Charatsis v Bendigo and Adelaide Bank Limited
[2016] FCCA 321
•19 February 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| CHARATSIS v BENDIGO & ADELAIDE BANK LIMITED | [2016] FCCA 321 |
| Catchwords: BANKRUPTCY – Review from decision of registrar – costs arising from presentation of creditor’s petition – petition dismissed following appeal decision in the Supreme Court of South Australia which set aside judgement debt on which petition founded – registrar awarded costs in favour of creditor – respondent seeks review and opposes award of costs – matters to be considered. |
| Legislation: Bankruptcy Act 1966, ss.32; 40(1)(g) Bankruptcy Regulations 1996, r.4.02A |
| Cases cited: Charatsis v Bendigo & Adelaide Bank Limited [2015] FCCA 548 Charatsis v Bendigo & Adelaide Bank Ltd [2015] SASC 131 Nicholl Holdings Pty Ltd v Minister for Health (No 2) [2014] FCCA 1272 Latoudis v Casey (1990) 170 CLR 534 |
| Applicant: | TERRY JOHN CHARATSIS |
| Respondent: | BENDIGO & ADELAIDE BANK LIMITED |
| File Number: | ADG 95 of 2015 |
| Judgment of: | Judge Brown |
| Hearing date: | 26 November 2015 |
| Date of Last Submission: | 26 November 2015 |
| Delivered at: | Adelaide |
| Delivered on: | 19 February 2016 |
REPRESENTATION
| Counsel for the Applicant: | In person |
| Solicitors for the Applicant: | Not applicable |
| Counsel for the Respondent: | Mr Thomas |
| Solicitors for the Respondent: | Scott Lawyers |
ORDERS
Order 2 of the orders made by Registrar Parkyn on 7 September 2015 is discharged.
Each party bear their own costs in respect of the application for review filed on 24 September 2015 and the costs of the creditor’s petition presented on 17 March 2015.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 95 of 2015
| TERRY JOHN CHARATSIS |
Applicant
And
| BENDIGO & ADELAIDE BANK LIMITED |
Respondent
REASONS FOR JUDGMENT
Introduction
These proceedings relate to an application to review an order of Registrar Parkyn made on 7 September 2015. On that day, the Registrar made the following orders:
“1. The petition be dismissed.
2. The applicant creditor’s costs (including any reserve costs), be fixed in the sum of $9,473.00 and be paid by the respondent.”
Mr Charatsis, “the applicant” seeks to review the second order, relating to the costs payable by him to the Bendigo & Adelaide Bank Limited “the creditor” or “the Bank”. The applicant has no complaint that the bankruptcy petition, filed on behalf of the bank, naming him as a creditor, should be dismissed.
The factual circumstances of the case are somewhat convoluted, as they involve proceedings in this court, the Federal Court; the District Court of South Australia and the Supreme Court of South Australia. Some of the relevant background is set out in a judgment published, by me, in respect of an earlier review decision relating to an extension of time to comply with a bankruptcy notice issued to Mr Charatsis.[1] As I understand it, the following matters are not contentious.
[1] See Charatsis v Bendigo & Adelaide Bank Limited [2015] FCCA 548
The applicant is a legal practitioner, who has suffered from a depressive illness, for many years. At some time, in 2008, he borrowed around $35,000.00 from the Bank by means of a personal loan. The applicant defaulted in paying instalments, which related to the loan.
In March of 2011, the Bank commenced proceedings against Mr Charatsis in the District Court of South Australia. In October of 2011, the action was compromised on the basis that Mr Charatsis would pay the sum of $330.00 per month, until the debt was paid in full.
It is the Bank’s position that Mr Charatsis defaulted on the settlement agreement. As a consequence, on 24 July 2013, the Bank instructed its solicitors to renew the District Court proceedings against Mr Charatsis.
On 23 October 2013, the Bank filed an application, in the District Court, seeking an early trial of its claim relating to the settlement agreement purportedly reached between the parties earlier. Orders were also made for discovery and inspection of documents.
Mr Charatsis filed a number of defences, in respect of the Bank’s claim against him. In particular, on 4 November 2013, in his defence, he claimed as follows:
·the loan between him and the Bank was subject to the provisions of National Consumer Credit Protection Act 2009;
·he had been suffering from anxiety and severe depression at the time default notices had been issued by the Bank, which had affected his capacity to discharge his obligations arising under the loan agreement;
·as a consequence, he asserts that the Bank should have capitalised the arrears and extended the time for payment given his illness and its failure to do so amounted to unconscionable conduct;
·in the alternative, Mr Charatsis asserts that he should have been granted further time to pay the loan as a consequence of the hardship provisions contained in the National Consumer Credit Protection Act 2009.
In reply, the Bank denied that it had acted unconscionably. It also denied that it had either expressly or implicitly agreed to a debt moratorium or provide Mr Charatsis with a detailed Deed of Settlement.
For his part, Mr Charatsis contended that he was ill, when default notices were issued against him and it was either unconscionable or unreasonable for the Bank not to vary the loan agreement, whilst he was unwell.
On 5 November 2013, the parties were advised by the District Court that the matter had been listed for trial on 17 March 2014. On 9 December 2013, Mr Charatsis filed an application seeking to vacate the trial, on the basis of his depression. The Master dismissed this application on 17 December 2013 and confirmed the hearing date of 17 March 2014.
Mr Charatsis applied to vacate the trial in an application filed on 14 March 2014, which was not served until Sunday, 16 March, the evening before the trial. Mr Charatsis did not attend the trial and on 17 March 2014 judgement was entered in the Bank’s favour, in default of his appearance.
The default judgement was the basis of a bankruptcy notice being issued in the Bank’s favour on 12 May 2014. On 20 June 2014, an order for substituted service was made, which directed the service of the bankruptcy notice on Mr Charatsis, via electronic means.
Service was affected on 24 June 2014. On 17 July 2014, about a fortnight after the substituted service of the bankruptcy notice, the applicant filed an interlocutory application, in the District Court, seeking to set aside the default judgement entered against him on 17 March 2014. Ultimately, this application was heard by Judge Barrett, on 31 October 2014, with judgement delivered on 13 January 2015.
Concurrently with this application, Mr Charatsis applied, to this court, to set aside the bankruptcy notice. The basis of this application was that Mr Charatsis had appealed against Judge Barrett’s decision, in the Supreme Court of South Australia.
On 29 January 2015, Registrar Grant ordered that the time for compliance with the bankruptcy notice be extended to 5 February 2015. Mr Charatsis filed an application for review of that decision. On 12 March 2015, I dismissed the application for review and provided reasons in support of that decision.
On 28 August 2015, Bampton J allowed Mr Charatsis’ appeal. As a consequence, the judgement in default, in favour of the Bank was set aside and the matter was remitted for fresh trial in the District Court. As at the date of the current hearing, no date for this had as yet been allocated. In addition, Bampton J ordered that each party bear their own costs of the default judgement, including the application to set it aside and the costs of the appeal.
Prior to Bampton J’s judgment, the Bank presented a fresh petition on 17 March 2015. The basis of the petition was the bankruptcy notice, based on the judgement debt, obtained in the District Court of South Australia, against Mr Charatsis, in the sum of $42,234.51. It was this judgement debt, which was set aside by Bampton J.
Mr Charatsis also sought to appeal my determination, in respect of the bankruptcy notice, to the Full Court of the Federal Court. This appeal was ultimately dealt with by Beach J on 6 October 2015.
On that occasion, Beach J made the following notation and orders:
“It is appropriate to record three matters. First, it was not in contest that leave to appeal was required (see Sharpe v WH Bailey & Sons [2014]FCA921 at [36]). Second, the respondent undertook not to enforce any costs order made by Judge Brown below (including the prior Registrar’s costs order). Third, the respondent’s creditor’s petition has been dismissed and it was accepted that no new petition could be filed utilising non-compliance with the bankruptcy notice as an available act of bankruptcy.
THE COURT ORDERS THAT:
1. Leave to appeal is refused.
2. No order as to costs.”
The creditor’s petition presented on 17 March 2015, after a number of adjournments, was dismissed by Registrar Parkyn, on 7 September 2015. On this date, the Registrar also made an order for costs, in the Bank’s favour, in the sum of $9,473.00. This figure was calculated by reference to a memorandum of costs, submitted by counsel for the Bank.
As previously indicated, the Registrar was persuaded to make an order for costs, in this sum, in the Bank’s favour. It is this order which is the subject of the review proceedings before me.
Pursuant to section 104(2) of the Federal Circuit Court of Australia Act 2000, a party to proceedings, in which a Registrar has exercised delegated powers, is entitled to seek a review of that exercise of power to this court. Pursuant to Rule 20.03 of the Federal Circuit Court Rules 1999 the review of an exercise of power by a Registrar must proceed by way of a hearing de novo.
Pursuant to both section 79(2) of the Federal Circuit Court of Australia Act 2000 and section 32 of the Bankruptcy Act 1966 the Court may make such orders, as to costs, as it thinks fit, including in proceedings dismissed for want of jurisdiction. Although the discretion is unfettered, it must be exercised judicially.
The appeal to Bampton J
In my reasons for judgment, delivered on 12 March 2015, I attempted to summarise the findings of Judge Barrett, which had led him to decline to exercise his discretion to set aside the judgement debt of 17 March 2014 entered against Mr Charatsis.
These reasons centred on two main issues, firstly His Honour’s view that Mr Charatsis had not provided a reasonable explanation for failing to attend at court; and secondly that his defence, as filed, failed to disclose an arguable bona fide defence.
On appeal, Bampton J accepted that Mr Charatsis had been suffering from a depressive illness in December 2013 and March of 2014. In these circumstances and given that he had applied to vacate the trial on 14 March 2014, Her Honour found that he had not been given an opportunity to explain his non-attendance at trial.
Her Honour also found that Judge Barrett erred in finding that Mr Charatsis had no arguable bona fide defence. In this context, Bampton J found as follows:
“Mr Charatsis does not dispute he borrowed money from the Bank or that he was, by 2011, in default of the loan. What are in dispute are the alleged agreement entered into on 9 September 2011 and the conversations/discussions that took place between Mr Charatsis and the Bank in 2013. The Bank amended its statement of claim to allege the settlement agreement and it was pleaded into issue by the third defence. It was this discrete issue of the enforceability of the settlement agreement that the Master referred to trial.
The Judge also did not have proper regard to the fact that Mr Charatsis’ defence raises factual issues regarding what was said between him and the Bank’s agents. Further, the Judge did not take into account that the Bank did not depose to or call any evidence to contradict Mr Charatsis’ evidence regarding the discussions.”[2]
[2] See Charatsis v Bendigo & Adelaide Bank Ltd [2015] SASC 131
In these circumstances Her Honour ordered that the judgement debt should be set aside and the matter remitted for fresh hearing in the District Court.
Her Honour further concluded that “in the particular circumstances of this matter, a costs order in favour of the Bank is not warranted on the entering of a default judgment, the application to set aside the default judgment, or this appeal.”[3]
[3] Ibid at [74]
The submissions of the Bank in respect of costs
Mr Thomas points to the fact that throughout the proceedings before this court and indeed in all the proceedings before both the Supreme and District Court, Mr Charatsis has not disputed that he is indebted to the Bank for a significant sum of money arising from the loan he took out. Indeed Bampton J found this to be the case.
In these circumstances it is the submission of Mr Thomas, counsel for the Bank, that when his client presented its petition, on 17 March 2015, there was in place a valid judgement, in its favour, against Mr Charatsis, which had survived detailed scrutiny, in the District Court. As such, at the time of presentation of the petition, a valid and subsisting act of bankruptcy had been committed by Mr Charatsis.
In all these circumstances, it is Mr Thomas’ submission that it was reasonable for the Bank to have presented the petition, particularly as a consequence of regulation 4.02A of the Bankruptcy Regulations 1996, a bankruptcy notice must be served within six months of its issue.
Accordingly, it is Mr Thomas’ submission that, if the creditor had held off presenting the petition, until the resolution of the appeal before Bampton J, its bankruptcy notice would have expired, which would have been fundamentally unfair to it. Accordingly, it is Mr Thomas’ submission that the Bank had no viable alternative, other than to present its petition, which the court accepted. In these circumstances, it is Mr Thomas’ submission that the bank is entitled to its costs, as determined by the Registrar.
The submissions of the Respondent in respect of costs
It is Mr Charatsis’ submission that, with the decision of Brampton J on the appeal, the original and underlying justification for the presentation of the creditor’s petition, in the first place, has evaporated. In his terminology, when the Bank chose to proceed with its petition, despite a valid appeal being on foot, it took a punt, which has ultimately failed.
In particular, as is axiomatic from the reasons of the Supreme Court, it cannot now be accepted that Mr Charatsis’ appeal was either a tactic to delay the petition or was devoid of merit. In these circumstances, he contends that it would not be proper for the Bank to be awarded costs.
Conclusions
The proceedings, in respect of the recovery of the debt owed by Mr Charatsis to the Bank, are far from being concluded. In these circumstances, the Bank is not currently in a position to present a petition, in this court, on the basis that it holds a final judgement debt, against Mr Charatsis, of the type envisaged by section 40(1)(g) of the Bankruptcy Act.
In addition, the petition, which founds the current application for costs, has been dismissed. As such there is no act of insolvency, on which the Bank can rely to present any fresh petition. Depending on the outcome of the proceedings in the District Court, the Bank will have to start afresh in respect of any application it makes for a sequestration order against the estate of Mr Charatsis.
In Nicholl Holdings Pty Ltd v Minister for Health (No 2) [4] Judge Coker summarised the legal principles, relating to costs, as follows:
“Costs are an exercise of discretion performed by the courts, at the conclusion of proceedings. It is perhaps unnecessary to say, but the general position in relation to costs, certainly in respect of general federal law, is that costs follow the cause. In other words, if an application is brought and it is successful, the respondent is required to pay the costs associated with bringing that successful application, and if an application is brought and is unsuccessful, then the applicant would be required to pay the costs associated with the respondent's defence of the application, so as to ensure that there is, at least on the face of it, some consequences of the bringing of proceedings which are unsuccessful.”
[4] Nicholl Holdings Pty Ltd v Minister for Health (No 2) [2014] FCCA 1272 at {5]
The expression costs follow the event can be summarised in the following terms: an award of costs will generally flow with the result of litigation. That is ordinarily the successful party is entitled to an order for costs against the unsuccessful party. The difficulty arising in the current matter is that, due to the result of the Supreme Court proceedings, there has been neither a purely successful nor a purely unsuccessful party. Rather the creditor’s petition has been rendered nugatory.
The question therefore, for the court, is whether there are particular circumstances arising, which render it just and reasonable that there be an award of costs, notwithstanding the abortive nature of the proceedings, which did not produce a clear result. It is the Bank’s position that there are such circumstances, the chief of which is that Mr Charatsis remains indebted to it and, in objective terms, it contends that it has not behaved unreasonably.
In Latoudis v Casey [5]the High Court discussed the principles applying to costs. The case was concerned with very different circumstances to the present matter, relating to costs arising from an unsuccessful criminal prosecution in a court of summary jurisdiction. McHugh J said as follows:
“An order for costs indemnifies the successful party in litigious proceedings in respect of liability for professional fees and out-of-pocket expenses reasonably incurred in connection with the litigation: Kelly v. Noumenon Pty Ltd (1988) 47 SASR 182, at p 184. The rationale of the order is that it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred. The order is not made to punish the unsuccessful party. Its function is compensatory. Thus, in civil proceedings an order may, and usually will, be made even though the unsuccessful party has nearly succeeded or has acted reasonably in commencing the proceedings. It may, and usually will, be made even though the action has failed through no fault of the unsuccessful party. In Cilli v. Abbott [1981] FCA 70; (1981) 53 FLR 108, Keely, Toohey and Fisher JJ. pointed out (at p 111) that "the object of costs is not to penalize; it is to indemnify the successful party in regard to expense to which he has been put by reason of legal proceedings"; see also Anstee v. Jennings [1935] VicLawRp 27; (1935) VLR 144, at p 148.”
[5] Latoudis v Casey (1990) 170 CLR 534
When boiled down, it is the Bank’s position that Mr Charatsis’ indebtedness to it caused the issue of the petition and given the circumstances prevailing, it was reasonable for it to proceed against him in the manner in which it did. Therefore it is entitled to compensation, in the form of costs, notwithstanding the failure of its position in the Supreme Court appeal, which ultimately led to its petition being rendered nugatory.
In the terminology, adopted by McHugh J in Latoudis (supra), the Bank asserts it is entitled to costs as a form of compensation because it was reasonable for it to have commenced the bankruptcy proceedings against Mr Charatsis, because he was and remains indebted to the Bank.
This may be so. However, I do not think it can be said that the petition had to be withdrawn through no fault of the Bank. The fact remains that Mr Charatsis was vindicated, to some extent in the Supreme Court appeal. It was not a case of the Bank being nearly successful. Bampton J was satisfied that both the initial entry of default judgement and the subsequent proceedings to set the judgement aside, in the District Court, miscarried and the result was unfair to Mr Charatsis.
In these circumstances, I have come to the conclusion that the appropriate outcome of the aborted sequestration proceedings against Mr Charatsis is that each party should bear their own costs, including the costs of the review proceedings.
For all these reasons, the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding forty seven (47) paragraphs are a true copy of the reasons for judgment of Judge Brown
Date: 19 February 2016
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