Clout, D.L. v Gray, J.A.N

[1994] FCA 607

D THE FED-	OF AUS-	)
-	) No. ART 1 of 1992
1
)

THE MA= of an application by

-

BETWEEN: pavid Lewis CLOUT

Appellant

AND : m Arthur Nlcol

First Respondent

AND

Second Respondent

Spender J
26 August 1994
Brisbane

1.         The decisions of the taxing officer on the taxation of the appellant's bill of costs, rendered pursuant to order made on 31 August 1992, in relation to

it-8 1-21, 33, 86-89, 97-99, 104, 105, 109-110, 116-117, 134-137, 146-147, 160-161, 165, 170-182, 194-195, 202-203, 208-209 be confirmed.

2.         The costs claimed by the appellant in items 56-59, 101-103, 142-145 of that bill be allowed.

3.         the decisions of the taxing officer to diaallow the costs , or parts thereof, claimed in item 198-201, 204-207, 260-262, 264-266, 273 of that bill be set aside and referred back to the taxing officer for reconsideration in light of these reasons

PRINCIPAL

4.         There be no order as to costs of the appeal.

5.         The Court grants liberty to apply.

Xm:	Settlement and entry of orders is dealt with in
r. 124 of the W u ~ t c v  Rules.

RECEIVED M

FEDERK COURT OF

r )

1     No. ART 1 of 1992

1  

%!AN2 1

THE MA- of an application by

-

BETWEEN: pavid Lewis CLOUT

A~Dellant

AND : John Arthur-kicol

First Respondent

AND 8 -

Second Respondent

!xXam* Spender J

EhGS: Brisbane

R&&:  26 August 1994

This is an appeal brought pursuant to s.167(8) of the -CV Act 1966 ('the Act') by David Lewis Clout ('the appellant') seeking review of decisions of a Deputy District Registrar ('the taxing officer') disallowing certain items in a Bill of Costs.

The relevant aspects of the history of the matter

are as follows.

On 7 April 1989, John Arthur Nicol Gray, the

first respondent in this appeal and his wife, Mrs Joy Gray ("the Grays") filed debtor's petitions. The petitions were accepted and the appellant, who was then a partner in the firm Knight Ferrier Hodgson, was appointed Trustee of the bankrupt estates of the Grays. The bankruptcies of the Grays were annulled and a composition approved by this Court on 2 May 1990.

At the time of the Grays' bankruptcy, Braegrove Pty

Ltd (the second respondent in this appeal) wae the corporate

trustee of three trusts; the J.A.N. & J. Gray Family Trust;

the Gordon Family Trust; and the Birkdale Property Trust. Each of these trusts had some connection (using that term in a general sense for the purposes of this appeal) with the Grays. For example, the trust property of the Gordon Family Trust included the residence of the Grays, such property being settled on the that trust by the Grays and Mrs Gray's mother.

The beneficiary of that trust and of the J.A.N. & J. Gray

Family Trust was the Gray's daughter, Natasha Gray.

Prior to their bankruptcy, the Gray's were the sole

shareholders and directors of the second respondent. However, upon their bankruptcy, the Grays ceased to be directors of the

second respondent and their property in the shares in the	aecond respondent passed to the appellant as Trustee. He
subsequently appointed Mr Graham Ross Bendeich and MB Dawn Maree Farrington as directors of the second respondent. Mr John Thomas Fisher-Stamp was also appointed as a director of the second respondent some time later.
In early 1992, Mr Bendeich made application to the Federal Court pursuant to s.155(2) of the Act for registration as a trustee in bankruptcy ('the registration proceedings').
That application was opposed by the respondents. However, Mrs Gray, unlike the respondents, is not a party to these proceedings. The affidavit of the first respondent filed on 19 March 1992 in support of the respondents' opposition to the registration of Mr Bendeich, alleges impropriety on the part of the Mr Bendeich in his involvement in the conduct of the administration of the bankrupt estates of the Grays. In particular, it alleges that Mr Bendeich participated in breaches of the trusts administered by the appellant and that
Mr Bendeich breached his duties as a director of the second
respondent. It also alleges impropriety against, inter alia, the appellant and Feez Ruthning (solicitors for the appellant and for the second respondent during the course of the administration) and Knight Ferrier Hodgson (the firm of which the appellant was a partner at the time of the administration).

On 17 March 1992, the respondents and Natasha Gray

of Queensland against, inter alia, Mr Bendeich and others	(but not Mrs Gray) commenced proceedings in the Supreme Court
including Feez Ruthning and Knight Ferrier Hodgson ('the Supreme Court proceedings'). The appellant is not specifically named as a defendant- to the Supreme Court proceedings. The allegations made in the Supreme Court proceedings appears to be the same in substance as the complaints made by the respondents in the registration proceedings.
On 16 April 1992, the appellant, at the request of the Official Receiver, delivered to the Official Receiver his files in relation to the administration of the bankrupt estates of the Grays. Subsequent to the delivery of the files, a complaint was made by the solicitors for the respondents to the Inspector General in Bankruptcy in relation to the appellant's administration of the bankrupt estates of the Grays. The allegations made in the complaint appear to be the same as those raised in the Supreme Court proceedings and the registration proceedings.

On 5 June 1992, two aummonses to witness pursuant to

r. 125(1) of the (the "rules") to produce

documents relating to the administration of the Gray's bankrupt estates was issued in these registration proceedings, at the request of the respondents by the Federal Court Registry. These summonses were directed to the appellant and to Peez Ruthning. On 12 June 1992, a similar summons to witness was issued directed to the Official Receiver.

The summonses directed to the appellant and to the Official Receiver were considered by the Federal Court on a number of occasions. The first occasion was on 17 June 1992, at which hearing a Deputy Registrar discharged the summons directed to the appellant because all the appellant's documents had been handed on to the Official Receiver. More important, however, is the order of Mr Justice Neaves made on

31 August 1 9 9 2 . I n so f a r as i s r e l e v a n t , t h i s order

provided r

" m Braegrove P t y . Limited and John Arthur

N i c o l Gray ("the Objec tors* ) by their counsel purpose i n the proceedings pending i n the undertaking t o the Court n o t t o use for any

Supreme Court o f Queensland and numbered 380 o f

wi thout the express p r i o r l e a v e o f this Court	1992 or for any other purpose save this mat t e r
any document
any document) produced t o the Court by the (or the in format ion obtained from
O f f f c i a l Receiver f o r the Bankruptcy District
o f the S t a t e o f Queensland ("the O f f i c i a l
Rece iver") pursuant t o the summons d i rec ted to
him dated 12 June, 1992,
CONSGNT:
1. The Objectors and their S o l i c i t o r s have l eave , a t a time and place t o be agreed w i t h the District Reg i s t rar , t o i n s p e c t

(and make cop ies o f ) t h e documents so

produced to t h e Court by the O f f i c i a l

Receiver other	than the documents r e f e r r e d
to and	l i s t e d i n the schedule o f documents

bei ng Exhibf t 'DLCl ' t o the A f f i d a v i t o f
David Lewis Clout sworn 16 J u l y , 1992 and

f i l e d here in .

2.         P r i o r t o the a foresa id in spec t ion , the

l e a v e , under the superv i s ion o f the Solicitore for David Lewis Clout have

District Regis t rar , t o sea l up the

documents for which l e g a l profess ional

privilege i s claimed, b e i n g the documents

r e f e r r e d to i n the Exhibit 'DCLI'.

3.        The Objectors pay t o David Lewis Clout his

costs ( inc lud ing reserved costs) o f and i n c i d e n t a l t o the Summons dated 12 June,

1992 d i rec ted t o the O f f f c i a l Receiver,

his costs o f the at tendance b e f o r e the

District Reg i s t rar t o sea l up the

documents for which p r i v i l e g e i s claimed

and his costs ( i n c l u d i n g reserved costs)

o f and inc iden ta l t o the Summons d i rec ted

t o him dated 5 June, 1992, such c o s t e t o

be taxed i n the absence o f agreement.

d

The appellant delivered a Bill of Costs to the respondents in reliance on the third order above. The respondents filed a Notice of Objection to the Bill on 27 July 1993. It was taxed on 28 July 1993, 30 July 1993, 2 August 1993, and 3 August 1993. The allocatur was filed on 3 August 1993.

This application was filed on 13 August 1993, appealing from the decision of the taxing officer to disallow or reduce the amounts claimed in items 1-21, 33, 56-59, 86-89, 97-99, 104, 105, 109, 110, 116, 117, 134-137, 146, 147, 160, 161, 165, 175, 181, 182, 194, 195, 203, 208, 209, 219-222, 260, 261, 262, 263, 264, 265, 266 and 273. It came before Dnnmmnd J on 20 September 1993, when his Honour ordered that the taxing officer:

" report to the Court as to what reasons he

gave . . . with respect to his disallowances or partial disallowances of the i tems referred to in the application. "

The report of the taxing officer was filed on 5 October 1993. The appellant appeals on three separate grounds. The appellant has divided the items partially or wholly disallowed into 3 groups, each of which corresponds with a different ground of appeal. It will be convenient to deal with the items under appeal on the same basis in these reasons.

The first ground of appeal covers items 1-22 and 33 and relates to certain events prior to the issue of the summonses. It appears that prior to the issue of the

summonses, the Grays attempted to obtain access to the documents relating to the administration of their bankrupt estates by foreshadowing, in correspondence and a draft application, proceedings pursuant to 6.170 of the Act for an alleged breach of 8.179 of the Act on the part of the appellant. Such an application, however, was not made. Subsequently the respondents issued the summonses.

The appellant submitted before the taxing officer and before this Court, that the S. 179 proceedings and the summonmes had the same objective, i.e. gaining access to the records of the administration of the Gray's bankrupt estates. The appellant boldly submitted that as the summonses were just another method of achieving the same objective, his costs arising out of the foreshadowed 8.170 application were costs "of and incidental to the summons directed to him dated 5 June, 1992". The response of the taxing officer to this mubmission was as follows.

" The mandate to tax conferred by the Order o f the summons to witness and that the costs claimed a t items 1-21 were not of and incidental to the summons to witness as they related to other matters;	Neaves J restricted the costs in relation to
the claimed costs were a l l incurred prior to witness and so are not recoverable on a party the service upon Clout o f the summons to
and party basis;
the costs claimed i n items 1-21 were not either proper or necessary w i t h respect to the summons to witness since they related to correspondence between Clout and the solicitors for the former bankrupts, John Arthur Nicol Gray and Joy Gray with respect to a request by the former
bankrupts for information concerning the administration of their bankruptcies and
conpositions from Clout pursuant to Section 170
Joy Gray was not a party to the objection of the Bankruptcy Act 1966 and further that as
proceedings the costs should not be recoverable,
After perusing the documents relied on to support the claimed charges I ruled that items
Act which was not relevant to the summons to matter concerning Section 170 of the Bankruptcy 1-21 should be taxed o f f as they related to a
witness within the terms o f the orders and so
were unnecessary. "
The appellant submits t h a t the taxing o f f i cer f e l l

into error i n his reasoning by adopting a chronological teat for determining whether costs were "incidental t o the summons" and that his decision to disallow the items was, a t least i n part, based on an erroneous view t h a t costs incurred before the service o f the eummons could not be coats incidental to the summons.

The respondent referred t o a number o f cases in

relation t o the meaning of the expression "costs of and

incidental t o n . In m t c h e u v . U t c h e u ( 1 9 7 1 ) 19 FLR 100,

Neasey J stated a t 109%

" [Tlhe words 'or incidental to' are often, or	perhaps usually, omitted and that a1 though they
might have importance in regard to preliminary investigations and expenses and other matters, have much significance. In my opinion, that i s their omission from a particular order may not
the way in which this order should be interpreted. "
In u s t e r for I&me and T m t o r i e a v. Teeedale

(1924) 35 C.L.R. 120 at 130, the High Court observed, in relation to a provision of the Mbitration A c t 1889%

" I t thus appears tha t the two phrases 'costs of'	and 'costs of and incidental to' when used with
respect to an arbitration o f this nature, cover the same ground; and this objection also fails . "

re Pahev's Will Trust4 [l9621 1 WLR 17,

Ploughman J held, at p. 20:

" Strangely enough, there i s , I am told, no

in an order for costs. incidental to' and what they add to 'costs of'	authority as to the meaning o f the words 'and
In my judqent the words 'and incidental to' a s used i n the order of Buckley J , 'costs o f and consequent upon the negotiations' and costs incidental to negotiations' mean 'costs of and
be said to be costs incidental to the incurred before negotiations commenced cannot
negotiations. "

In my opinion, none of these cases are decisive on the question of the breadth of the expression "costs of and

the expression as compared to the expression "costs o f " , in my	incidental to". Whatever may be the precise significance of
view, the use of the expression "of and incidental to*
reflects an intention by the court or judge awarding costs to make an order of broad application. I see no reason to assume that this expression may not, as a matter of principle, comprehend costs incurred by either Party prior to the conrmencentant of proceedings.

In my opinion, the v (('the Rules')

reflect the view that the taxing officer may allow costs incurred prior to the issue of proceedings to be recovered by

a party. Rule 164(1) providesr

" The taxing officer may, on the taxation of a bill of costs, disallow in whole or in part fees, disbursements or charges that, in his opinion, were incurred or increased:

(a)	by a payment of unusually high fees to counsel or unusually high charges or expenses to witnesses or other persons;
(b) improper1	y, unreasonably, negligently or

unnecessarily; or

(c) in any unusual manner. "

There is no basis, in my opinion, for interpreting this rule as requiring that the taxing officer disallow costs incurred prior to the issue of proceedings. Rather, it calls on the taxing officer to consider whether such costs as are claimed were incurred improperly, unreasonably, negligently or umece8sarilyr or in any other unusual manner in the particular circumstances.

Also relevant is r. 171(4) which provides:

" Such amount shall be allowed as the taxing

officer in his discretion thi nks reasonable, having regard to all the circumstances of the particular case, for work and labour properly
performed and not specifically provided for by

these rules, but in respect of which, in the opinion of the taxing officer, an allowance should be made. "

U

Again, I see no basis for construing this rule as automatically excluding costs incurred prior to the issue of formal proceedings. Rather, it calls upon the taxing officer to consider whether work not specifically provided for by the rules should be allowed as reasonable in the particular case.

There is authority which supports the view that
costs incurred prior to the issue of formal proceedings may be

recovered. In Soci6t6 Anonvme Pweries Ost- v.

ce C - [l9281 1 KB 750, the

plaintiff was an insured under a marine contract of insurance.

The plaintiff was seeking to recover as part of its "taxed

costs", costs incurred by it after the insurer refused

indemnity under the policy of insurance but before the plaintiff issued a writ seeking indemnity under the policy. The plaintiff had, in fact, expended money gathering evidence which was relevant to issues in the proceedings which were eventually initiated. In relation to whether these costs were recoverable, Lord Hamworth, at 757, statedr

" I t appears to me, therefore, that there i s	power i n the Master to allow costs incurred
before action brought, and tha t i f the costs
has a discretion to allow these costs, which he of use and service i n the action, the Master are in respect of materials ultimately proving
probably w i l l exercise in favour o f the party incurring them, because they have been made use of during the course of the action."

Similarly, Lord Aitken, at p.762 statedr

" I t i s quite obvious that those costs are not

limited to costs incurred a f ter the w r i t has been

issued. Costs incurred before action brought are allowed every day to a limited extent, as appears by the Taxing Masters' Practice Notes, which,

though not binding, govern the practice. . . . The

Taxing Master has discretion in every case to decide whether the costs incurred before the action were necessary or proper for the attainment of justice; and the costs the Taxing Master has allowed in the present case may very we11 be included in that expression."

In that case, the Court of Appeal was construing

0 . LXV r. 27(29) of the w e e of the SuDreme Court which

provided that a Taxing Master is to allow "all such costs, charges and expenses, a8 shall appear to him to have been necessary or proper for the attainment of justice." Although in this case the Court is not concerned with a rule in identical terms to that before the Court of Appeal, in my opinion the observations of the Court of Appeal are useful in interpreting the broad discretion6 conferred upon taxing officers by the Rules. w i c k v. Barwick h m [l9381 Tas LR 1 also adopts this approach in construing a similar provision.

The cases cited relate to costs incurred in gathering evidence for use at the trial in later proceedings, and so they are not determinative of this case. They do suggest that the taxing officer has, in certain circumstances, the power to grant costs incurred prior to the start of formal proceedings.

The question is whether costs, incurred prior to the
issue of the relevant summons, can properly be regarded as
incidental to that summons. If a summons to a witness had

l3

been foreshadowed, and in preparation for meeting it costs were expended prior to its issue, it is quite probable that a taxing officer would allow those costs as 'incidental to' the summons.

I do not read the taxing officer's statement that "the claimed costs were all incurred prior to the service upon Clout of the summons to witness and so are not recoverable on a party and party basis", as indicating the erroneous view that in no circumstances could costs incurred prior to the service of the summons be allowed, notwithstanding the use of the word "so". Reading the taxing officer's reasons as a whole, it seems to me that he detemined that those costs were not of and incidental to the summons, because they related to other matters, being the request by Mr and PIrs Gray for information from their trustee pursuant to S. 170 of the Act. The fact that Mrs Gray was not a party to the objection proceedings in which the summons was issued strongly supports the correctness of the taxing officer's conclusion. The

reasonably open to him. It seems to me the separation in time	important consideration, however, is that that conclusion was
between the incurring of the costs and the service of the summons was a factor which the taxing officer relied on in concluding that the costs related to other matters, but it was but one factor.
In my opinion, the taxing officer considered the pre- service costs and the proceeding actually initiated, and

U

decided there was not a sufficiently close nexus between the two to justify allowing the recovery of the pre-service costs in a costs order relating to the proceeding actually initiated.

I now turn to consider all the remaining items under appeal save item 273. The respondents object to the grouping of these items together. They submitted that not all of the items were affected by the earor suggested by the appellant even if such error were made out.

The appellants' appeal in respect of these items asserts the taxing officer erred in law by adopting the view that the only live issue in the proceedings arising out of the summonses involved questions of legal professional privilege and that the question whether the summonses amounted to an abuse of process was not a live issue.

\

This submission arises in the following way. Aa

plaintiffs in the Supreme Court proceedings, the issues in	outlined above, the respondents, along with Natasha Gray, were
which were congruent with the issues arising out of the registration proceedings in which the summonses were issued.
The appellant says that his opposition to the summonses was, in part, based on an allegation that they were not issued bona fide for the purposes of the registration proceedings, but rather were issued for a collateral purpose,

l5

that being to advance the plaintiff's action in the Supreme Court proceedings. The appellant submits that the costs order by Neaves J should therefore include the costs arising out of the preparation of this ground of objection to the summonses. The appellant submits that the taxing officer erred in effectively determining that the issue of abuse of process would not have succeeded, and that costs incurred in preparing that objection should not be allowed, despite the fact that an undertaking not to use the documents was ultimately proffered.

On a fair reading of the taxing officer's reasons, I think this attack can apply only in relation to items 56-59 and items 260-262.

In relation to items 56-59, the taxing officer etateer

" There a r e j u s t over six folios to this

a f f i d a v i t .

I t was a l l o d a t five f o l i o s by d i sa l lowing an which had no th ing t o do wi th the subpoenaee	i r r e l e v a n t r e f e r e n c e to a Supreme Court a c t i o n
(sic) Davld Clout . "
In fact, Mr Clout was a partner of the firm which was

the sixth respondent in the Supreme Court proceedings.

In relation to items 260-262 dealing with fees to counsel, the taxing officer stated:

regarded a s excessive and inappropriate t o the	"A l l fees were t r e a t e d together. They were
i s s u e invo lved , namely the r e t u r n o f the
subpoenae and pne i s s u e u m n which the 8 -
bad reasowle ~ r o s mcts of succes~, (my
emphasis) that of legal professional privilege."

These passages do suggest that the taxing officer adopted the view that the issue of abuse of process was not one which was live in the summons proceedings.

In McLean Brothers and Riaa Ltd v. [l9071 VLR

28, a defendant had raised in his pleadings a number of defences. At the trial of the action, he did not attempt to substantiate one of the grounds of his defence, and called no evidence in eupport of that ground. The defendant succeeded on other grounds, and judgment was given for him with costs. On the taxation of the defendant's costs, the plaintiff objected that the defendant was not entitled to have the costs of the ground of defence which was not raised at the trial.

Hood J. stated at p.30:

"In the present case judgment was given for the defendant with coats; that means all the costs - i.e., he is to get the whole of his costs. It seems to me in the face of a judgment like that,

pleadings, evidence, and findings of the Judge to	the Taxing Kaster ought not to wander through the
see whether certain issues have been determined
i n a certain way. "

Counsel for the plaintiff sought leave to appeal to the Full Court and in so doing repeated the arguments advanced before Hood J. ~'Beckett ACJ, in delivering the judgment of the Court, stated at p.31:

We think that the leave to appeal ought not to

be given in this case. The effect of the

judgment pronounced is well understood, and we should be very reluctant to say anything that would indicate any doubt as to the correctness of the interpretation that has been put upon it. "

In my view, particularly in the light of the undertaking that prefaced the consent orders made by Neaves J, the taxing officer was wrong to conclude that the only live and relevant issue was the question of legal professional privilege. That part of the appellant's claims are reflected in the first two orders made by Neaves J.

It seems to me that items 56-59 inclusive should have been allowed in full and that the taxing officer proceeded in respect of items 260-262 on a wrong basis, which will require

him to reconsider what are appropriate fees on a correct

understanding of the matters that were relevant.

However, in my opinion, the appellant is in error in

suggesting that all the other items were similarly tainted by

party to the Supreme Court proceedings, and the question of an	the possible issue of abuse of process. The appellant was a
improper use of the material sought to be obtained for those proceedings was not irrelevant in all the circumstances. There are, however, many items disallowed on the basis that Mr
Clout has "sought to involve himself in the primary
proceedings unnecessarily". The conclusion in that regard by the taxing officer was open to him and in my view his decision

U

concerning items 86-89, 97-99, 134-137, 165, 194, 195 are all

of that character.

Further, there were a number of items which were
disallowed by the taxing officer because those items involved

"gratuitously gi ving cop1 es to another principal party and

another subpoenaee (sic)". The disallowance of these items

also seems to me to have been open to the taxing officer.

The costs which are unnecessary on this basis include items 104-105, 109-117, 134-137, 146-147, 160-161, 194-195. Items 170-182 are said by the taxing officer to relate to a subpoena against Feez Ruthning, not against the appellant, and he ruled that these were costs in the wrong bill. His conclusion in respect of these items, in my view, has not been shown to be wrong.

In respect of items 198-209 inclusive, it seems to me

that items 202-203 and 208-209 were properly disallowed, in

the sense that no error has been shown to attend that	disallowance. In relation to items 198-201 and 204-207, a
partial disallowance occurred. The precise basis for the partial disallowance does not appear and it seems to me that the better course in respect of those items from 198-209 in which there has been a partial disallowance should be a reconsideration by the taxing officer.

U

Similarly, the taxing officer said in respect of items 218-222 that those items did not concern the appellant and were disallowed. Error has been shown in respect of that disallowance. There are, however, some items which appear to have been disallowed but which are relevant to the issues raised by the summons. These items appear to me to be items 101-103, 107-108, 142-145. The disallowance of these items should be set aside.

In respect of this second category of items the appellant has had some limited success, and there are some items which require reconsideration in the light of theme reasons, and a readjustment will be necessary in respect of items 264-266.

As to the final category of the appeal, item 273, that item, which claimed attendance on taxation of costs at $72.00, was clearly a claim for an hourly rate in respect of the taxation. However, the taxing officer said:

" One hour is the time the taxation would have

taken if there had not been included in the
bill items which could not be supported. "

I find it difficult to accept that this correctly represents the position. The taxing officer is quite right when he said:

" I f the respondent takes successful and unsuccessful objections, allowance is made for success and lack of success by appropriate set- off. "

It seem to me also appropriate to order that in the light of the matters already referred to, and the matters to be considered on reconsideration, that the appropriate figure for attendance on taxation of costs should also be reconsidered.

As to the costs of the appeal, the appellant has had

partial success, but in many respects he has failed. In all the circumstances, I think that a just order as to costs is to make no order as to costs on the appeal.

I cert ify that t h i s and the

preceding nineteen (19 ) pages

a r e a t r u e copy o f the reason8

f o r judgment herein o f the

Honourable Mr Jus tlce Spender.

Date: 26 August 1994

Councrel f o r t h e appe l lan t : Mr P . Hack

S o l i c i t o r s f o r t h e appe l lant : Clayton (Its

S o l i c i t o r	f o r	t h e respondent:	Mr P . G . Lynch o f
Lynch & Company

Date o f Hearing:  21 October 1993