Claim of fabricated documents in costs assessment … Debts that are not true debts … Cost determination affected by jurisdictional error … Barrister’s petition dismissed 

Obrart claimed in a sequestration application that the respondent Tony Grego had failed to comply with a bankruptcy notice relating to the non-payment of judgment debts totalling $341,347.95. 

The debts arose from two cost determinations purportedly made under the Legal Profession Act 2004 and recorded in two cost certificates. 

The cost certificates relate to legal services Obrart provided to Rosebridge Nominees in West Australian Supreme Court proceedings against the Commonwealth Bank. Grego had been a director of Rosebridge. 

Lawyers for Obrart have told Justinian that she will make further submissions to the court showing that there was no dishonest conduct or fabrication in regard to documents submitted in the costs assessment process. 

Grego submitted in the Federal Circuit Court that a sequestration order ought not to be made because the judgment debts are not true debts. He relied on three grounds:

First, the costs agreement which resulted in the issue of three of the four invoices that were assessed in the first costs certification for $198,026.29 is void.

Second, the second costs certificate for $143,321.66 was issued on the basis of a costs agreement where no invoice was issued. 

Third, Obrart supported her applications for assessment of costs with a fabricated costs disclosure letter.

Judge Manousaridis said it is open to a bankruptcy court to “go behind” a costs judgment if there is a substantial reason for questioning the validity of the costs certificate on which it is based. 

A costs certificate, in turn, can be held to be invalid if the costs determination on which it has been issued is affected by jurisdictional error. 

The first September 5, 2012 costs disclosure letter stated that Obrart proposed to charge at the hourly rate of $400 (plus GST), and $3,900 (plus GST) for every full day’s appearance in court. The letter also gave an estimate of $150,150 (inclusive of GST). 

Then there was an unsigned cost disclosure letter, dated September 26, 2012, identical to the earlier September 26 letter except that the costs would now be $319,088, instead of $165,176. 

That letter did not contain a statement to the effect that the client could seek independent legal advice or that there was a five day cooling-off period. 

Grego claimed this unsigned fee disclosure is misleading and deceptive. Obrart gave no evidence about whether this letter was prepared by her or on her instructions. 

Counsel for Obrart, Timothy Orlizki, submitted there is no evidence the document is authentic, or that it was provided to the costs assessor and, in any event, he said that it is not relevant. 

There was a costs disclosure letter dated November 21, 2012 sent to Grego, which was nearly identical to the Sept. 26 costs disclosure letter, except that the hourly rate was now $440 (plus GST) and the costs estimate was $165,176. 

Also in evidence was a costs agreement offer dated April 22, 2013 with a costs estimate of $198,000, which the judge found had been sent to Grego.  

As the judgment pointed out, Grego had received two identical costs offer letters letters dated September 5, 2012 but with the different hourly rates and the inclusion of the 25 percent uplift attached to the September 26 costs disclosure letter. 

It appears that Obrart purported to charge on the assumption that Grego and the other clients associated with Rosebridge accepted the offer contained in the second September 5 costs offer letter. 

It gets more confusing. As a result of Grego’s claim that the September 26 disclosure letter was a fabrication, Manousaridis gave Obrart “a further opportunity to provide such evidence as was available to her to deny the charge of fabrication”. 

Naomi Boyce, who had served on Grego the first and second applications for cost assessments, produced an affidavit for the court which showed there was a new Nov. 21 letter which was almost the same as the September 26 costs disclosure letter, except it gave a costs estimate of $319,088, whereas the other Nov. 21 letter gave a costs estimate of $165,176. 

So, Grego submittd, there was a fee disclosure in September 2012 for $165,176, another in September 2012 for $319,088 then in November 2012 back to $165,176. 

The judge said there is no suggestion in the evidence that Grego had been provided with the new November letter before September 10, 2013, when Obrart applied for assessment of her costs. 

The judge went on to say that it could be reasonably inferred  that Obrart submitted to the costs assessor a fabricated document. 

“The fabricated document would be the new November 21 letter, and the fabrication would be the alteration of the costs estimate made in the November 21 costs disclosure letter from $165,176 to $319,088.” 

Manousaridis also found the costs assessor did not properly perform the tasks required by s.363(1) of the Legal Profession Act.  

The assessor did not give “proper, genuine and realistic consideration” as to “whether or not it was reasonable to carry out the work to which the legal costs” in Obrart’s invoices related, nor did he “consider” in the same sense whether the work she purported to have carried out “was carried out in a reasonable manner”. 

Had Obrart represented to the costs assessor that she provided a cost estimate of $165,167 in circumstances where the costs she claimed in the first three of her four invoices totalled $303,222, “she would have been exposed to the risk of the costs assessor reducing the costs she would otherwise have been entitled to recover ‘by an amount considered by the costs assessor to be proportionate to the seriousness of the failure to disclose’.” 

Manousaridis said: 

“It is with great reluctance that I feel compelled to find there are substantial reasons for finding Ms Obrart submitted to the costs assessor a fabricated document in support of her application for assessment of costs. 

I believe, however, that I have given Ms Obrart every opportunity to present evidence to show she did not create or submit to the costs assessor the questioned 26 September costs disclosure letter.” 

There was no substantial reason to question the validity of the second costs certificate because the barrister did provide to the client an April 22, 2013 costs disclosure letter containing a fresh estimate of costs. 

However, Manousardis found that because the assessor did not give proper, genuine or realistic consideration to whether it was reasonable to carry out the work to which the invoices related, the contentious costs certificates were issued as a result of jurisdictional error. 

Because of jurisdictional error the judge was not satisfied the cost certificates were valid and, for that reason, there are no real debts behind the judgment. 

“My conclusions provide a sufficient cause for me being satisfied that a sequestration order ought not to be made against the estate of Mr Grego, assuming Ms Obrart has provided the matters Ms Obrart is required by s.52(1) of the [Bankruptcy] Act to prove. For that reason, the creditor’s petition should be dismissed.” 

Lawyers for Natalie Obrart have told Justinian that the judge has reserved leave for Obrart to put additional material to the court. 

“Ms Obrart has availed herself of that leave and will appear by senior counsel to put additional material and submissions to Judge Manousaridis. She will submit to the court by her counsel that there was no dishonest conduct or fabrication in regard to the documents relating to her assessment application, by her or on her behalf. 

She will further submit that the inadequacies in the documents identified by His Honour were the result of error and inadvertence in collating documents by her staff.”