Cooper (Trustee) in the matter of Bobos v Bobos (No 2)
[2023] FedCFamC2G 1229
•22 December 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Cooper (Trustee) in the matter of Bobos v Bobos (No 2) [2023] FedCFamC2G 1229
File number: ADG 243 of 2021 Judgment of: JUDGE BROWN Date of judgment: 22 December 2023 Catchwords: BANKRUPTCY – personal insolvency agreement – relevant trustee commenced proceedings to terminate agreement pursuant to section 222C of the Bankruptcy Act – proceedings subsequently adjourned on several occasions – during the periods of adjournment the relevant PIA varied to extend time for payment of agreed amounts – terms of PIA subsequently met – trustee sought costs of 222C proceedings which were not ultimately required – orders made to this effect – did the orders reflect intention of the court – application made to vary orders – matters to be considered Legislation: Bankruptcy Act 1966 (Cth) Pt X, ss 27, 32, 188, 189, 222C, 5-15, 90-15
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules r 17.05
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 r 13.01
Federal Court Rules 2011 Pt 40 Div 40.2
Cases cited: Cooper (Trustee), in the matter of Bobos v Bobos [2023] FedCFamC2G 396
Oxford Funding Pty Ltd v Oxford Asia Investments Pty Ltd (No 2) [2006] FCA 1542
Owston Nominees No 2 Pty Ltd v Branir Pty Ltd [2003] FCA 629
Division: Division 2 General Federal Law Number of paragraphs: 72 Date of hearing: 8 December 2023 Place: Adelaide Solicitor for the Applicant: Mr Narayan, Travancore Legal & Advisory Respondent: Self-represented Litigant ORDERS
ADG 243 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF 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 BROWN
DATE OF ORDER:
22 DECEMBER 2023
THE COURT ORDERS THAT:
1.Pursuant to rule 17.05(2)(e) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 order 3 of orders made on 26 April 2023 is set aside.
2.Pursuant to rule 17.05(2)(e) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 order 2 of orders made on 26 April 2023 be varied to read ‘the respondent pay the costs of the proceedings instituted by the applicant trustee on 9 August 2021 as agreed between the parties or failing agreement as taxed.’
3.The respondent pay the applicant’s costs of the Interim Application filed 21 September 2023 as agreed between the parties or failing agreement as taxed.
4.All extant applications be dismissed.
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 BROWN:
INTRODUCTION
These proceedings arise under the provisions of the Bankruptcy Act 1966 (Cth).[1] They relate to a personal insolvency agreement[2] between the parties concerned, which was executed on 4 February 2021. In general terms, a PIA is a mechanism for a person in debt to enter an agreement with creditors, without becoming bankrupt. They are controlled by Part X of the Act.
[1] Hereinafter referred to as “the Act”.
[2] Hereinafter referred to as “the PIA”.
However, in analogous terms to sequestration, a PIA involves the appointment of a trustee, who owes obligations to the creditors of the debtor concerned. As a consequence, such a trustee has an entitlement to be remunerated for the performance of the obligations entailed in administering a PIA.
The discrete issue raised in the current matter concerns what should be the method of calculation of costs, if any, in proceedings brought by the trustee concerned, which were ancillary to the relevant PIA. The proceedings were directed towards terminating the PIA on the basis that the debtor concerned had breached his obligation under it. However, during the currency of those proceedings, the terms of the PIA in question were ultimately satisfied, after payment of the sums envisaged by it had been paid, albeit later than originally envisaged.
This completed payment rendered the termination proceedings otiose. However, from the trustee’s point of view, he remained entitled to costs, referrable to his application, notwithstanding the fact that it had not been formally adjudicated. In the present matter, I am called upon to resolve issues arising from an earlier order of another judge of this court, who has ruled on this issue but who has recently retired.
The judge concerned determined that the relevant trustee was entitled to costs but some difficulties have subsequently arisen regarding whether the orders made properly reflected the intention of the court. These reasons for judgment are directed towards resolving this issue.
BACKGROUND
The applicant, Nicholas David Cooper[3] is a chartered accountant. He became the controlling trustee of the estate of the respondent, Nicholas Bobos,[4] on 18 December 2020, pursuant to the provisions of section 188(1) of the Act, which reads as follows:
[3] Hereinafter referred to as “the trustee”.
[4] Hereinafter referred to as “the debtor”.
(1)A debtor who desires that his or her affairs be dealt with under this Part without his or her estate being sequestrated and:
(a) is personally present or ordinarily resident in Australia;
(b) has a dwelling‑house or place of business in Australia;
(c)is carrying on business in Australia, either personally or by means of an agent or manager; or
(d)is a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
may sign an authority in accordance with the approved form naming and authorising a registered trustee, a solicitor or the Official Trustee to call a meeting of the debtor’s creditors and to take control of the debtor’s property.
Mr Bobos authorised Mr Cooper to call a meeting of his creditors, which was held on 4 February 2021. Pursuant to the provisions of section 189(1) the trustee was required to prepare a report, for this meeting summarising and commenting on information provided by the relevant debtor about his affairs and recommending to the meeting of creditors how their interests would be best served.
Mr Cooper prepared such a report in respect of Mr Bobos’ affairs on 21 January 2021, which was later supplemented by a further report on 1 February 2021. From these reports, it is apparent that Mr Bobos had been the sole director of Bobos Engineering Australia Pty Ltd, which had been placed into liquidation.
The trustee, in his report, calculated that Mr Bobos had debts well in excess of $1m, the largest of which was a debt of $677,254 to the Australian Taxation Office. He also had the potential to be liable for a sum in excess of a further $1m in respect of possibly trading, whilst insolvent.
Mr Cooper recommended to the meeting that a PIA between him and Mr Bobos be ratified by creditors. The PIA envisaged that a sum of $200,000.00 which was to be provided by a third party, Boss Construction Broken Hill Pty Ltd,[5] would be provided, over time, to Mr Bobos’ creditors. It seems clear that Boss Constructions employed or was controlled by Mr Bobos in some way and enabled him to derive income from erecting steel work and performing other construction work, throughout Australia, but most usually in New South Wales.
[5] Hereinafter referred to as Boss Construction.
In specific terms, the PIA provided as follows:
The Debtor will make available to the Trustee, as a contribution available to satisfy the Controlling Trustee's and Trustee's remuneration and expenses and his Creditors' claims, the following property:
Third party contribution, by Boss Constructions Broken Hill Pty Ltd: $200,000
$15,000 of this contribution has been paid into the Controlling Trustee's firm's, Oracle Insolvency Services, trust account. The balance of $185,000 will be paid as follows:
•$35,000 within 3 business days of the acceptance and execution of this PIA;
•$50,000 within 60 business days of the acceptance and execution of this PIA;
•$50,000 within 120 business days of the acceptance and execution of this PIA; and
•$50,000 within 180 business days of the acceptance and execution of this PIA.[6]
[6] See PIA dated 4 February 2021 being Annexure NDC-1 to the Affidavit of the trustee filed 10 August 2021 at page 6.
The trustee’s remuneration was also controlled by the PIA, which read as follows:
The Controlling Trustee and the Trustee of this PIA, will each be remunerated on a time basis, calculated at the hourly rates of Oracle Insolvency Services, plus expenses necessarily incurred, plus any applicable Goods and Services Tax, and the Controlling Trustee/Trustee shall be entitled to draw such expenses and remuneration from the funds held by him, on a monthly basis, or otherwise, as he sees fit.[7]
[7] See PIA dated 4 February 2021 being Annexure NDC-1 to the Affidavit of the trustee filed 10 August 2021 at page 7.
The debtor paid Mr Cooper the sum of $15,000 at the time the PIA was executed. Thereafter, Mr Cooper has calculated that the balance of $185,000 was to be paid as follows:
•$35,000 by 9 February 2021 (First Instalment);
•$50,000 by 5 May 2021 (Second Instalment);
•$50,000 by 29 July 2021 (Third Instalment); and
•$50,000 by 22 October 2021 (Fourth Instalment).[8]
[8] See Affidavit of the trustee filed 10 August 2021 at [5].
Mr Cooper has deposed that the debtor failed to pay the full amount of the second instalment on time, paying only $20,000.00 by 11 May 2021.
In these circumstances, Mr Cooper provided a further advice to creditors on 11 June 2021, which he proposed would be discussed by the debtor’s creditors at a meeting scheduled for 25 June 2021. In this report, Mr Cooper detailed difficulties, which he had encountered, in receiving the agreed instalments from the third-party related entity, Boss Construction.
Mr Cooper also advised creditors that the debtor had made a request to vary the PIA so that the relevant dates for the payment of the second, third and fourth instalments would be pushed out to 31 July 2021, 22 October 2021 and 12 January 2022 respectively.
In his report, Mr Cooper sought the views of the various creditors concerned in respect of this variation. He wrote to them as follows:
At this stage I am not prepared to formally propose that creditors allow the variation of the PIA as I am not satisfied it is in creditors’ best interests to proceed. This is based on the following circumstances:
•Boss has repeatedly been late in making payment to date; and
•the length of the extension sought appears excessive.
However, if the variation is accepted, the prejudice to creditors, other than the timing of payments, appears to be minimal.
If the PIA is terminated, the bankruptcy of the Debtor would allow a Trustee to conduct investigations into the Debtor’s financial affairs which may result in further recoveries, as noted in my section 189A Reports.
However, I am mindful that as noted in my section 189A Reports, the return to creditors in a bankruptcy situation may only be up to 1.62 cents in the dollar, compared to up to 11.45 cents in the dollar if the PIA is completed.[9]
[9] See Annexure NDC-3 to the Affidavit of the trustee filed 10 August 2021 at page 98.
Ultimately, the variation was approved and new dates for each of the relevant instalments came into effect on 23 July 2021. This required the payment of the balance of the second instalment to be made on or before 31 July 2021. It is Mr Cooper’s evidence that this was not paid and accordingly, on 3 August 2021, he wrote to Mr Bobos in the following terms:
A payment of $30,000 was due to be paid under the varied PIA on 31 July 2021. That payment has not been received.
Please bring this payment to order within 24 hours. Failing payment the Trustee will apply to Court to terminate the PIA without further notice.[10]
[10] See Annexure NDC-6 to the Affidavit of the trustee filed 10 August 2021 at page 137.
This was the background to Mr Cooper commencing proceedings in this court on 10 August 2021. He sought orders pursuant to section 222C of the Act that the PIA between him and Mr Bobos be terminated on the basis that the debtor had failed to carry out or comply with a term of the agreement [Section 222C(1)(e)] and the debtors’ estate be sequestrated as a consequence and he [Mr Cooper] be appointed as trustee of the estate.
In an affidavit in support of his application, Mr Cooper deposed that the following considerations justified the termination of the relevant PIA:
·Mr Bobos had demonstrated a poor history of compliance with the PIA;
·He had defaulted in his obligations under it and had been formally warned that this would result in the trustee seeking to terminate the PIA;
·Mr Bobos’ conduct had resulted in the trustee incurring additional expenditure in administering the agreement;
·Two of Mr Bobos’ creditors, namely the Australian Taxation Office and the liquidator of Boss Constrictions had objected to the July 2021 variation to the PIA.
Mr Bobos opposed the termination of the PIA. From his perspective, the trustee had been officious and harsh in his dealings with him. He deposed that his business had been impacted by the official lockdowns, which had been imposed in response to the Covid pandemic emergency. He asserted that it was petty to threaten proceedings when some monies had been paid and it was obvious that his financial affairs were being impacted by factors outside his control.
However, Mr Bobos further deposed that, notwithstanding these difficulties, he had been able to bring the payments up to date, as of 9 August 2021. In these circumstances, he sought a further extension to allow compliance with the PIA.
The application first came before Judge Young on 7 October 2021, when it was adjourned to 17 November 2021. Shortly prior to this latter date, the trustee’s solicitor, Mr Narayan filed an affidavit, to which was attached a further updating report to creditors prepared by Mr Cooper on 16 November 2021.
Significantly, the trustee provided the following analysis of the debtor’s compliance with the relevant progress payments, under the PIA:[11]
[11] See Annexure ASN-1 to the Affidavit of Arnie Subramanian Narayan filed 16 November 2021 at page 5.
Instalment No
Due Date
Amount Received
Date Received
First
9 February 2021
$10,000
5 January 2021
$5,000
1 February 2021
$12,000
22 February 2021
$23,000
23 February 2021
Total
$50,000
Second
31 Jul 2021
$10,000
3 May 2021
$10,000
11 May 2021
$15,000
4 August 2021
$7,500
9 August 2021
$7,500
23 August 2021
Total
$50,000
Third
22 October 2021
$25,000
22 October 2021
$12,500
16 November 2021
Total
$37,500
Accordingly, as at the date of the mention, before the court, of 17 November 2021, Mr Bobos was in default of his obligations, under the terms of the PIA, in respect of $12,500 of the third instalment.
The trustee also advised creditors that Mr Bobos had requested a further variation to the PIA, which would see the third instalment being completed on 6 January 2022 and the time for the making of the fourth instalment extended to 8 April 2022. This proposal was scheduled for potential discussion at a meeting of creditors scheduled for 3 December 2021.
This was the background to the further adjournment of the proceedings, by Judge Young, to 11 February 2022. On 4 February 2022, Mr Narayan filed a further affidavit in which he deposed that the debtor had failed to pay the balance of the third instalment, in the amount of $12,500.00 on its due date of 6 January 2022.
Notwithstanding this omission, on 11 February 2022, Judge Young further adjourned the proceedings relating to the trustee’s application to terminate the PIA to 3 June 2022. However, the relevant order noted that the trustee might seek an order for cost on the next date.
Mr Narayan filed a further affidavit on 2 June 2022 in which he deposed that Mr Bobos had failed to pay the fourth instalment of $50,000.00 due under the PIA, which had been scheduled to be made on 8 April 2022. This omission had led to a further request from the debtor for the PIA to be varied again to allow more time for payment. Mr Bobos, who described himself as the manager of Boss Construction made the request in the following terms:
·Boss Construction had not been able to travel to complete projects due to lockdown and a significant proportion of its staff suffering Covid;
·Mr Bobos had no assets personally and it would be in the interests of his creditors to allow him a slight indulgence to comply with the remaining terms of the PIA;
·Upon noting that $150,000.00 of the monies due had been paid, he proposed paying $5,000.00 to cover expenses;
·The remaining payment of $50,000.00 be paid in two instalments of $25,000.00 to be paid on 22 August and 15 November 2022 respectively.
It is agreed between the parties that Mr Bobos had paid the sum of $5,000.00 attributable to the trustee’s costs on 11 May 2022.
In this context, on 3 June 2022, Judge Young further adjourned the proceedings until 23 November 2022 and noted that this adjournment was made consensually by the parties so that they could prepare further aspects of their agreement. The amendment proposed by Mr Bobos was approved by creditor at a meeting formally held on 27 June 2022.
On 22 November 2022, Mr Narayan filed yet another affidavit in which he deposed that neither of the payments scheduled under the amended PIA were made as scheduled, although it was conceded that a payment of $25,000.00 had been made the preceding evening.
In response, Mr Bobos informed the trustee that Boss Construction had been hampered by flooding in respect of the completion of a project at Wilcannia. A representative of the trustee reiterated that Mr Cooper would press on with the sequestration application if the monies remained outstanding.
Again, this provided the context for a further adjournment of the proceedings until 3 February 2023 and yet another affidavit of Mr Narayan, which was filed the preceding day. In the affidavit, Mr Narayan deposed that neither of the payments foreshadowed for August and November had been paid as scheduled but Mr Bobos had paid a further instalment of $25,000.00 on 21 November 2022 leaving the final payment of $25,000.00 outstanding.
The final payment was made on 2 February 2023, the day prior to the adjourned hearing date. In these circumstances the case was adjourned to 26 April 2023 and each party was directed to file material in respect of the issue of the costs of the sequestration application, which had become redundant as a consequence of the completion of the payment terms envisaged by the PIA.
THE APPLICATION FOR COSTS
I have been provided with a copy of Judge Young’s reasons for judgment in respect of the parties’ competing application for costs.[12] Mr Narayan conceded that, as all the amounts due under the PIA had been provided, the trustee’s application for the sequestration of Mr Bobos’ estate must be dismissed.
[12] See Cooper (Trustee), in the matter of Bobos v Bobos [2023] FedCFamC2G 396.
He also conceded that this dismissal had not occurred in the context of any hearing of the merits or otherwise of Mr Cooper’s application by the court and therefore it could not be said that costs would, in effect, follow the event. In this context, the situation in the current matter was analogous to one in which the parties concerned had settled the litigation between the court without its adjudication.
However, notwithstanding this state of affairs, Mr Narayan relied on the provisions of section 32 of the Act, which provides a wide power on the court to make an order for costs in bankruptcy proceedings. The section reads as follows:
The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit.
In this context, it was the submission of Mr Narayan that there were sufficient circumstances, in the present matter, to justify an award of costs in the trustee’s favour. These circumstances arose from the debtor’s conduct which had been marked by consistent delay in meeting his obligations under the PIA, which had been the obvious precipitating factor in the trustee commencing the sequestration proceedings, which had ultimately achieved their desired outcome namely the payment of the amounts due under it.
In achieving this outcome, the trustee had been put to significant expense including the necessity to file five affidavits in the court detailing the progress (or lack thereof) in respect of Mr Bobos meeting his obligations on time. Reliance was place on the following passage from Oxford Funding Pty Ltd v Oxford Asia Investments Pty Ltd (No 2):[13]
The Court has undoubted jurisdiction to make an order for costs notwithstanding that the proceeding has otherwise settled; … While any question of costs always remains a matter of discretion, the approach in the cases is usually that the Court will not try a hypothetical action to decide which party would have won. Rather, the Court will assess the conduct of the parties including, in appropriate cases, the conduct prior to the commencement of proceedings, to see whether that conduct was “reasonable”. This rather suggests that an order will only be made where the party seeking costs has acted reasonably and the other party has not. Where both parties have acted reasonably, or unreasonably, the costs should lie where they fall. “Unreasonableness” in this context could include rejecting a reasonable offer or an invitation to engage in discussions which hold out reasonable prospects of a compromise. (citations removed)
[13] Oxford Funding Pty Ltd v Oxford Asia Investments Pty Ltd (No 2) [2006] FCA 1542 at [5] per Heerey J
Mr Bobos filed a lengthy affidavit opposing any award of costs. Once again, he detailed the difficulties experienced by Boss Construction in completing a number of projects throughout Australia due to the pandemic emergency.
It also appears to be his position that he had been treated harshly because of the influence of the Australian Taxation Office on the trustee and it was only proper, in all the circumstances, that he should have been given some degree of forbearance before the sequestration proceedings were brought, particularly given that the amount outstanding ($7,500.00), when the proceedings commenced, must be regarded as comparatively modest in the overall scheme of things.
In all these circumstances, he characterised the sequestration proceedings as an abuse of process. In the alternative, he submitted that the trustee should be estopped from seeking costs on the basis that he had accepted the payments proffered to him on the underlying assumption that costs would not be sought.
After dismissing the sequestration application, in his judgment Judge Young summarised the situation in the following terms:
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.[14]
[14] Cooper (Trustee), in the matter of Bobos v Bobos [2023] FedCFamC2G 396 [3].
Judge Young found that, in all the circumstances, Mr Cooper was entitled to commence his proceedings although his motivation was to enforce compliance with the PIA. In these circumstances, he found as follows:
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.[15]
[15] Cooper (Trustee), in the matter of Bobos v Bobos [2023] FedCFamC2G 396 at [6].
He further noted that it had taken an additional period of between 12 to 18 months for the trustee to obtain the payments due without any provision for the payment of interest. Given these findings, it is clear, in my mind, that Judge Young intended that Mr Bobos would pay the trustee’s costs arising from the sequestration proceedings, notwithstanding they had not been formally adjudicated by him. Judge Young said as follows:
The personal insolvency agreement also provides … 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.
As a consequence, he made the following orders:
The bankruptcy application filed 10 August 2021 be dismissed.
The respondent pay the costs of the applicant with such costs if not agreed to be taxed.
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.
THE CURRENT PROCEEDINGS
It is what those orders mean in practical terms and, more importantly, how they are to be implemented, which give rise to the current proceedings. Due to the recent retirement of Judge Young from the court, they have been listed before me for determination. Given the inherent controversy, which appears to have marked every step of the proceedings to date, I have attempted to summarise, as carefully as I can, the various matters which bring the parties to the current point.
Essentially, as I understand the current impasse, Mr Cooper contends that given the PIA has not yet been terminated, under the strict terms of the relevant order, the assessment of his costs, as awarded by Judge Young, cannot proceed and, in these circumstances, he seeks the court’s clarification.
Mr Bobos seems to be seeking an order seeking the termination of the PIA. Significantly, in this context, Mr Narayan fears that, if such an order is made, it may have the unwitting consequence of nullifying what was intended, by both the trustee and the debtor in entering the PIA in the first place, namely that Mr Bobos would be released from all his provable debts by the agreement. As such, if the PIA is so terminated, it will deprive him of the benefit ensuing to him of having paid the sum of $205,000.00 to the trustee. Clearly this cannot have been the intention of Judge Young.
This would occur if the PIA is to be terminated under the provisions of Part X. It would be regarded as being void ab initio and therefore its protective provisions so far as Mr Bobos is concerned also nullified entirely. For these reasons, Mr Narayan does not seek the termination of the PIA as a precursor to the taxation of any legal costs to be awarded to Mr Cooper as a consequence of him bringing the proceeding pursuant to section 222C of the Act.
The trustee commenced the current proceedings on 21 September 2023 seeking the following orders:
That pursuant to section 27 of the Bankruptcy Act, 1966 and section 90-15(1) of the Insolvency Practice Schedule (Bankruptcy), the Applicant be permitted to proceed with the taxation and recovery of costs from the Respondent pursuant to the Orders made by His Honour Judge Young on 26 April 2023.
That the costs of and incidental to this Interim Application be costs in the administration of the Respondent’s estate.
Section 90-15(1) provides that this court, which has jurisdiction in bankruptcy pursuant to section 27 of the Act, may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate. Section 5-15 defines a regulated debtor as including a person whose affairs are subject to control under Part X of the Act.
In the alternative, Mr Bobos seeks an order that the orders of Judge Young be set aside and no orders for cost made. It is his contention that the costs already approved by the creditors must be considered to be eye-watering in their quantum. In addition, it will be impossible to determine whether there is any duplication between costs claimed or taxed and the amount of $5,000.00 already provided by him on account of costs.
Mr Narayan submits that order 3 of the orders of Judge Young creates three preconditions to any taxation of the trustee’s costs arising from the proceedings, which can be summarised as follows:
·Termination of the PIA – which is problematic for the reasons set out above;
·Clarity as to what will be the trustee’s remuneration for the funds held by him;
·Segregation between the costs so taxed; the trustee’s remuneration; and the additional $5,000.00 paid by Mr Bobos to Mr Cooper.
In respect of the two last matters, Mr Narayan relies on the evidence of Mr Cooper,[16] which can be summarised as follows:
·The trustee had been approved by creditors to receive $115,610.34 in remuneration, which sum had been drawn from the monies received by him from Mr Bobos;
·The trustee did not propose to take any further remuneration for himself;
·The sum of $5,000.00 had been paid into the pool of estate funds and was utilised by the trustee in reporting to creditors in respect of Mr Bobos’ application to vary the PIA. Thus it was readily capable of being segregated from any costs to be taxed arising from the current application raised by these proceedings.
[16] See affidavit of the trustee filed 24 November 2023.
In addition, Mr Cooper deposed that the total amount of funds administered by him, arising from the PIA, totalled $205,263.80 (which included the $5,000.00 payment of 11 May). Of this sum, as indicated above, $115,610.34 had been utilised to pay his approved remuneration; a further $48,021.61 had been defrayed in respect of legal fees relating to the current proceedings; and $16,324.65 had been incurred in other costs and disbursements; leaving a balance of $25,307.20.
I can readily understand that, from the perspective of Mr Bobos, the entire exercise of the PIA, so far as it pertains to his affairs, can be characterised as an exercise in absurdity, given the extent of the costs involved when balanced against the return to creditors. In this context, during the hearing before me, he had some extremely harsh words for the trustee, which I will not repeat.
However, the recovery of debts is not the sole objective of the Bankruptcy Act, which is directed toward regulating Australia’s personal insolvency system by allowing individuals, such as Mr Bobos, to discharge their unmanageable debts and ultimately move on in a financial sense. When viewed from this perspective, the PIA has achieved one of its main objectives, which has been greatly to the advantage of Mr Bobos personally.
However, in reaching that objective, the trustee has incurred significant legal costs. I agree with Judge Young that Mr Cooper, due to the dereliction of Mr Bobos, was entitled to bring the proceedings of August 2021. In addition, it is clearly the case that those proceedings became protracted due to Mr Bobos’ continued late payments of the monies due from him, which in turn led to the legal costs becoming greater.
Whilst Mr Bobos is entitled to feel personally aggrieved at the manner in which Mr Cooper approached the matter, it remains the case that he (the trustee) was subject to professional and statutory responsibilities to ensure compliance with the relevant PIA and ultimately to seek its termination if its obligations were breached. Clearly Mr Bobos did breach the conditions on many occasions.
I agree with Judge Young’s assessment that the proceedings to which these reasons relate cannot be characterised as an abuse of process. As he also determined the proceedings must be regarded as having costs implications. The proceedings were adjourned many times, with Mr Bobos’ acquiescence. Clearly, the alternative for him would have been much more severe.
It is the clear and obvious import of Judge Young’s judgment of 26 April 2023 that he considered that it appropriate that Mr Bobos personally be liable for those costs, albeit that there be no double-dipping so far as the $5,000.00 earlier paid was concerned or in respect of other aspects of Mr Cooper’s remuneration. Given what has been deposed by Mr Cooper I am satisfied that these concerns have been allayed.
In my view, the fact that Mr Cooper has already paid some of the legal costs incurred by him as a consequence of these proceedings, does not act as a bar to him being able to recoup these costs from Mr Bobos. It would seem that this is only means through which any dividend to be paid to his creditors may be, modestly, increased.
In addition, in my view, it is also readily apparent that Judge Young did not intend the PIA to be terminated and so have the consequence of depriving Mr Bobos of the protection which it provided him vis-à-vis his creditors. Rather, it seems to be the case that he did not wish there to be any impediment arising from it which would result in the potential frustration of Mr Cooper being able to be reimbursed his costs of these proceedings, on either an agreed basis or as otherwise taxed by the court.
In these circumstances, I have reached the conclusion that the orders made by Judge Young on 26 April 2023 did not reflect the intention of the court. In addition, I am satisfied that this court has the authority, pursuant to the provisions of rule 17.05(2)(e) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 to vary or set aside this order. The relevant portions of the rule read as follows:
(1)The Court or a Registrar may vary or set aside a judgment or order before it has been entered.
(2)The Court or a Registrar may vary or set aside a judgment or order after it has been entered if:
(a) …
(e) it does not reflect the intention of the Court;
I am satisfied that the circumstances surrounding this case indicate that the orders made by Judge Young on 26 April 2023 did not reflect his intent that Mr Bobos would continue to have the protection afforded to him of the relevant PIA but, at the same time, Mr Cooper would have the costs of bringing the proceedings against him which he (Mr Cooper) commenced on 9 August 2021. As such, the relevant orders lacked precision and clarity too such a degree to render them doubtful and ambiguous.
I am also satisfied that the power in rule 17.05(2)(e) is a reflection of the inherent power in a court to vary its orders in such a way as to carry out its own meaning, and where language has been used which is doubtful, to make it plain.[17]
[17] See Owston Nominees No 2 Pty Ltd v Branir Pty Ltd [2003] FCA 629 at [58] – [61] per Allsop J (as His Honor then was)
In all these circumstances, I have come to the conclusion that the most appropriate manner in which this lack of clarity so far as the award of costs is concerned is to dismiss order 3 of the orders of Judge Young. Order 2 of those orders should be amended so it reads as follows:
The respondent pay the costs of the proceedings instituted by the applicant trustee on 9 August 2021 as agreed between the parties or failing agreement as taxed.
I will make a further order that the respondent pay the costs of the interim application filed on 21 September 2023 as agreed between the parties or failing agreement as taxed.
Pursuant to rule 13.01 of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 a person entitled to costs in a bankruptcy matter in this court is entitled to costs pursuant to Part 40 of the Federal Court Rules 2011.
Division 40.2 of those rules provides the mechanism for the taxation of costs, in the event the parties concerned are unable to agree them. Whether such an agreement is possible in the current case is a matter for the parties concerned.
For 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 seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Brown. Associate:
Dated: 22 December 2023
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