Cooper (Trustee), in the matter of Bobos v Bobos

[2023] FedCFamC2G 396

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 2)

Cooper (Trustee), in the matter of Bobos v Bobos [2023] FedCFamC2G 396

File number(s):	ADG 243 of 2021
Judgment of:	JUDGE YOUNG
Date of judgment:	26 April 2023
Catchwords:	BANKRUPTCY LAW – application for costs – where the trustee under a personal insolvency agreement seeks costs of a sequestration application and an application to terminate the agreement – where the debtor has paid the amounts due under the agreement – where the court dismisses the application for substantive orders – where the application has been dismissed without determination on its merits and has essentially settled – where the trustee has used the threat of a court hearing to ensure the debtor pays the amount owing – where the court is satisfied there was no improper use of the court process – where it is likely a sequestration order would have been made had the matter proceeded in the ordinary course – where the court is satisfied it is appropriate to make a costs order.
Legislation:	Bankruptcy Act 1966 (Cth)
Division:	Division 2 General Federal Law
Number of paragraphs:	11
Date of hearing:	26 April 2023
Place:	Darwin
Counsel for the Applicant:	Mr Narayan
Solicitor for the Applicant:	Travancore Legal
Solicitor for the Respondent:	Self- Represented Litigant

ORDERS

ADG 243 of 2021

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)

IN THE MATTER OF NICHOLAS BOBOS

BETWEEN:

NICHOLAS DAVID COOPER AS TRUSTEE OF THE PERSONAL INSOLVENCY AGREEMENT OF NICHOLAS BOBOS
Applicant

AND:

NICHOLAS BOBOS
Respondent

order made by:	JUDGE YOUNG
DATE OF ORDER:	26 APRIL 2023

THE COURT ORDERS THAT:

1.The bankruptcy application filed 10 August 2021 be dismissed.

2.The respondent pay the costs of the applicant with such costs if not agreed to be taxed.

3.Any taxation of those costs shall not proceed until the Personal Insolvency Agreement (PIA) between the parties is terminated and it clear what remuneration the applicant is to receive from the funds held by the applicant, NOTING that there should be no duplication between taxed costs, the applicant’s remuneration paid pursuant to the PIA and the amount paid by the respondent to the applicant in the amount of $5,000.00 on the 11 May 2022.

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 Young:

1. This is an application by a trustee under a personal insolvency agreement (PIA) for the costs of a sequestration application and an application to terminate the PIA after it has been made redundant, effectively, by the debtor paying the amounts due under the PIA, albeit with multiple extensions.  The trustee is seeking costs on the application even though the trustee acknowledges that the application must now be dismissed.

2. I will begin by dismissing the application for the substantive orders, that is, the termination of the PIA and for sequestration orders, the amount of the debt now having been paid, and aside from the question of costs that might be ordered in this Court, any trustee's remuneration is to be paid from the funds presently held by the trustee under the PIA.  The application having been dismissed without a determination on its merits opens up the question of whether there ought to be a costs order having regard to the fact that, effectively, the matter has been settled.

3. In the usual course, if parties settle a proceeding after the proceedings have commenced without an adjudication on the merits, there would be no order as to costs because the Court will not undertake an abstract examination of the likely outcome in order to determine who ought to have been ultimately held liable, or not liable, as the case may be.  That is a well understood principle.  However, in my view, this case is somewhat different because the trustee has, in effect, used the processes of the Court or the threat of a hearing, which would potentially involve the termination of the PIA and a sequestration order against the respondent, to ensure that the respondent pays the amounts due under the PIA, albeit after much delay by the respondent in making complete payments.

4. Indeed, I was told that the last payment due of the overall $200,000 due under the PIA entered into on 4 February 2021, was due to be paid on 22 October 2022 and was made on 2 February 2023.  So in substance, what has happened is that the trustee has used the processes available to him under the Bankruptcy Act 1966 (Cth) (“the Act”) – that is, in effect, the threat of a bankruptcy or sequestration order – to ensure that the debtor pays the amount due under the PIA.

5. While, of course, from time to time, remarks have been made by Courts exercising jurisdiction under the Act about the propriety or otherwise of simply using Court processes as a tool of enforcement, the fact is that it happens every day in the Courts exercising bankruptcy jurisdiction. It appears to me that the trustee was entitled to commence its proceeding. The proceeding was not improperly commenced and while its main motive was, no doubt, to enforce compliance with the PIA, I am not satisfied that there was an ulterior motive or an improper use of the Court processes which constitutes an abuse of process as was argued by the respondent.

6. The respondent’s time to pay by has been extended by indulgences by the trustee and, presumably, the creditors over a long period in order to recover the entirety of the amount due under the PIA.  That is clearly to the benefit of the creditors.  The respondent, Mr Bobos, has avoided, I am satisfied, a very high risk of a sequestration order and a personal bankruptcy.  While I have not made a determination on the merits of the matter, there is really nothing before me to suggest anything other than that there would in all probability have been a sequestration order made against Mr Bobos had the matter proceeded in the ordinary course.

7. Mr Bobos is critical about other aspects of the trustee's conduct.  He says, for example, that when proceedings were commenced on 10 August 2021 he was only $7,500 in arrears under the PIA. There was not merely $7,500 owing but, on my calculation, there was a further $50,000 plus the $7,500 that was apparently due under the fourth instalment of five.  Had, of course, the relatively small amount of $7,500 been due of the entire amount at 10 August 2021, then obviously, questions would arise about whether there ought to be a costs order in all the circumstances.  If that was all there was to it, a Court would be unlikely to be make costs order.

8. However, that is not the case, and the total amount that was outstanding at the time proceedings were commenced, which seems to have been in the order of $57,500, was, in my view, properly the subject of the proceedings commenced.  Mr Bobos has, by agreement with the trustee, paid the whole of the amount outstanding but over a very lengthy period of extension, some 12 or 18 months without, as far as I can see, there being any provision for the payment of interest.

9. The personal insolvency agreement also provides – and that is to be found at Annexure NDC1 to the affidavit of Mr Cooper filed on 10 August 2021 – for the trustee under the PIA to be remunerated from the funds recovered.  I am also told that Mr Bobos voluntarily paid an amount of $5,000 in May 2022 – that is, after the proceedings were commenced – apparently in consideration of the creditors agreeing to vary the PIA, which remains in place.  The order I intend to make is intended to avoid the risk of any duplication between the costs and the trustee's remuneration. 

10. Another argument that Mr Bobos put to me, distinct to the abuse of process argument, was that the trustee was estopped from seeking costs in view of the fact that he had agreed to accept the payments.  Of course, there would be an estoppel if the payments were made on the basis of a representation by the trustee that he would not seek costs in these proceedings but there is no evidence of any such representation.  I am not aware of any other possible argument that might give rise to an estoppel preventing the trustee from seeking costs.  I am not satisfied that there is any estoppel or any abuse of process that would prevent the trustee seeking costs.

11. Having regard to all those matters, I am satisfied that it is appropriate to make a costs order.

I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Young.

Associate:

Dated:       26 April 2023