- Pursuing bankruptcy on the basis of a judgment for assessed costs can involve some pitfalls that solicitors need to be aware of.
- Where a solicitor has an equitable lien arising out of work done for a client who subsequently becomes bankrupt, a debt arising out of assessed party/party costs may or may not vest in the trustee, depending on the circumstances.
- The vesting or otherwise of the debt will affect a solicitor’s ability to recover fees.
The interplay between costs assessment and bankruptcy is of significant practical importance in the management of a solicitor’s practice. In this article we explore some of the aspects of the intersection between the two, particularly in relation to the issue of recovery of assessed costs – whether arising from a party/party assessment or a solicitor/client assessment – and maintenance of a solicitor’s lien against a trustee in bankruptcy.
Costs assessment in the context of a bankruptcy
Solicitors will be familiar with the process whereby a Certificate of Determination issued in the costs assessment process can be filed in a court so that it is ‘taken to be’ a judgment of that court. These ‘Certificate Judgments’ can found a bankruptcy notice. However, there are potential pitfalls that solicitors should be aware of.
Issue of the Judgment with the inclusion of the filing fee
Under Part 36 rule 10 of the Uniform Civil Procedure Rules 2005 (‘UCPR’), a judgment is obtained by the filing of a certificate of determination (achieved, mechanically, by filing a Form 45, which includes an affidavit as to whether there have been any payments since the Certificate was issued and annexes the Certificate). Best practice is not to claim a filing fee. However, at times a Certificate Judgment is issued which includes one.
Where the judgment issued by the Court includes the addition of a filing fee, solicitors should be careful only to state, on the bankruptcy notice, the amount of the Certificate of Determination. This is borne out in a number of cases. In Croker v Commissioner of Taxation (2005) 145 FCR 150;  FCA 127 (‘Croker‘) a certificate of determination was filed as a judgment. A $63 filing fee was added. A bankruptcy notice was issued stating the full amount (including the filing fee). Hely J set aside the bankruptcy notice, accepting that it overstated the quantum of the debt (at ). In Tu v Chang (No 2)  FCA 1568 Bromwich J considered an application to set aside a bankruptcy notice founded on a Certificate Judgment which included a filing fee. However, the bankruptcy notice stated the amount only as the amount of the certificate of determination, and not the higher amount of the judgment. The debtor applied to set aside the bankruptcy notice on the ground that the judgment on which the bankruptcy notice was founded was invalid because it was issued with the inclusion of a filing fee.