Caratti v Weininger (No.2)
[2007] FMCA 783
•24 May 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CARATTI v WEININGER (No.2) | [2007] FMCA 783 |
| BANKRUPTCY – Creditor’s petition – respondent debtor’s opposition to creditor’s petition – considerations relevant to review – creditor’s petition dismissed. |
COSTS – Indemnity costs – application that the costs should be paid on an indemnity basis – application dismissed.
| Federal Court Rules (Cth), O.23.11, 62 Federal Magistrates Act 1999 (Cth), ss.79(2), 79(3) Federal Magistrates Court Rules 2001 (Cth), r.21.02(2) Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.13.01(1) |
| Calderbank v Calderbank [1975] 3 ALL ER 333 Colgate-Palmolive v Cussons (1993) 46 FCR 225 De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77 Greyhound Pioneer Australia Ltd v Pioneer Motor Service Ltd [1999] FCA 474 Greyhound Pioneer Australia Ltd v Pioneer Motor Service Ltd [1999] FCA 474 Leichhardt Municipal Council v Green [2004] NSWCA 341 Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 Sanko Steam Shop Co Ltd & Anor v Sumitomo Australia Ltd NoG082 of 1991 Fed No 22/96 (unreported) |
| Applicant Creditor: | REBECCA CARATTI |
| Respondent Debtor: | MARTIN WEININGER |
| File number: | SYG2660 of 2006 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 6 February 2007 |
| Date of Last Submission: | 1 May 2007 |
| Delivered at: | Sydney |
| Delivered on: | 24 May 2007 |
REPRESENTATION
| Solicitors for the Applicant Creditor: | Mr L Rupell of Milne Berry & Berger Solicitors |
| Solicitors for the Respondent Debtor: | Mr M Forsyth of Abadee Dresdner & Freeman |
ORDERS
Further to the orders made by the Court on 2 March 2007:
The applicant creditor pay the respondent debtor’s costs of these proceedings on a party and party basis, and if not agreed, to be taxed in accordance with Order 62 of the Federal Court Rules (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG2660 of 2006
| REBECCA CARATTI |
Applicant
And
| MARTIN WEININGER |
Respondent
REASONS FOR JUDGMENT
The proceedings
By judgment dated 28 March 2007, I made orders dismissing the applicant creditor’s petition filed on 19 September 2006 and ordered the applicant creditor to pay the respondent debtor’s costs. The respondent’s solicitor made an application that the costs should be paid on an indemnity basis. I gave the parties an opportunity to provide me with written submissions concerning indemnity costs.
Relevant legislation
Section 79(2) of the Federal Magistrates Act 1999 (Cth) (“the Act”) provides:
(2)The Federal Magistrates Court or a Federal Magistrate has jurisdiction to award costs in all proceedings before the Federal Magistrates Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs must not be awarded.
Section 79(3) of the Act provides:
(3)Except as provided by the Rules of Court or any other Act, the award of costs is in the discretion of the Federal Magistrates Court or Federal Magistrate.
Rule 21.02(2) of the Federal Magistrate Court Rules 2001 (Cth) provides:
(2) In making an order for costs in a proceeding, the Court may:
(a) set the amount of the costs; or
(b) set the method by which the costs are to be calculated; or
(c) refer the costs for taxation under Order 62 of the Federal Court Rules or under Chapter 19 of the Family Law Rules; or
(d) set a time for payment of the costs, which may be before the proceeding is concluded.
Rule 13.01(1) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) provides:
(1) Subject to Division 13.2, a person who is entitled to costs in a proceeding to which the Bankruptcy Act applies is entitled to costs in accordance with Order 62 of the Federal Court Rules unless the Court otherwise orders.
Order 23 r.11of the Federal Court Rules (Cth) provides:
(1)On the acceptance of an offer of compromise in accordance with subrule 5 (4), the applicant may, unless the Court otherwise orders, or the offer is inclusive of the costs of the proceeding:
(a) tax costs on a party and party basis in respect of the claim against the respondent incurred up to and including the day the offer was accepted; and
(b)if the costs are not paid within 4 days after the signing of a certificate of taxation -- enter judgment against that respondent for the taxed costs.
(2)If a notice of offer contains a term that purports to negative or limit the operation of subrule (1), that term is of no effect for any purpose of this Order.
(3)Subrules (4), (5) and (6) apply to an offer that has not been accepted within the time prescribed by subrule 5 (4).
(4)If:
(a)an offer is made by an applicant and not accepted by the respondent; and
(b)the applicant obtains judgment on the claim to which the offer relates not less favourable than the terms of the offer;
then, unless the Court otherwise orders, the applicant is entitled to an order against the respondent for costs incurred in respect of the claim:
(c)up to and including the day the offer was made -- taxed on a party and party basis; and
(d)after that day -- taxed on an indemnity basis.
(5)If:
(a)an offer is made by a respondent and not accepted by the applicant; and
(b)the applicant obtains judgment on the claim to which the offer relates not more favourable than the terms of the offer;
then, unless the Court otherwise orders:
(c) the applicant is entitled to an order that the respondent pay the applicant's costs in respect of the claim incurred up to 11 am on the day after the day when the offer was made, taxed on a party and party basis; and
(d)the respondent is entitled to an order that the applicant pay the respondent's costs in respect of the claim incurred after that time, taxed on an indemnity basis.
(7)If an applicant obtains judgment for the payment of a debt or damages and:
(a)the amount for which judgment is given includes interest or damages in the nature of interest; or
(b)by or under any Act the Court awards the applicant interest or damages in the nature of interest in respect of the amount;
then, for the purpose of determining the consequences as to costs referred to in subrules (4) and (5), the Court must disregard so much of the interest as relates to the period after the day the offer was made.
(8)Subrules (4) and (5) do not apply unless the Court is satisfied by the party making the offer that the party was at all material times willing and able to perform the offer if the offer had been accepted.
Calderbank letter
The solicitors retained by the respondent debtor forwarded a letter dated 16 November 2006 to the applicant in accordance with the principles in Calderbank v Calderbank [1975] 3 ALL ER 333. The letter reads:
Dear Sirs
Further to our telephone discussion and my earlier fax today I advise that my client, without any admission of liability, would propose to settle your client’s claim on the basis that:
(1)Our client pays the sum of $4,303.28 by instalments of $1,000.00 per month on or before the 29th of November and December 2006 and 29th January, 2007, with a final instalment of $1,303.28 on 28th February 2007;
(2)the Bankruptcy proceedings be adjourned by consent to a date in March 2007 and, if all payments have been made (and cheques met on timely presentation), that the proceedings be dismissed by consent with each party to pay its own costs; and
(3)that thereafter the Judgment obtained by your client in the Local Court be set aside by consent, with no order as to costs.
Would you please advise us by close of business next Wednesday 22nd November, 2006 whether your client accepts our client’s offer. This offer is made in accordance with the principles of Calderbank v Calderbank in that, if the offer is not accepted and your client subsequently obtains a result less favourable to her than the terms of our client’s offer, our client will seek appropriate costs orders against your client, including for costs on an indemnity basis.
Respondent debtor’s submissions
Mr Forsyth, for the respondent debtor, contends in his written submissions that the respondent is entitled to payment of his costs in the proceedings on an indemnity basis, either:
a)from receipt in the mail of the copy of the creditor’s petition on 15 November 2006 on the grounds that the proceedings were at all times an abuse of the court process and should have never commenced; or
b)in the alternative, from the date of compromise offer of 16 November 2006.
In support of that submission, Mr Forsyth argues that not only did the applicant creditor refuse to accept an early favourable Calderbank compromise offer (at [5] above), but the Court has found that the application by the applicant for issue of the bankruptcy notice and filing of the creditors petition, as an abuse of the court process. Further, that the Courts have encouraged parties to settle disputes by agreement. This is reflected in O.23 r.11(4) and (5) of the Federal Court Rules (see [4] above) for the award of indemnity costs after the date of a compromise offer. See De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77 per Tamberlin, RD Nicholson and Emmett JJ at [6]:
6. The purpose of an order for costs is to indemnify or compensate the person in whose favour it is made, not to punish the person against whom it is made: see Latoudis v Casey (1990) 170 CLR 534; Ohn v Waltob (1995) 36 NSWLR 77 at 79 per Gleeson CJ. The usual rule is that costs should be on a party-party basis, but that the Court has a wide and unfettered discretion to award costs on an indemnity basis in appropriate cases in particular circumstances: see Colgate-Palmolive v Cussons (1993) 46 FCR 225 at 231-234.
In Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, Sheppard J analysed the Court’s discretion in relation to indemnity costs and made the following points:
a)Whilst the ordinary rule is that costs be paid on a party-party basis, O.62 rr.12 and 19 and the Second Schedule of the Federal Court Rules apply, which, in many cases will result in the amount recovered by the successful party falling short of complete indemnity.
b)However, in view of the settled practice of awarding party and party costs, circumstances must be such as to warrant the Court in departing from the usual course. The categories in which the discretion may be exercised are not closed: Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported Fed Court 3 May 1001, French J, No WAG 55 of 1988); Ragata Developments Pty Limited v Westpac Banking Corp (unreported 5 March 1993, Davies J, No G 255 of 1991).
c)Examples of situations where indemnity costs may be awarded given by His Honour, included:
i)the commencement of proceedings in wilful disregard of known facts or clearly established in law: Fountain Selected Meats Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 per Woodward J; J-Corp Pty Ltd Australian Builders Labourers Federation Union of Workers (unreported, FCA, WA, French J, 19 February 1993); and
ii)an imprudent refusal of an offer to compromise: Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 724.
In Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 at 451, Rolfe J stated:
In my opinion the proper approach to take on an Offer of Compromise, whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption [in the event of the offer not being accepted and the final result being not more favourable to the offeree] that the party rejecting the offer should pay the costs of the other party on an indemnity basis….[the defendant]…has done everything he can to extricate himself from expensive and extensive litigation…In the circumstances the relevant unreasonableness of the recipient of the offer is the failure to accept what is established to be an appropriate offer.
Mr Forsyth submits that there have been cases where it has been held that where one particular factor may not have been sufficient to ground an order for indemnity cost, a number of factors in combination have been sufficient. For example:
a)in De Alwis (op cit) it was found that the commencement or continuance of proceedings in circumstances where, properly advised, the applicant should have known that there was no chance of success coupled with the failure to comply with the Rules and directions of the court constituted sufficient grounds for an order for indemnity costs;
b)in Greyhound Pioneer Australia Ltd v Pioneer Motor Service Ltd [1999] FCA 474, Spender J held that a deliberate deception of the court in respect of the true identity of the operator of a business in combination with other factors, including the failure to accept a favourable offer of compromise, was sufficient to create an entitlement to indemnity costs.
Mr Rupell, for the applicant, submitted that the Calderbank letter (see [5] above) was received by his firm on 18 November 2006. The offer was not accepted by the applicant and this was communicated by letter to the respondent’s solicitors dated 28 November 2006. Mr Rupell submits that the applicant resists the proposed costs order sought by the respondent, that the respondents costs be paid on an indemnity basis.
Mr Rupell submits that merely by making a Calderbank offer, a sanction of an indemnity cost application is not sufficient to ground the respondent’s application: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] per Santow JA (Bryson JA and Stein AJA agreeing):
…By contrast, the costs consequences attendant under general law upon an offer of compromise made in a Calderbank letter lie within the discretion of the Court, to be exercised having regard to all the relevant circumstances of the case: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 232 at [37] per Giles JA; affirmed in Jones v Bradley (No 2) (supra) at [9] per curiam. It is not the case that unaccepted offers of compromise by Calderbank letter should give rise to a prima facie presumption of indemnity costs if the offer is not bettered.
Mr Rupell argues that a Calderbank offer does not give rise to a prima facie presumption that indemnity costs arise simply because the offer is not accepted.
Mr Rupell submits that there is no evidence before the Court that the respondent would comply with the offer, if accepted, based on the circumstances surrounding the default in paying the rental monies. Mr Rupell referred the Court to 0.23, r.11(8) of the Federal Court Rules (see [4] above) and also to Sanko Steam Shop Co Ltd & Anor v Sumitomo Australia Ltd G082 of 1991 Fed No 22/96 (unreported) per Sheppard J in relation to the award of indemnity costs for refusal of a Calderbank offer:
17. Apart from this matter though, it seems to be that one needs to be careful about making orders based on perceived unreasonables conduct in refusing to accept offers. It is in the public interest, as well as in the interests of parties to litigation, for negotiations to settle cases to take place and for settlements to be achieved if they possibly can be. It has been said that the fact that the law does not provide a full indemnity for costs may be an important spur to settlement; see the judgments of Devlin LJ in Berry v British Transport Commission (1962) 1 QB 306 at 323 and Handley JA in Cachia v Hanes (1991) 23 NSWLR 304 at 318 referred to in the judgment in Cussons at 227-8. In some cases the so called Calderbank approach may place a weapon in the hands of parties to litigation which ought not be allowed to be abused. The ordinary rule is that costs when ordered in adversary litigation are to be recovered on the party and party basis. Any attempt to disturb that situation needs to be carefully considered. It should only be departed from where the conducted of the party against whom the order is sought is plainly unreasonable.
Mr Rupell submits that there has been no unreasonable conduct on the part of the applicant in refusing to accept the offer. He contends that after a lengthy period had elapsed, from the time of the Consumer Trading and Tenancy Tribunal (CTTT) judgment to the issuance of a Creditors Petition, the applicant had expended a considerable amount of time and money in pursuing a debt that was well within her rights to pursue. At no time has the applicant questioned the validity of amounts pursued. Mr Rupell then requested me to consider whether the non-acceptance of the applicant was unreasonable and relied on Leichhardt Municipal Council v Green at [46]:
46. It is respectfully submitted that there is no principle of law or persuasive policy reason why a defendant’s unaccepted offer of compromise made by Calderbank letter should give rise to costs sanctions on any basis different to that provided by the Rules. Under the rules, such costs would only be awarded in exceptional circumstances if the Court “otherwise orders”. For the Court to depart from the general rule there must be particular grounds on which the Court can exercise its discretion: Hillier v Sheather (1995) 36 NSWLR 414. A defendant must resort to showing that the plaintiff’s rejection of the offer was “unreasonable” under the general law: Multicon Engineering Pty Limited v Federal Airports Corp (1996) 138 ALR 425. That discretion is to be exercised in all the circumstances of the case: SMEC Testing Services Pty Limited (supra) at [37] per Giles JA affirmed in Jones v Bradley (supra) at [9]. Indemnity costs do not flow as a matter of course from unaccepted defendant offers.
Mr Rupell submits that the applicant could not be assured that, based on past interactions with the respondent, the instalment payments would be made in a timely manner. Based on a period of delay of over 4 years since the CTTT judgment and orders, and the time and expense used in pursuit of the debt, some concession from the respondent about costs may have triggered an early settlement as the respondent was aware of these costs.
Conclusion
I am satisfied that it is desirable for parties to settle the issue of costs by agreement without need for final determination by a Court. This objective is clearly facilitated by a Calderbank offer, although such an offer does not give rise to a prima facie presumption that indemnity costs arise simply because the offer is not accepted. As the authorities indicate, the usual rule is that costs should be awarded on a party and party basis unless a situation exists which would warrant this Court to exercise its discretion to award costs on an indemnity basis. I am firmly of the view that the circumstances of this case do not warrant the Court from departing from its usual course, and that the discretion to award indemnity costs should not be exercised.
The decision in this case was the result of my not being satisfied that the amount owed to the applicant creditor could be clearly established. The evidence placed before the Court did not demonstrate with any precision the composition of the alleged debt, or provide adequate accounting records to determine the relevant transaction leading to the debt. The history of the matter reveals considerable periods of delay when the matter lay dormant. Coupled with this was an absence of reliable record keeping and untested evidence in relation to the factual background to determine the liability of both parties. Some of the actions of the respondent obviously caused frustration for the applicant, which ultimately led to the application to the Court. However both parties acknowledged that the making of a sequestration order is a serious matter and that the accounting records presented in support of an application for a sequestration order should be transparent. It was for that reason that the application for a sequestration order was dismissed.
The finding in respect of an abuse of the Court process relates to the inadequacy of evidentiary material which formed the basis of both the bankruptcy notice and the creditor’s petition. In light of this, together with the long period of delay and failure to comply with previous orders of other Courts, I believe that neither party has contributed towards the resolution of issues the subject of these proceedings. Consequently, I decline to exercise my discretion to order indemnity costs.
I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.
Associate:
Date: 21 May 2007
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