Carter v Scotney
[2014] FCCA 697
•11 April 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| CARTER v SCOTNEY | [2014] FCCA 697 |
| Catchwords: BANKRUPTCY – Costs – consent order to dismiss outstanding proceedings – acknowledgement that costs remained live – consideration of arguments relating to whether costs should be ordered at all, in part or totally – consideration of informal and formal offers – argument as to costs upon an indemnity basis. |
| Legislation: Federal Court Rules 2011, r.25.14 |
| Cases cited: Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284 Ford Motor Company of Australia Limited v Lo Presti (2009) 41 WAR 1 Latoudis v Casey (1990) 170 CLR 534 |
| Applicant: | MOIRA KATHLEEN CARTER AS TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF WILLIAM EDWARD SCOTNEY |
| Respondent: | KAREN RUTH SCOTNEY |
| File Number: | BRG 1057 of 2011 |
| Judgment of: | Judge Coker |
| Hearing date: | 11 February 2014 |
| Date of Last Submission: | 14 March 2014 |
| Delivered at: | Townsville |
| Delivered on: | 11 April 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr PP McQuade |
| Solicitors for the Applicant: | Connolly Suthers |
| Counsel for the Respondent: | Mr DP Morzone QC |
| Solicitors for the Respondent: | Boulton Cleary Kern Lawyers |
ORDERS
That each party bear their own costs as and from the commencement of these proceedings until 11.00am on 7 September 2013.
That as and from 11.00am on 7 September 2013 the applicant pay the respondent’s costs of and incidental to these proceedings on an indemnity basis.
That unless such costs are as agreed between the parties, the costs then be taxed in accordance with these orders.
| FEDERAL CIRCUIT COURT AT TOWNSVILLE |
BRG 1057 of 2011
| MOIRA KATHLEEN CARTER AS TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF WILLIAM EDWARD SCOTNEY |
Applicant
And
| KAREN RUTH SCOTNEY |
Respondent
REASONS FOR JUDGMENT
On 29 November 2011, an application was made in this court seeking orders pursuant to the provisions of section 139DA and section 139D(2) of the Bankruptcy Act 1966. In essence, the orders sought on the part of the Trustee in Bankruptcy of the bankrupt estate of William Edward Scotney was for real property, described as lot 493 on registered plan 711591 in the county of Elphinstone, parish of Coonambelah, title reference 21312079, to vest in the Trustee in Bankruptcy, from property which was held in the name of Karen Ruth Scotney.
Over a considerable period of time, there were appearances and attention given by the parties and the court to various elements or issues, arising from that application. Directions were given on 1 February 2012 as well as on 7 March 2012 and 24 April 2012.
The proceedings took a somewhat different turn after those directions of 24 April 2012, because an application was then made for there to be orders relating to declarations pursuant to sections 120 and 121 of the Bankruptcy Act, that the settlement sum effected in relation to various other transactions did not reflect the value of the bankrupt’s interest in the property, the subject of the original proceedings.
Thereafter, an application was made for there to be orders for summary judgment, pursuant to section 30 of the Bankruptcy Act 1966. The orders made at that time, allowed for summary judgment in part, in that the respondent to the application was required to transfer a one-half interest in property the subject of the security held by the National Australia Bank into the name of the applicant as Trustee in Bankruptcy.
Additionally, however, the balance of the application for summary judgment was dismissed and the further application which was brought to strike out the defence was dismissed. The costs of both the applicant and the respondent in relation to that determination were reserved.
Thereafter, further proceedings were before the court, including an application brought by the Trustee in Bankruptcy for leave to amend her application in terms of the document entitled, Amended Statement of Claim (No. 3) and a further Application in a case brought by the respondent, Karen Ruth Scotney, seeking that the proceedings before the court be dismissed and that the applicant pay the respondent’s costs.
I set out briefly that history in relation to the matter because, as is obvious from what has passed in relation to this matter, there have been a considerable number of applications made and more particularly there have been a number of what I might call skirmishes, on the part of both parties with regard to the future course and conduct of the proceedings.
However, when the matter finally came before the court on 11 February 2014, orders were made by consent in relation to the finalisation of the proceedings. The terms of the orders of 11 February 2014 were as follows:
1. The applicant have leave to withdraw the application to amend the statement of claim filed 18 September 2013;
2. Subject to the issue as to costs the balance of the proceeding which is not disposed of by the orders made on 14 September 2012 be dismissed;
3. The costs of and incidental to today’s appearance be reserved.
Additionally, recognising that the issue of costs still remained live, directions were made for the applicant to file and serve written submissions as to costs, for the respondent to file written submissions in relation to their position with regard to costs and for the applicant to file submissions in reply in relation to the proceedings.
Each of the parties has attended to the steps required in relation to the matter, in that the applicant filed written submissions by 4pm on 25 February 2014, the respondent filed written submissions, albeit a few days late but no exception has been taken to filing on 10 March 2014, and a reply was filed by the applicant in relation to those submissions on 14 March 2014.
The parties were given liberty pursuant to the orders of 11 February 2014 to have the matter re-listed should they choose to do so, but no such application within seven days has been received and one can infer that it is intended by the parties that the determination of the issue of costs be conducted in chambers and reasons be provided.
It is noteworthy that the heated nature of the exchange between the parties in relation to the proceedings themselves has continued, even when the proceedings have been dismissed and the only issue that remains is that of costs.
The applicant, in the outline filed on 25 February 2014, seeks an order either for there to be no costs as there has been no trial on the merits or, alternatively, if there is to be an order that a party pay costs it should be that the respondent pay the applicant’s costs of the proceedings, up until and including the application for summary judgment with no order as to costs thereafter.
It was contended in that regard that the applicant had succeeded in obtaining an order at the conclusion of the application for summary judgment, that she have a 50 per cent interest in the “second house”, with other issues in the proceedings to be determined at trial. The position on the part of the respondent was to seek an order that the applicant pay her costs of the application, including any application for costs relating to a summary judgment and reserve costs assessed on an indemnity basis.
There did not appear to be a fallback position to suggest that costs should be paid on either a solicitor-and-own-client basis or party-and-party basis but rather that the only appropriate order is one which requires there to be a payment on an indemnity basis. In that regard it was contended on the part of the respondent that costs on an indemnity basis as defined in the dictionary means:
Costs as a complete indemnity against the costs incurred by the party in the proceeding provided that they do not include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them.
I shall turn a little later to whether there is an appropriate position with regard to indemnity costs in relation to proceedings noting, of course, that some offers, both informal and formal have been delivered in relation to the proceedings and that rule 25.14 of the Federal Court Rules provides for circumstances where, if an offer is not accepted and it then gives rise to a resolution otherwise, that costs should be paid on an indemnity basis.
Relevant in relation to these proceedings, at least from a perspective of the respondent is rule 25.14(2) which is in these terms:
(2)If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:
(a)before 11.00 am on the second business day after the offer was served - on a party and party basis; and
(b)after the time mentioned in paragraph (a) - on an indemnity basis.
The position taken by the applicant primarily is to say that there should be no order in relation to costs. The primary reason, as I understand the submissions in relation to the matter, is that the application brought initially by the applicant, in relation to the matter, was reasonable and appropriate to ensure that the Trustee in Bankruptcy was able to administer all of the assets which should properly be included in the property of the bankrupt, Mr Scotney.
Additionally, it was contended and, in fact, suggested on a number of occasions that there was no merit in a costs order being made when the evidence had not been tested and it had been found that there was a triable issue, in relation to the dispute between the applicant and the respondent. In that regard, I was referred to my own words as contained within the reasons given in the application for summary judgment, which judgment was delivered on 14 September 2012. There, at paragraph 56, I said:
It may be that when the evidence is tested, the respondent will be found to have gained a direct benefit in relation to the use of the moneys previously held in the term deposit for both parties, without appropriate consideration being paid. But until such time as that is able to be determined the issue remains one which is live and which, certainly, does not provide for there to be a summary judgment granted.
The contention on the part of the applicant, therefore, is that whilst it was their application for summary judgment, the argument put on the part of the respondent was that there were triable issues and that, therefore, it could not be suggested that the conduct of the applicant was in any way unreasonable or, more particularly, that it could be suggested that the applicant had failed to act reasonably, when offers were made.
The respondent, as I indicated a little earlier, was strongly of the view and pleaded that the applicant, “ought to have reasonably apprehended that the application was a futility and the proceedings should have been wholly avoided”. That argument, with respect, carries in my assessment little weight in relation to this matter because of the respondent’s own position in relation to the defence and submissions made with regard to much of the proceedings that were conducted at least up until the conduct and determination of the application for summary judgment.
It was the respondent herself who submitted that summary judgment should not be effected or ordered in relation to the proceedings and, in particular, contended that to do so would remove the opportunity for there to be consideration of a triable issue, in relation to the proceedings. Quite clearly, if that were the case it could not then with any real legitimacy be argued that the applicant has acted unreasonably in relation to the bringing of the proceedings for the determination of the matter.
I am of the view, therefore, that the stance taken by the applicant as well as the stance of the respondent in relation to the proceedings, at least until the time of the bringing of the application for summary judgment, was at least in one respect a united position, in that it was contended by both that there were triable issues in relation to a determination of what interests, if any, might be held by the Trustee in Bankruptcy as a result of the previous interest held by the bankrupt, William Edward Scotney.
I am satisfied that in that instance until the determination of the application for summary dismissal, it is appropriate that the costs of each of the parties should be borne by them individually. In that respect, I note, as was emphasised to me in the submissions on the part of the applicant, that Justice Finkelstein commenting about issues of costs specifically noted in Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284 at 287 the following:
…in absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in exceptional circumstances.
I agree wholeheartedly with his Honour up to that point.
However, thereafter the circumstances changed because, clearly, the orders that were made on 14 September 2012 contemplated further proceedings and, of course, in particular, the hearing of the argument in relation to the proceedings. However, the parties were able, when the matter finally came before the Court on 11 February 2014, to determine for whatever reason that the matter would not proceed. The orders accepted that the Application filed 18 September 2013 for leave to amend the statement of claim be withdrawn and, more particularly, provided that the balance of proceedings, subject of course to this consideration of costs, be dismissed.
That was a decision made by the parties and which was consented to by both. Certainly, it was not a determination made following the hearing of evidence and consideration of the merits of the case of both parties, but rather was a decision which was come to as a result of, no doubt, commercial considerations on the part of both the applicant and the respondent, as well as consideration of advices that they would have received from their legal representatives, in relation to the merits of the case and the prospects of success.
I am satisfied that whilst there may not have then been a decision made in relation to the evidence called in relation to the proceedings, the fact that by consent the matter had been dismissed is a factor which is relevant, in relation to these proceedings. In that regard, I previously mentioned the provisions of the Federal Court Rules and, in particular, rule 25.14(2) with regard to offers made in relation to proceedings.
In that respect, two offers, which were acknowledged by the respondent as of an informal nature, were made on 6 March 2012 and again, it was suggested, on 23 August 2013.
The offer on 6 March 2012 proposed the resolution of the proceedings between the parties on the basis of the respondent transferring to the applicant a one-half interest in the Currajong property, which was the property the subject of the initial application made, in relation to the proceedings. The offer was not accepted and it was contended by the respondent that the applicant had acted unreasonably in failing to accept the offer.
I am not of the view that that can be found in relation to the informal offer apparently made on 6 March 2012. In that regard I am assisted by the submissions made on the part of the respondent relating particularly to the Western Australian Court of Appeal decision in Ford Motor Company of Australia Limited v Lo Presti (2009) 41 WAR 1.
It may be a little surprising that the submissions made in relation to the matter on the part of the respondent assist me to determine that it was not an offer that could or should properly be expected to have been accepted, and I say that primarily because it was made early in time and, as was clear from the skirmishes to which I have already referred, there was considerable disquiet on the part of both parties as to whether they held full particulars and information, so as to enable them to make any decision in relation to the proceedings.
Accordingly, as was expressed by Appeal Justice Buss in Ford Motor Company of Australia Limited v Lo Presti (supra), regard had to be had to the offeree’s prospects of success, assessed at the date of the offer. In that regard, as I have indicated, I am not satisfied that it was appropriate or possible for the applicant in these proceedings to fully assess or to consider whether the offer that ultimately led to the resolution of this matter was appropriate.
Accordingly, I am not satisfied that it was open to the applicant to accept the offer unconditionally or to reject it, and that, therefore, it is not appropriate that an order should be made in relation to costs associated with unreasonably refusing the informal offer made on 6 March 2012.
Additionally, it is contended that reliance can be placed upon a further informal offer, contained within a letter from the respondent’s solicitors to the applicant’s solicitors of 23 August 2013, inviting the applicant to discontinue the proceedings with no orders as to costs. Whether, in fact, that offer was as comprehensive as might be expected in relation to the matter, or allowed the applicant sufficient time to consider the offer, is a matter which looms large in relation to these proceedings. That is particularly so when it is clear that, only five days later, orders were made on 28 August 2013 for further consideration of the proceedings, including directions for the applicant to file and serve any applications for leave to amend the pleadings and to file accompanying affidavits. The respondent was to have the similar opportunity to respond in relation to the matter, including with regard to the filing of a response seeking orders for summary dismissal.
Suffice it to say, therefore, that I am not satisfied that the offer in relation to the matter, whilst I accept it was genuinely made in an attempt to resolve the issues and determine the proceedings, was one which could properly be inferred to fall within the realms of what might be called a “Calderbank offer” and, therefore, would have consequences in relation to indemnity costs.
The circumstances, however, change as and from 5 September 2013 when a formal offer was made in compliance with rule 25.01(1) of the Federal Court Rules. That offer, as I understand it, was for the discontinuance of the proceedings and for there to be no order as to costs. The distinction arises in relation to the matter because of the consequences that flow from the provisions of rule 25.14 of the Federal Court Rules and, in particular, subrule (2).
There, a different set of considerations arise because, not only is there the question of whether the determination by the applicant to accept or reject the offer was reasonable or unreasonable, but there is also the need to consider whether the applicant’s proceeding was dismissed. There is no distinction drawn between a consent or order following hearing.
If that is the case, then the respondent is entitled to an order for the payment of their costs on a party and party basis calculated from a time before 11.00am on the second business day after the offer was served, and for indemnity costs to be awarded for the period that follows.
As I said previously, this matter has not been determined on the merits, and decisions have not been made with regard to the facts of the proceedings, but that is, in fact, not an uncommon occurrence. Proceedings are regularly brought in all of the courts of the land which give rise to issues in respect of a claim by one party against another, and those proceedings are, following negotiation, mediation or other consideration, not taken fully to determination.
However, the fact that they are not determined after a final hearing in no way precludes there being a proper consideration of the costs incurred by the party against whom the proceedings were brought, when the initial proceedings were dismissed. I am certainly concerned, therefore, that in this matter there were a number of proposals put, including even applications considered for summary dismissal of the application, but that at the end, the order was made by consent for dismissal of the balance of proceedings which were not disposed of, pursuant to the orders of 14 September 2012.
Here the respondent has been put to considerable cost. No doubt the applicant had concerns with regard to the situation, but, ultimately, their actions in bringing the proceedings gave rise to significant expense being incurred by the respondent and to suggest, the conclusion of such significant proceedings, that there should be no consequences in relation to the proceedings, when they were ultimately dismissed by consent is not, in my view, an appropriate consideration of the responsibilities associated with litigation and, of course, the consequences that flow from unsuccessful litigation.
Whilst, as I noted previously, therefore, the words of Finkelstein J carry some weight, there is, certainly, some exceptional character to be considered in relation to the proceedings. That is not to say however that there is not a discretion to be exercised in relation to any determination of costs.
The costs are not punitive. They do not automatically flow because one party or the other has been successful or unsuccessful, in relation to the proceedings. They are compensatory, and in that regard I am mindful of the comments of Mason CJ in Latoudis v Casey (1990) 170 CLR 534 at 543 where his Honour said:
If one thing is clear in the realm of costs, it is that, in criminal as well as civil proceedings, costs are not awarded by way of punishment for the unsuccessful party. They are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings.
In this instance the respondent has been put to considerable expense by reason of the legal proceedings. The application brought in relation to the matter did however have a certain degree of success, though that was, to some degree, only a reflection of what was proposed at different stages by the respondent, in relation to the transfer of a one-half interest in property owned by the respondent.
I am satisfied in that regard, therefore, that some costs are appropriate in relation to this matter and that in light of the specific considerations that arise pursuant to rule 25.14 of the Federal Court Rules 2011, that an order should be made for the payment of the respondent’s costs of, and incidental to, these proceedings as and from the making of the formal offer of 5 September 2013.
The outstanding proceedings were indeed discontinued. However it may have been rationalised, the proceedings were dismissed and in my assessment that gives rise to a proper basis for indemnity costs as and from 11.00am on 7 September 2013.
However, there is clearly a basis for there to be found that there was uncertainty and therefore triable issues until that time, such that I am satisfied that each party should prior to that date bear their own costs.
Accordingly, and for the reasons given, therefore, the orders that I intend to make in relation to this matter are as detailed at the commencement of these reasons.
I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Judge Coker
Associate:
Date: 11 April 2014
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