Dubow v Fitness First Australia Pty Ltd
[2012] FMCA 520
•18 June 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DUBOW v FITNESS FIRST AUSTRALIA PTY LTD | [2012] FMCA 520 |
| BANKRUPTCY – Costs – award of costs following the discontinuance of the proceedings by the applicant’s trustee in bankruptcy. |
| Bankruptcy Act 1966 Federal Court Rules Federal Magistrates Act 1999 (Cth), s.79 |
| Draper & Anor v Official Trustee In Bankruptcy & Anor (No.2) [2008] FMCA 701 Keen v Telstra Corp Limited (No 2)[2006] FAC 930 Molinaro & Ors v Teezella & Anor [2006] FMCA 414 Vivid Entertainment LLC & Ors v Digital Sinema Aust Pty Ltd & Ors (No.2) [2007] FMCA 688 |
| Applicant: | YOLANDE DUBOW |
| Respondent: | FITNESS FIRST AUSTRALIA PTY LTD |
| File Numbers: | SYG 2617 of 2009 SYG 1965 of 2010 |
| Judgment of: | Driver FM |
| Hearing date: | Decided without oral hearing |
Date of last submissions: 13 June 2012
| Delivered at: | Sydney |
| Delivered on: | 18 June 2012 |
REPRESENTATION
| Solicitors for Fitness First: | Mr T Orlizki Kent Attorneys |
ORDERS
The applicant is to pay the respondent’s costs of and incidental to the application, fixed in the sum of $23,000.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2617 of 2009
SYG 1965 of 2010
| YOLANDE DUBOW |
Applicant
And
| FITNESS FIRST AUSTRALIA PTY LTD |
Respondent
REASONS FOR JUDGMENT
This judgment concerns an application for costs made pursuant to orders of the Court made on 15 May 2012.
The respondent (“Fitness First”) seeks:
a)its costs associated with the Application in a Case filed by the applicant (“Ms Dubow”) on 18 May 2011 in proceedings SYG 2617 of 2009;
b)its costs associated with the Application in a Case filed by Ms Dubow on 16 June 2011 in proceedings SYG 1965 of 2010.
The issues are:
a)what, if any, order for costs ought to be made;
b)if Ms Dubow is ordered to pay Fitness First’s costs, the basis of those costs and their quantification.
Fitness First relies upon the outline of submissions filed by it on 15 February 2012 in both proceedings, which deal with the facts of the dispute and outline Fitness First’s submissions as to the merits of the relevant applications. Ms Dubow is now bankrupt. Her trustee in bankruptcy made no submissions as to costs.
Background
In the 2009 proceedings, Ms Dubow sought to set aside a bankruptcy notice. The notice was set aside by consent on 11 February 2010. Both parties sought costs. There was a contested hearing before Barnes FM. Her Honour reserved judgment.
The 2010 proceedings concern an application by Ms Dubow to set aside a second bankruptcy notice, which was listed for hearing before me on 17 November 2010.
On 5 November 2010, the parties entered into a Deed of Release (the Deed). The Deed is annexure B to the affidavit of Tim Orlizki sworn and filed 23 June 2011 in the 2010 proceedings (at page 7 of that affidavit). That the Deed was entered into is not in dispute. The Deed referred to both extant proceedings in this Court and provided for the terms of consent orders disposing of both proceedings which:
a)in relation to the 2009 proceedings, dismissed both parties’ applications for costs, vacated existing costs orders and made no order as to costs to the intent that each party pay its own costs; and
b)in relation to the 2010 proceedings, set aside the bankruptcy notice, vacated existing costs orders and made no order as to costs to the intent that each party pay its own costs
The Deed was the subject of four proceedings between the same parties in the Supreme Court of NSW. Garling J gave judgment on 27 February 2012. A copy of the judgment and orders made on 27 February 2012 is annexure A to the affidavit of Tim Orlizki sworn 12 June 2012 (page 7 of the affidavit). So far as concerned the Deed, Garling J made certain declarations as to the construction of the Deed: at [170] (page 32 of the affidavit).
Clearly, his Honour accepted the Deed as being valid and binding. In any event, on 16 March 2012, Garling J made further orders, including a declaration that the 5 November 2010 Deed is valid and binding: affidavit of Tim Orlizki sworn 12 June 2012, paragraph 3.
Ms Dubow sought in this Court to set aside the consent orders in the face of the 5 November 2010 Deed. The existence of the Deed is inimical to the applications to set aside the consent orders.
Applicant should pay the costs of the applications
Both proceedings were discontinued by Ms Dubow’s bankruptcy trustee.
By the time the proceedings were discontinued, all interlocutory steps had been completed and the proceedings were ready for final hearing and were so listed. The hearing date of the proceedings was vacated following upon an unexpected delay in Garling J giving judgment in the four proceedings he had heard.
Costs should follow the event. By reason of Ms Dubow’s bankruptcy trustee’s discontinuance of the proceedings, Fitness First’s success in the proceedings is total and unqualified. In Oshlack v Richmond River Council[1], McHugh J. said[2]:
[67] The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
[1] (1998) 193 CLR 72
[2] ibid at 97
Although there is no presumption that the discontinuing party is to pay the other party’s costs, ordinarily costs would follow the event of such a discontinuance if, in all the circumstances, it is reasonable to make such an order: Ingui v Ostara[3].
[3] [2003] FMCA 132 at [31] to [32]
It is reasonable for a costs order to be made in favour of Fitness First against Ms Dubow in both proceedings having regard to the following matters:
a)The subject applications had little or no merit – see Fitness First’s submissions filed 15 February 2012. The summary contentions of Fitness First in this regard, extracted from the February submissions, are as follows:
i)the Deed is valid and enforceable;
ii)the Court has no power to set aside the Deed (note that Ms Dubow withdrew her claim for an order setting aside the Deed);
iii)even if the Court does have power to set aside the Deed:
(A)such an application should properly have been brought in new proceedings, not as an interlocutory application within existing proceedings in the bankruptcy jurisdiction of the Court;
(B)Ms Dubow is estopped from maintaining her application to set aside the Deed; and
(C)the application is without merit – the matters alleged to constitute fraud cannot, individually or collectively, constitute fraud;
iv)the consent orders made in both proceedings were as expressly contemplated by the Deed;
v)there is no proper basis for the consent orders to be set aside;
vi)the Deed expressly provided mutual releases in relation to any claim either party might have against the other in respect of either or both the 2009 and 2010 proceedings. Accordingly, an order setting aside the consent orders would be futile because the effect of an order setting aside the consent orders would be to permit the parties to agitate or re-agitate the underlying applications. By reason of the releases contained in the Deed, the underlying applications would be doomed to fail;
vii)in relation to the 2010 proceedings, if Ms Dubow is otherwise entitled to an order setting aside the consent orders, such an order ought to be refused on the basis of laches and/or acquiescence;
b)the orders made by Garling J in the Supreme Court affirmed the validity of the Deed and rendered the applications hopeless;
c)the applications had been pursued with vigour by Ms Dubow;
d)the applications had been vigorously, and reasonably, defended by Fitness First;
e)the discontinuance occurred after the applications had been listed for hearing and prepared for final hearing on the part of Fitness First.
Terms of costs order - quantification
Section 79 of the Federal Magistrates Act 1999 (Cth) (“the Federal Magistrates Act”) confers a wide discretion on the Court in relation to the award of costs.
Under rule 21.02(2) of the Federal Magistrates Court Rules 2001 (Cth) (“the Federal Magistrates Court Rules”), in making an order for costs in a proceeding, the Court may:
a)set the amount of the costs; or
b)set the method by which the costs are to be calculated; or
c)refer the costs for taxation under Part 40 of the Federal Court Rules (“the Federal Court Rules”).
Under rule 21.10, unless the Court otherwise orders, a party is entitled to costs in accordance with Part 1 of Schedule 1 plus certain disbursements reasonably incurred.
The following options are available to the Court:
a)set the amount of costs by reference to Part 1 of Schedule 1;
b)set the amount of costs by reference to Schedule 3 of the Federal Court Rules;
c)set the amount of costs by some other method;
d)set the method by which the costs are to be calculated (for example, by reference to Part 1 of Schedule 1[4]);
e)refer the costs for taxation under Part 40 of the Federal Court Rules.
[4] Molinaro & Ors v Teezella & Anor [2006] FMCA 414
Rule 21.02(2)(a) allows the Court to fix the amount of the costs as a gross sum[5]. Fitness First seeks costs on a gross sum basis.
[5] Draper & Anor v Official Trustee In Bankruptcy & Anor (No.2) [2008] FMCA 701 at [5]
To make a “gross sum” costs order furthers the objects of the Federal Magistrates Act and the Federal Magistrates Court Rules. In Draper & Anor v Official Trustee In Bankruptcy & Anor (No.2)[6], Simpson FM considered these objects:
[6] Ibid at [6] – [7]
In deciding whether or not to order a gross sum for costs I take particular note of the objects to be found in s.3(2) of the Act. That subsection states:
The … objects of this Act are:
(a)to enable the Federal Magistrates Court to operate as informally as possible in the exercise of judicial power; and
(b)to enable the Federal Magistrates Court to use streamlined procedures; and
(c)to encourage the use of a range of appropriate dispute resolution processes.
The objects to be found in FMCr.1.03 contain the same objects as stated in the Act as above referred to and in addition, in FMC r.1.03(1) the further object that the rules are “to assist the just, efficient and economical resolution of proceedings”. The orders that I propose to make will be aimed at achieving these objects.
The purpose of making an order for gross sum costs is to “save the parties the time, trouble, delay, expense and aggravation in having a taxation proceed on a matter”[7]. The power to award gross sum costs can be used “to avoid an ongoing counterproductive dispute (as to costs), in the interests of achieving finality, subject always to the need to ensure that unreasonable amounts of costs are not pursued and awarded”[8].
[7] Keen v Telstra Corp Limited (No 2)[2006] FAC 930; Nine Films & Television Pty Ltd v Ninox Television Limited [2006] FCA 1046
[8] Ualesi (Trading as Australian Empire Imports) v Expeditals International Pty Ltd [2006] FCA 26
The fact that Ms Dubow is bankrupt is an important consideration. In Harrison v Schipp[9] Giles JA said:
The power [to make a gross sum order] is not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment (Leary v Leary (1987) 1 WLR 72; Sparnon v Apand Pty Ltd (von Doussa J, 4 March 1998, unreported); Beach Petroleum NL v Johnson (1995) 57 FCR 119; Hadid v Lenfest Communications Inc [2000] FCA 628)
[9] [2002] NSWCA 213; (2002) 54 NSWLR 738 at [21]
As a consequence of Ms Dubow’s bankruptcy:
a)Fitness First would not be able to recover its costs of the taxation process, except as a provable debt in the bankruptcy;
b)the trustee would have to expend money to participate in the taxation process, which would diminish the amount returned to all creditors of Ms Dubow.
The making of a “gross sum” costs order is appropriate as:
a)it will achieve finality;
b)the litigation between the parties has a long and unfortunate history;
c)the making of a “gross sum” costs order would not involve the parties incurring additional costs;
d)Fitness First’s costs of a taxation would not be recovered except as a debt provable in the bankruptcy;
e)the costs of taxation of costs would be disproportionate to amount of costs that would seriously be in dispute – whilst the costs claimed are substantial, they are not of such a magnitude as to justify the parties spending money to argue about them.
The use of a “broad brush” approach is appropriate to the determination of “gross sum” costs. In Nine Films & Television Pty Limited v Ninox Television Limited[10], Tamberlin J said:
In fixing a lump sum, the exercise is one of estimation or assessment and not of arithmetic calculation or precision. As pointed out in Harrison v Schipp [2002] NSWCA 213 (2002) 54 NSWLR 738 at [22], the rule contemplates the application of a much broader brush than that applied on taxation. The approach must be logical, fair and reasonable, and should only be exercised when the Court considers that it can do so fairly as between the parties.
[10] [2006] FCA 1046
Whilst a costs order may be made by reference to Part 1 of Schedule 1 of the Federal Magistrates Court Rules, such costs are most appropriate in relatively routine matters. The Court has declined to order costs under Part 1 of Schedule 1 of the Federal Magistrates Court Rules where the costs that would be awarded to the successful party would be manifestly inadequate[11].
[11] Vivid Entertainment LLC & Ors v Digital Sinema Aust Pty Ltd & Ors (No.2) [2007] FMCA 688
In setting the amount of costs, the Court may have regard to the evidence of a suitably experienced and qualified solicitor[12].
[12] NBIF & Anor v Minister for Immigration and Multicultural and Indigenous Affairs & Anor [2006] FMCA 182.
The costs claimed are as set out in the affidavit of Tim Orlizki, solicitor, sworn 12 June 2012 In summary, the costs actually incurred by Fitness First were $36,601.72, inclusive of GST (paragraph 10).
It should be noted that the two proceedings have been charged by Fitness First’s solicitor on the one file, so that there is no duplication of work (eg charging twice for the one appearance in Court): paragraphs 7 – 8 of the Affidavit of Tim Orlizki sworn 12 June 2012.
The professional costs charged by Mr Orlizki are charged at the rate of $450.00 per hour, which rate is inclusive of general care and conduct: paragraph 11 of the affidavit of Tim Orlizki sworn 12 June 2012.
There is evidence of two alternative methods for estimating the taxed costs:
a)applying to the actual costs incurred an overall discount – normally costs are reduced on taxation to between 60% and 80% of costs actually incurred (see paragraph 15 of the affidavit of Tim Orlizki sworn 12 June 2012);
b)discounting the actual professional charges by reference to the scale rates (see paragraphs 17 – 19 of the affidavit of Tim Orlizki sworn 12 June 2012).
The first method results in an estimate of costs of $23,341.63 – paragraph 18 of the Affidavit of Tim Orlizki sworn 12 June 2012.
The second method results in an estimate of costs of $25,639.11 - paragraph 19 of the Affidavit of Tim Orlizki sworn 12 June 2012.
Both of the suggested approaches are logical, fair and reasonable. In Draper & Anor v Official Trustee In Bankruptcy & Anor (No.2)[13], Simpson FM said[14]:
The Court fixing a lump sum for costs needs to be confident that the approach taken to estimate costs is logical, fair and reasonable. It is a matter of balancing the potential prejudice of overestimating the costs against the injustice of arbitrarily over discounting the successful party’s costs.
[13] [2008] FMCA 701
[14] ibid at [10]
The application of Part 1 of Schedule 1 of the Federal Magistrates Court Rules to the proceedings would result in costs in the order of $20,789.69 - paragraph 16 of the Affidavit of Tim Orlizki sworn 12 June 2012 and annexure P (at page 133). Duplicate preparation and attendances have been disregarded.
I prefer the first method of calculation in this instance, but will round down the figure. I will order that the Ms Dubow is to pay Fitness First’s costs and disbursements of and incidental to the application, fixed in the sum of $23,000.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Driver FM
Date: 18 June 2012
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