Cannon (Bankrupt) v Scott (Trustee), in the matter of Cannon (No 2)
[2024] FedCFamC2G 1231
•20 November 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Cannon (Bankrupt) v Scott (Trustee), in the matter of Cannon (No 2) [2024] FedCFamC2G 1231
File number: MLG 448 of 2024 Judgment of: JUDGE CHAMPION Date of judgment: 20 November 2024 Catchwords: BANKRUPTCY – Costs follow the event – Lump sum costs order – Costs on a standard basis – 25% discount to actual costs – Costs to be costs of the administration of the bankruptcy with the priority accorded by the Bankruptcy Act 1966 (Cth) Legislation: Bankruptcy Act 1966 (Cth)
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021
Federal Court Rules 2011 (Cth)
Cases cited: Byrnes v Brisconnections Management Co Ltd (No 2) [2009] FCA 1432
Cannon (Bankrupt) v Scott (Trustee) in the matter Cannon [2024] FedCFamC2G 861
Commonwealth v Harrison (No 2) (2020) 381 ALR 328; [2020] FCA 786
Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd (2008) 249 ALR 371
Nine Films and Television Pty Ltd v Ninox Television Ltd [2006] FCA 1046
Oshlack v Richmond River Council (1998) 193 CLR 72
Wavish (Bankrupt), Re Wavish (Bankrupt) v Micheltto (Trustee) [2020] FCA 1874
Division: Division 2 General Federal Law Number of paragraphs: 20 Date of last submissions: 2 October 2024 Date of hearing: On the papers Place: Melbourne Solicitor for the Applicant: Diamond Solicitors Solicitor for the First Respondent: Mills Oakley Solicitor for the Second Respondent: Ashurst ORDERS
MLG 448 of 2024 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF THE BANKRUPT ESTATE OF JOHN GEORGE CANNON
BETWEEN: JOHN GEORGE CANNON
Applicant
AND: ANDREW JOHN SCOTT AS TRUSTEE OF THE BANKRUPT ESTATE OF JOHN GEORGE CANNON
First Respondent
BANKSIA SECURITIES LIMITED (IN LIQUIDATION) ACN 004 736 458
Second Respondent
ORDER MADE BY:
JUDGE CHAMPION
DATE OF ORDER:
20 NOVEMBER 2024
THE COURT ORDERS THAT:
1.The Applicant pay the Trustee’s costs fixed in the amount of $36,918 out of the estate of the Applicant as costs of the administration of the bankruptcy.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE CHAMPION:
INTRODUCTION
On 12 September 2024 I made orders and published reasons in my primary judgment in Cannon (Bankrupt) v Scott (Trustee) in the matter Cannon [2024] FedCFamC2G 861.
At [69] of the primary judgment I wrote that I would hear further from the parties as to costs. I set out in my reasons at [69] that “Prima facie costs ought to follow the event.” I also indicated that it was my preference to fix costs rather than to put the parties to the expense of a taxation. I made consequential orders setting a timetable for the parties to file and serve any submissions and any affidavit as to costs. Finally, I indicated that in the absence of a request for an oral hearing I would decide costs issues on the papers.
Under my orders, the Trustee filed submissions that he sought his costs of the proceeding against the Applicant on a standard basis because costs ought to follow the event. He also sought an order that his costs be costs in the administration of the bankrupt estate of Mr Cannon. The Trustee invited the court to fix his costs in line with the affidavit of Mr Alwyn Narayan made on 2 October 2024.
Banksia Securities Limited (in liquidation), the Second Respondent, wrote to the court on 2 October 2024 that:
We are instructed by our client that it does not propose to seek any order in relation to its costs of the application, and therefore will not be filing any submissions or affidavit material in relation to that question.
Even though the court had made orders providing the Applicant an opportunity to file costs submissions on or before 16 October 2024, the Applicant has not filed any material on the costs application.
THE COSTS THE TRUSTEE SEEKS AND MR NARAYAN’S AFFIDAVIT
As noted, the Trustee invited the court to fix his costs pursuant to the affidavit of Alwyn Narayan made on 2 October 2024. Mr Narayan’s affidavit says that the Trustee incurred actual professional costs of $49,525 (excluding GST) comprised of:
(a)$35,125 (excluding GST) in solicitor’s professional costs; and
(b)$14,400 (excluding GST) on counsel’s fees.
LEGAL PRINCIPLES AND FIXING COSTS
Under s. 32 of the Bankruptcy Act 1966 (Cth) the court “may … make such orders as to costs as it thinks fit.”
The Trustee was the wholly successful party in the substantive proceedings. Ordinarily, a wholly successful party ought to receive his or her costs. As McHugh J said in Oshlack v Richmond River Council (1998) 193 CLR 72 at 96 as to the principles the courts have developed to guide the proper exercise of the costs discretion, the ultimate result of the litigation has been viewed as by far the most important factor.
There ought to be an order for costs in favour of the Trustee, on the basis that costs follow the event. The Applicant, in circumstances in which he has not engaged with the costs application, has not contended otherwise.
Even though Mr Narayan’s affidavit identified actual costs, the Trustee submitted that costs ought to be fixed on a “standard basis”. That is, there was no claim for costs on an indemnity or solicitor and client basis.
As to the fixing of costs, Division 13.01 of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 applies. Under r. 13.01(1) the Trustee is entitled to costs “in accordance with Part 40 of the Federal Court Rules 2011 unless the court otherwise orders”. Under r. 13.02(2) I may fix the amount of costs.
Part 40 of the Federal Court Rules 2011 references Schedule 3 to the Federal Court Rules as to costs allowable for work done and services performed.
A lump sum for costs
Rule 40.02(b) of the Federal Court rules provides that costs may be awarded in a “lump sum”.
It is appropriate to fix a lump sum for costs because the fixing of a lump sum “will avoid the expense, delay and protraction of litigation arising out of taxation” (Commonwealth v Harrison (No 2) (2020) 381 ALR 328; [2020] FCA 786, [110]). Further, the matter is more conveniently dealt with in that way because of its relative simplicity (Byrnes v Brisconnections Management Co Ltd (No 2) [2009] FCA 1432, [51]).
As to a lump sum for costs, in Nine Films and Television Pty Ltd v Ninox Television Ltd [2006] FCA 1046 Tamberlin J said at [8]:
In fixing a lump sum, the exercise is one of estimation or assessment and not of arithmetic calculation or precision. [Citation omitted] the rule contemplates the application of a much broader brush than that applied on taxation. The approach must be logical, fair and reasonable, and should only be exercised when the Court considers that it can do so fairly as between the parties…
In Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd (2008) 249 ALR 371 Finn J held at [24]:
It is not uncommon, particularly, but not only, in intellectual property cases, for the court to take as its starting point the evidence of the charges for professional costs incurred and disbursements made by the lawyers of the party awarded costs – and this irrespective of whether the costs are to be estimated on an indemnity basis: compare Beach Petroleum NL at CLR 120; ALR 162; or pm a party and party basis: compare Universal Music Australia Pty Ltd v Miyamoto [2023] FCA 812 at [29] and following. That figure is then characteristically adjusted to take account of the acceptability of the charges made, the conduct of the proceeding, the measure of success on issues and so on, to produce a sum which as a matter of judgment is neither overcompensatory not prejudicial to the successful party. Consistent with the broad brush approach, that adjustment ordinarily is effected through the application of a discount to the figure accepted by the court on the available evidence as appropriately reflecting actual professional costs charged and disbursements made. The case law evidences wide variations in the percentages of discount sought and/or applied to reflect the exigencies of the matter in question: compare Sony Entertainment, 60%; Beach Petroleum NL, 39%; Nine Files & Television, 23% . What is clear is that a lump sum award may be in an amount that is greater or smaller than would have been the taxed costs payable: see Dal Pont, 2033, para [15.20].
[Emphasis added]
The Trustee’s actual professional costs are appropriate having regard to allowable costs referred to in Schedule 3 to the Federal Court Rules 2011.
I propose to adopt a “broad brush” approach by applying a discount. By reference to the initiative to Mr Narayan’s affidavit to which the costs indemnity ought not to extend. An example is the possible transfer of the matter in this Court to the Federal Court in respect of which no application is ultimately made. Routinely, party and party costs are less than actual costs. Adopting a “broad brush” assessment of a discount is appropriate so that the order of the court is neither “overcompensatory nor prejudicial to the successful party”. Noting that the case law evidences wide variations in the percentages of discount applied, I propose to apply a discount of 25% to the actual costs charged and disbursements made in fixing the costs.
As a result, I will order that the Applicant pay the Trustee’s costs fixed in the amount of $36,918, an amount equal to 75% of the actual costs.
Payment of costs out of the Applicants’ estate
The Trustee sought that his costs be costs in the administration of the Applicant’s bankrupt estate so as to give the payment of the costs priority under s.109(1)(a) of the Act. I will draft the order so that the Respondent’s costs are paid out of the Applicant’s estate with priority. This broadly accords with the course Hely J adopted in Re Batiste [2002] FCA 1623 at [21] and Middleton J adopted in Wavish (Bankrupt), Re Wavish (Bankrupt) v Micheltto (Trustee) [2020] FCA 1874, [40].
I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Champion. Associate:
Dated: 20 November 2024
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