowbeer in the enforcement of the order, then Mr Lowbeer may instruct

him and then look to the Congregation for the amount not recovered (3 May 2013).

Mr Lowbeer then sought confirmation that as neither he nor Caunt and Lowbeer had any

costs agreement with Mr Austin, the Congregation would cover all costs of recovery (6 May

2013). There was a response that the Congregation “will meet” (emphasis added) the costs

of the recovery action (10 May 2013). In those circumstances, taking account of the other

evidence, it was open to infer that the result was that the Congregation agreed that it would

engage Mr Austin and that is what happened.

74 Sixth, to the extent that submissions were advanced to the primary judge that the payment by

the Congregation of the 2014 costs order made by Rares J in favour of Mr Lowbeer gave rise

to a “right of recoupment”, an indemnifying party has a right to reimbursement: Stewart v

Atco Controls Pty Ltd (in liq) at [50]. Though not amplified in any real way before the

primary judge, the claim to recoupment would appear to be of that character. However, a

claim of that kind would have to be brought by the Congregation against Rabbi Tov-Lev and

Mr De Varda.

75 If the claim to recoupment be a separate expression of the basis for subrogation, the concept

of unjust enrichment is not to be seen as supplying a sufficient application of the doctrine of

subrogation in any particular case: Bofinger at [85]. Views to the contrary in Banque

Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 should not be applied:

Bofinger at [96]-[98].

76 Outside the emails, it was separately submitted that it should be inferred from the existence of

cl 116 of the articles of association of the Congregation that the proceedings before Rares J

had been pursued by the Congregation as a subrogated party. If that was the case then there

would be a liability on the part of Mr Lowbeer for the costs, but they had been paid by the

Congregation as an indemnifying party. In those circumstances, the payment under the

indemnity would not mean that there was no liability on the part of the indemnified party to

meet the costs. Rather, the situation would be of the kind explained in Coshott v Woollahra

Municipal Council [2008] NSWCA 176 at [11].

77 However, there are a number of difficulties with this submission.

78 First, it disregards the other evidence, particularly, the email exchange and the oral evidence

of Mr Austin.

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79 Second, it disregards the significance of the failure to lead evidence about what was actually

agreed as to the engagement of Mr Austin, the terms of engagement and the accounts

rendered in respect of the legal work relating to the proceedings heard by Rares J. Where

material is peculiarly within the knowledge of a party then it may be sufficient for the

opposing party to adduce slight evidence of a matter in issue. If a decision not to call the

evidence is then made by the party with the knowledge then that party bears the risk that the

court may draw inferences contrary to its interests: Gerrard Cassegrain & Co Pty Ltd v

Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453 at [26].

80 Third, when the proceedings were heard by Rares J, the Congregation had not indemnified

Mr Lowbeer in respect of his defence costs of the Supreme Court proceedings. Instead of the

Congregation acknowledging that obligation and paying all the costs incurred by Mr Lowbeer

(or Caunt and Lowbeer) in the Supreme Court proceedings, it proposed an arrangement

whereby it would not pay the assessed amount of the Supreme Court costs order. Rather, it

would pay immediately $13,635.12 (being the costs actually incurred by Mr Lowbeer over

and above that assessed amount), and the Congregation's lawyer in the Supreme Court

proceedings would be engaged to pursue bankruptcy proceedings for the assessed amount.

The costs of those enforcement proceedings would be paid by the Congregation. Payment to

Mr Lowbeer of any unrecovered amounts would only occur after those steps had been taken.

These are not the actions of a party accepting an obligation to indemnify.

81 Fourth, the terms of cl 116 of the articles of association provide for an auditor (amongst other

persons) of the Congregation to be indemnified out of the funds of the Congregation against

all liability incurred as auditor (amongst other roles) “in defending proceedings”. The

bankruptcy proceedings were proceedings commenced by Mr Lowbeer, not proceedings

defended by him. Confronted with that aspect, counsel appearing for Mr Lowbeer submitted

that cl 116 “was the source of the obligation which then became a positive obligation through

arrangements between the Congregation and Mr Lowbeer”. These arrangements were then

described as contractual and, by implication, were covered by the indemnity rights originally

established as relating to the Supreme Court proceedings. These submissions expose the

difficulties in reaching any conclusions from the terms of cl 116 as to what the arrangements

may have been between Mr Austin and the Congregation concerning the costs of the

proceedings before Rares J.

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82 For these reasons, issue 1 should be determined adversely to Mr Lowbeer and ground 1

should not be upheld.

Issue 2: The onus of proof of the existence of a debt on a creditor's petition

83 Before the primary judge and on appeal, the submission made for Mr Lowbeer was that even

though there was no evidence in the proceedings before the primary judge as to whether there

was or was not a costs agreement, where a solicitor is on the record for a party then, in the

absence of proof to the contrary, there is a presumption that the solicitor can look to the party

for costs. There was no suggestion that the presumption might not be rebutted by evidence.

Therefore, it is a point that only has significance if there is no evidence upon which the Court

could base a finding as to whether there was a liability on the part of Mr Lowbeer as to the

costs charged by Mr Austin for the conduct of the proceedings before Rares J.

84 The primary judge did not dismiss the creditor’s petition on the basis of onus of proof.

His Honour made an affirmative finding that in truth and reality there was no debt because

Mr Lowbeer did not incur any liability to Mr Austin: at [56]-[57]. In dealing with issue 1,

we have found that there was no factual error in that finding. Therefore, there is no need to

deal with issue 2.

85 Nevertheless, had the issue been determinative, we would not have upheld the submission

advanced as to issue 2 in support of the appeals.

86 There is support for the view that there is a presumption of the kind alleged which is applied

in the context of the making of costs orders: Marsh v Baxter [No 2] at [37]; Halliday and

Ernst & Young (Reg) v Tynski Pty Limited (2003) 47 ACSR 433; [2003] FCAFC 233 at [35].

In Noye v Robbins [2010] WASCA 83 at [300]-[303], Owen JA cited authority to the effect

that it was a matter to be inferred in the absence of evidence when making costs orders.

87 However, in considering whether to make sequestration orders, the primary judge was not

exercising a costs jurisdiction by reference to common law principles. Rather, the Federal

Circuit Court was required to consider whether the statutory requirement in s 52(1) of the

Bankruptcy Act had been met. Section 52 requires proof of the fact that the debt upon which

the petitioning creditor relies is still owing. As already noted, there is considerable

jurisprudence to the effect that the Bankruptcy Court must consider whether to proceed on the

basis of a judgment or order as proof of the debt and in appropriate circumstances may go

behind the judgment or order. In any case, proof is expressly required.

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88 In our view, the statutory requirement for proof does not import common law principles

whereby there may be a presumption or inference even though there be no proof. We agree

with the approach of Moshinsky J in Cheung v Burness (Trustee) [2016] FCA 1381 at [79],

applying Fullager J in Corney v Brien. The trial judge was correct in so holding and issue 2

should be so determined. It follows that ground 2 should not be upheld.

Issue 3: Substantial reasons for question whether there was in truth and reality a debt

89 There are two main reasons why the primary judge was correct to find that there were

substantial reasons to question whether there was in truth and reality a debt due to

Mr Lowbeer in respect of the amounts that had been assessed to be payable under the 2014

costs order made by Rares J.

90 First, in making the 2014 costs order Rares J was not asked to consider whether Mr Lowbeer

had any liability for the costs of the proceedings that might support the costs order. He did

consider the email exchange, but only for the purpose of considering whether the

Congregation had paid the costs that constituted the debt on which the earlier sequestration

proceedings were based. In those circumstances, it may be inferred that Rares J proceeded on

the basis of the usual presumption in making those orders. The sequestration proceedings

before the primary judge were the first occasion upon which there was any scrutiny as to the

actual arrangements made with Mr Austin as to who was liable for the payment of his fees in

acting in the proceedings before Rares J.

91 Second, the evidence before the primary judge raised serious issues as to whether

Mr Lowbeer had any liability to Mr Austin for his costs in the proceedings before Rares J.

Issue 4: Order dispensing with rule 4.06(2) of Bankruptcy Rules

92 Had the appeals been upheld, then Mr Lowbeer sought an order dispensing with compliance

with r 4.06(2) of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) which was not

complied with before the primary judge. The respondents to the appeals accepted that there

would be no prejudice if such an order was made. The failure to comply was explained by

affidavit. If the appeals had been successful we would have granted the orders sought to rely

on the affidavit and dispense with compliance with r 4.06(2).

Procedural fairness

93 At some points in oral argument the submissions advanced for Mr Lowbeer had the character

of a claim that the primary judge had not provided procedural fairness. In particular, it was

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said that it would not have been apparent to a reasonable person in the position of

Mr Lowbeer as the petitioning creditor that there was an issue as to whether Mr Lowbeer had

any liability to Mr Austin in respect of fees. Counsel appearing for Mr Lowbeer in the appeal

was given an opportunity during the course of the appeal to consider whether to seek leave to

raise a procedural fairness ground. The Court adjourned for that purpose. After the

adjournment, the Court was informed that leave was not sought. Nevertheless, submissions

in relation to that issue have been dealt with insofar as they were relevant to issue 1.

Subrogation and petitions for bankruptcy

94 The Bankruptcy Act confers jurisdiction to make sequestration orders. Relevantly for present

purposes, it provides that where a debtor has committed an act of bankruptcy, the Court may,

in certain circumstances on a petition presented by a creditor, make a sequestration order

against the estate of the debtor: s 43(1).

95 As we have noted, the subrogation claim advanced by Mr Lowbeer depends upon the

application of an equitable doctrine. It is a claim of a kind that acts upon the conscience of

both the party to an indemnity arrangement and a third party. Although subrogation has been

held to confer all the rights and remedies of the party indemnified, it does so by operation of

equitable principles. There remains a question of statutory construction as to whether the

relevant provisions in the Bankruptcy Act include a party seeking to exercise the statutory

right to present a creditor's petition by invoking the equitable doctrine of subrogation and

standing in the shoes of a creditor who has been indemnified.

96 An assignee of a debt can bring a creditor's petition: Francis v Eggleston Mitchell Lawyers

Pty Ltd [2014] FCACF 18 at [21]-[22]. However, for reasons we have given, a right of

subrogation does not involve an assignment. Further, the Congregation did not bring the

petition as assignee.

97 In Re Vassis; Ex parte Leung (1986) 9 FCR 518, the debt relied upon was a claim arising

from a breach of trust by a solicitor. The claim was found to create a debt in equity that was

provable under s 44 of the Bankruptcy Act. The creditor was the receiver of a legal practice

appointed by the court under legislation regulating the legal profession. Under that

legislation, where a person who had suffered loss through the defalcation of a solicitor had

been paid statutory compensation, the receiver had all the rights and remedies of the person

against the solicitor. The creditor was seeking to petition for the bankruptcy of the solicitor,

Mr Vassis, in such circumstances. The court found that the statutory provision subrogated

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the creditor as receiver to the equitable debt owed to the person who had been paid

compensation. On the basis of that subrogated position, Burchett J held that the creditor

could bring the petition: at 527.

98 However, in the present case, the act of bankruptcy relied upon was a failure to comply with

a bankruptcy notice issued in respect of a judgment for costs in favour of Mr Lowbeer. It

was foundational to the submissions advanced in support of the appeal that the Congregation

could cause the issue of the bankruptcy notice in the name of Mr Lowbeer in the exercise of

its rights of subrogation. As we have noted, subrogation operates to allow an indemnifier

who has performed the obligation to indemnify to stand in the shoes of the indemnified party.

99 Historically, an assignee of a judgment debt by operation of law could not cause a bankruptcy

notice to issue: Re Goldring; Ex parte Harper (1888) 22 QBD 87. The bankruptcy

legislation was amended to provide that any person entitled to enforce a final judgment shall

be deemed to be a creditor and is entitled to issue a bankruptcy notice (see s 40(3)(d)).

However, that change in the law does not mean that a party exercising a right of subrogation

(in this case the Congregation) can issue a bankruptcy notice in the name of the indemnified

party (Mr Lowbeer) and seek sequestration orders on the basis of a failure to comply. It may

be entitled to proceed in its own name to obtain a sequestration order based upon a failure to

comply with a bankruptcy notice in respect of the judgment. However, that would depend

upon whether it was entitled to enforce the judgment even though it was given in favour of

Mr Lowbeer: Abigroup Ltd v Abignano (1992) 39 FCR 74 at 87.

100 These are matters on which argument was not heard in the appeal and in respect of which an

opportunity would need to be extended for further submissions if they were to be dealt with

in the appeal.

101 However, as Mr Lowbeer has not succeeded in the present appeal it is not necessary to reach

a final view on the jurisdictional issue whether the Congregation can issue a bankruptcy

notice and obtain sequestration orders based upon a failure to comply with the notice in the

exercise of a right to subrogate.

Conclusion and costs

102 For the above reasons, the appeals should both be dismissed with an order for costs. Rabbi

Tov-Lev and Mr De Varda acted on their own behalf in the appeals. Counsel prepared

written submissions and appeared for them at the hearing of the appeals in response to a pro

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bono reference. The Court is most grateful for their assistance. In the circumstances, the

order for costs will be confined to those costs that may be recovered by litigants in person

with liberty to apply within 14 days for any variation to the costs orders based upon any

matters not apparent to the Court from the record on appeal.

I certify that the preceding one hundred and two (102) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Reeves, Farrell and Colvin.

Associate:

Dated: 24 July 2018