Cook (Trustee), in the matter of King v King (No.2)

[2022] FedCFamC2G 838

Federal Circuit and Family Court of Australia

(DIVISION 2)

Cook (Trustee), in the matter of King v King (No.2) [2022] FedCFamC2G 838

File number(s):	BRG 803 of 2019
Judgment of:	JUDGE VASTA
Date of judgment:	13 October 2022
Catchwords:	BANKRUPTCY – form of order – costs.
Legislation:	Bankruptcy Act 1966 (Cth)
Division:	Division 2 General Federal Law
Number of paragraphs:	48
Date of last submission/s:	30 August 2022
Date of hearing:	In Chambers
Place:	Brisbane
Counsel for the Applicant:	Ms Long
Solicitor for the Applicant:	Bennett & Philp Lawyers
Counsel for the Second Respondent:	Mr Russell
Solicitor for the Second Respondent:	James Conomos Lawyers

ORDERS

BRG 803 of 2019

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)

IN THE MATTER OF JEROME KING, BANKRUPT

BETWEEN:

PAUL JOHN COOK AND ADAM LEE JOHNSTON (JOINT TRUSTEES OF THE BANKRUPT ESTATE OF
Applicant

AND:

JEROME KING

First Respondent

LARISA IVANOVNA YUSHKOVA

Second Respondent

JEREMY DAVID ALLEN KING

Third Respondent

order made by:	JUDGE VASTA
DATE OF ORDER:	13 October 2022

THE COURT ORDERS THAT:

1.Each Respondent deliver up vacant possession of the property to the Statutory Trustees within 42 days of these orders.

2.The Statutory Trustees are entitled to sell the property in such way as they consider appropriate in the circumstances including, but not limited to, sale by auction or by private treaty.

3.The Second Respondent is at liberty to purchase the property upon terms that she shall not be required to pay any deposit and that she may set-off against the purchase price the value of the whole of her share in the property.

4.The Statutory Trustees shall distribute the sale proceeds in the following manner and order of priority:

(a)in payment of all costs and expenses of and incidental to the sale as provided for by s.37A of the Property Law Act 1974 (Qld) including those of any appointed real estate agent and agent's commission, legal costs, marketing and advertising costs;

(b)in discharge of Westpac Banking Corporation's registered mortgage number 716964167;

(c)in payment of the Statutory Trustees' reasonable fees and disbursements incurred by them in performance of their obligations pursuant to these orders and the orders of Judge Jarrett dated 4 February 2021

(d)in payment of the costs order at paragraph 5 below in the applicants' favour against the second respondent from the second respondent's share of the sale proceeds; and

(e)the remains to be paid to the applicants and the second respondent in proportions of 37.3% and 62.7% respectively, subject to paragraph 3 and 4(d) hereof.

5.The Second Respondent pay the Applicant’s costs of and incidental to these proceedings fixed in the sum of $120,000.

Note: The form of the order is subject to the entry in the Court’s records.

Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).

REASONS FOR JUDGMENT

JUDGE VASTA

Introduction

1. On 28 July 2022, I heard an application on behalf of the Trustees for a declaration that they held an interest in the property at Helensvale.

2. I sought submissions on the form of order that ought to be made as well as submissions on costs.  Those submissions (from the Trustees, the Second Respondent, the Trustees for Sale and the mortgagee in possession) have now been received by the Court and have been considered.

   Chronology

3. The First Respondent (who was also the Third Respondent) was made bankrupt on 13 July 2016.  On 20 January 2017, a Trustee was appointed to administer the bankrupt estate of the First Respondent.  In March 2022, I ordered that the present trustees be substituted for that particular trustee.

4. The Trustee had identified that the bankrupt had joint tenancy of a property at Helensvale.  The trustee contacted both the First Respondent and the Second Respondent regarding this property.  The Trustee was well within their rights to take possession of the property in order to realise the interest that the First Respondent had in this property.

5. To say that the First and Second Respondents did not cooperate with the Trustee, would be an understatement.  There were letters sent to the Second Respondent on 21 September 2017, 23 November 2017, 19 March 2018 and 26 November 2018.  It seems clear to me that the Second Respondent did receive those letters but did not make any attempt to reply to them or contact the Trustee.

6. On 4 February 2019, a representative of the Trustee had a telephone conversation with the Second Respondent.  It was outlined to the Second Respondent that the Trustee had the right to realise the interest that the bankrupt person had in this property.  That representatives of the Trustee foreshadowed that the Trustee would likely apply to the Court for an order for the possession and sale of the property.

7. Notwithstanding all of this, the Second Respondent refused to cooperate with the trustee.  The Trustee had no choice but to institute these proceedings which they did on 16 September 2019.  There was a notice of appearance filed in this Court on 16 December 2019.  It purported to be from the Second Respondent.

8. On 20 December 2019, the Registrar made orders relating to substituted service upon the First Respondent.

9. The matter came before His Honour Judge Jarrett (as His Honour then was) on 22 May 2020 for directions.  His Honour had been informed both Respondents had been served.  The First Respondent appeared in person but there was no appearance for the Second Respondent.

10. His Honour made the usual orders for the filing of affidavits and referred the matter to mediation.  The mediation was unsuccessful and the matter was adjourned for hearing to 3 September 2020.

11. On that occasion the First Respondent appeared but denied that he was the First Respondent and instead claimed that he was the Third Respondent.  As I alluded to in my reasons for judgment delivered ex tempore on 28 July 2022, this was part of a claim by the bankrupt to convince the Court that he was not the person who was in joint tenancy with the Third Respondent in relation to the property at Helensvale.

12. The bankrupt and the Trustees made submissions on 3 September 2020 but the Second Respondent still did not appear.  His Honour reserved his judgement and delivered it on 4 February 2021.  His Honour found that the bankrupt was the Third Respondent and that the First Respondent and the Third Respondent were one and the same person.

13. Having come to that conclusion, His Honour made the orders sought by the Trustee which were made against both the First and Second Respondents.

14. On 24 February 2021, the Second Respondent filed a further notice of appearance and also filed an application in a case.  That application sought orders that the order made by His Honour on 4 February 2021 (as far as they concerned her and the property) be set aside.  In that application, the Second Respondent claimed to be the beneficial owner of the property in its entirety.

15. I note that this was the first time that such claim had been made.  The Second Respondent did not mention that she believed that she was the beneficial owner of the property when she had her telephone call with representative of the Trustee two years previously.

16. The Second Respondent said that she was never served with any documents in the proceedings and that she was in Russia when the proceedings started.  She said that she returned to Australia for a short time in January 2020 but had been stuck in New Zealand since 30 January 2020 because of COVID-19 restrictions.

17. She said that she was not aware that proceedings had started in regards to the property and it was only when the First Respondent told her of the judgement (of 4 February 2021) that she knew that these proceedings had commenced.  She denied ever filing a notice of appearance and even though the notice of appearance appeared to have her signature on it, she did not believe she signed it and said that she did not sign it.

18. The Trustees did not seek to cross-examine the Second Respondent and so her evidence was unchallenged.  On 26 August 2021, His Honour set aside the 4 February 2021 orders as they pertain to the Second Respondent.  His Honour ordered that the appointment of the Statutory Trustees for Sale be stayed until a determination was made as to whether the Trustees did have an interest in the property.

19. His Honour reserved the costs of that matter stating that they should be reserved to the final determination of the proceedings because there may be matters revealed in the course of the evidence for trial which would impinge upon whether the Trustees or the Second Respondent should bear the costs of the application or whether there should be no order as to costs.

20. The matter was transferred into my docket and I made certain orders so that the hearing of the matter could occur on 28 July 2022.  I gave ex tempore reasons on that day as to why I found that the equitable amount that the Trustee holds is 37.32 per cent of the property.

    Costs

21. While the Second Respondent has conceded that there must be an order for costs against her, she submits that there should be no order as to costs against her in relation to the period from the institution of the proceedings (16 September 2019) to the date of judgment of His Honour on 26 August 2021. 

22. The Second Respondent also submits that there should be no order against her for any costs associated with the appointment of the Statutory Trustees from 4 February 2021 until 27 July 2022 (being the day before I made my ruling). 

23. The Second Respondent also submits that the Trustee should pay her costs of the application in which she was successful; that is, the costs reserved by His Honour be paid by the Trustee.

    Discussion

24. The Second Respondent submits that she should not be responsible for the costs incurred in an action of which she knew nothing about until February 2021.  However, if it had not been for her obstinate attitude when the Trustee had sent her letters in 2017 and 2018 as well as her non-cooperation after the phone call with the representative of the Trustee in February 2019, the Trustee would never have had to launch these proceedings in the first place.

25. It may well be that the Second Respondent was not served, and that was the finding of His Honour.  However she had been well and truly put on notice that the proceedings would be commenced if the First Respondent, Second Respondent and the Trustee could not come to an agreement. 

26. For this reason, I cannot agree with the submission that the Second Respondent should not be responsible for costs for the period between the institution of proceedings and the judgement of Judge Jarrett on 21 August 2021. Even if she knew nothing about the proceedings (as has been submitted), the proceedings were commenced because of her actions.

27. Whilst it may be that the Trustees had not served the Second Respondent, there was a notice of appearance that was filed.  That notice appeared to have the signature of the second respondent.  There is no evidence as to how that notice of appearance was filed, but there is absolutely no suggestion that it was filed through any agency of the Trustees.  They simply pressed ahead with the matter, as did His Honour Judge Jarrett, relying upon the fact that a notice of appearance for the Second Respondent had been filed.

28. There is no direct evidence as to what would have occurred if the Trustees had served the Second Respondent.  However, it seems to me that the Second Respondent would have maintained the tale that she told to this Court.

29. This means that once the Second Respondent was appraised of these proceedings, her attitude was to press ahead with a blatantly false narrative as to how the property was purchased.

30. To my mind, it is this circumstance which impinges upon whether or not the Second Respondent or the trustees should bear the costs of the application made by the Second Respondent in 2021.  This is exactly what was foreshadowed by His Honour Judge Jarrett when he declined to make a costs order but instead reserved the question of costs until the whole of the proceedings were completed.

31. For this reason, I decline to make a costs order in favour of the Second Respondent, notwithstanding that she was successful in her application before His Honour. I do take this matter into account in assessing the quantum of costs to be awarded.

32. The presenting and maintaining of an unreasonable and dishonest position justifies the making of an indemnity costs order.

33. But this is not the only reason why such an order is justified.  I found that the Trustees held an equitable amount of 37.32 per cent of the property.  On 24 January 2022, the trustees served an offer to settle to the Second Respondent.  This offer was that the Second Respondent pay $167,000 to the Trustees and that they would transfer their interest in Helensburgh property to the Second Respondent.

34. An alternative offer to settle was also served on the Second Respondent.  The basis of this offer was that the parties would agree that the Trustees held an equitable amount of 32% of the property whilst the Second Respondent held 68% of the property.  The property would be sold and the net proceeds would have been divided in those proportions.

35. The ultimate decision by this Court was more favourable to the Trustee than the offers the Trustee made that were rejected by her.  The refusal of these “Calderbank” offers can only be seen as being “unreasonable”.  The Second Respondent has pointed out that, because the offers did not contain the warning, that if the offers were rejected, indemnity costs would be sought, the office cannot be categorised as “Calderbank” offers.  This may be so, but it is a circumstance that I can take into account when looking at what the appropriate costs order ought to be.

36. The Second Respondent has also submitted that if the evidence of the two affidavits of Mr Adam Johnston had been available at the time that the offers were made, there could have been a different outcome.  I fail to see how this could be so.  The Second Respondent knew that she was attempting to perpetrate a fraud upon the Court and so any offer that put her in a position greater than having 50% of the equitable holding, should have been seen as a godsend by her.

37. Nevertheless, I am inclined to make an order for costs in a fixed sum which is somewhat less than the indemnity costs claimed by the Trustees.  I do so in recognition of the successful application of the Second Respondent in 2021 but also because a fixed costs order means that there will not be any costs expended through a taxation process.

38. The Trustees for Sale were appointed by His Honour in February 2021.  While the Second Respondent submits that she should not have to pay their costs up to the time I made my ruling, I disagree.  If the Second Respondent had been honest from the start, the sale would have been able to proceed immediately.  It has been her dishonesty that has caused the Trustees for Sale to have expended costs.  I am of the view that all the costs of the Trustees for Sale should be included in the disbursements from the proceeds of the sale before the proceeds are divided between the Trustees and the Second Respondent.

    Conclusion on costs

39. The affidavit of Charles Young deposes to the fact that the indemnity costs prior to the February 2021 judgment were in the range of $45,000-$51,000 and after February 2021 judgement the indemnity costs would be between $85,000 and $95,000.  In other words, the total indemnity costs are in the range of $130,000-$146,000.

40. I order that the Second Respondent pay the costs of the applicant fixed in the sum of $120,000. 

    Conclusion on the orders to be made

41. There would seem to be broad agreement among the Trustees, the First and Second Respondents, Westpac and the Trustees for Sale as to the orders that ought be made.  The only true controversy is whether the order sought by the Trustees (that the costs order that I have made be realised from the proceeds of sale) should be made.

42. The Trustees submit that this type of order could be described as “usual”.  I do not accept that such an order is usual.  This is actually an unusual case, for the reasons that have been well and truly traversed both in this judgement and my original ex tempore judgement.  However, the reasoning behind such an order seems self-evident.

43. The Second Respondent submits that the only reason for such an order to be made is a fear by the Trustees that the Second Respondent will declare herself bankrupt and they will be frustrated from realising the costs order that has been made.  The Second Respondent submits that if there were a situation in which the Second Respondent does become bankrupt, the proposed order would make the Trustees a secured creditor over the claims of any other unsecured creditors.

44. To my mind, this is all speculation.  There was no evidence given (nor would it have been relevant) as to the financial situation of the Second Respondent other than she owns other properties in New Zealand and, before COVID-19, had been able to travel to Russia on a semi regular basis.  There is certainly no hint that personal bankruptcy is imminent.

45. Still, such an order would give the Trustees security for the debt that the Second Respondent will owe to the trustees because of the making of the order as to costs.  The question is whether this is fair in all the circumstances.

46. The dishonesty of the Second Respondent was quite blatant.  The costs that were expended by the Trustees could well have been avoided if the Second Respondent had simply been honest from the start.  As I have already found, the Trustees are entitled to their costs.  Because of the sale of the property, there will be a reservoir of money that would be well and truly able to satisfy the debt owed by the Second Respondent.

47. It seems to me that it is entirely appropriate for the Court to make the form of order sought by Trustees.

48. I have had regard to the submissions of Westpac and the Trustees for Sale in making the orders that I now make.

I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Vasta.

Associate:

Dated:       13 October 2022