Foots v Southern Cross Mine Management Pty Ltd & Ors

[2007] HCATrans 155

[2007] HCATrans 155

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B47 of 2006

B e t w e e n -

KENNETH JOHN FOOTS

Applicant

and

SOUTHERN CROSS MINE MANAGEMENT PTY LTD

First Respondent

ENSHAM RESOURCES PTY LTD

Second Respondent

BLIGH COAL LIMITED

Third Respondent

IDEMITSU QUEENSLAND PTY LTD

Fourth Respondent

EPDC (AUSTRALIA) PTY LTD

Fifth Respondent

LG INTERNATIONAL (AUSTRALIA) PTY LTD

Sixth Respondent

FOOTS PTY LTD

Seventh Respondent

LITTLE DIGGER MINING LIMITED

Eighth Respondent

NORMA AGNES FOOTS

Ninth Respondent

KENNETH JOSEPH HILL

Tenth Respondent

Application for special leave to appeal

KIRBY J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON TUESDAY, 24 APRIL 2007, AT 10.13 AM

Copyright in the High Court of Australia

__________________

MR P.J. DUNNING, SC:   May it please the Court, I appear with my learned friend, MR S. J. WILLIAMS, for the applicant.  (instructed by Conroy & Associates)

MR W. SOFRONOFF, QC:   May it please the Court, I appear with my learned friend, MR A. M. POMERENKE, for the second respondent.  (instructed by Allens Arthur Robinson)

KIRBY J:   Yes, thank you very much, Mr Dunning.  I note that there is no appearance for the first and third to tenth respondents and, by inference, they submit to any order of the Court save as to costs against them.  Yes, Mr Dunning.

MR DUNNING:   Thank you, your Honours.

KIRBY J:   You have the dissent of Justice Mullins.

MR DUNNING:   Yes.

KIRBY J:   You suggest that the outcome favoured by the majority sits uncomfortably with the purposes of the Bankruptcy Act and you ask whether it is consistent with the decision of this Court in Coventry where the Court refused to make orders against the Coventry trustees and you say that it affects the relationship between the State court and the federal courts in the administration of the Bankruptcy Act.

MR DUNNING:   Yes.

KIRBY J:   Are they the most important of the arguments you advance for special leave or are there any more?

MR DUNNING:    No, your Honour, they are the most important and among them, we would submit, the matter that most calls for a grant of special leave is the fact that, as matters stand, there is an extant controversy between the only two intermediate appellate courts in Australia which have dealt with the decision relevantly contemporaneously, that is, within a year of each other.  One is the unanimous decision of Justice McPherson that in turn supports the case of Mr Foots.  The other is the majority decision the subject of the application for special leave.  Any other court coming to the matter, be they a federal magistrate through to an intermediate appellate court, State or federal, will have to grapple with that controversy. 

KIRBY J:   We think we might hear from Mr Sofronoff at this stage.  It is always such a pleasure to hear from Mr Sofronoff.  We might give you a little bit of a break, just for the moment.  Do not go away.

MR DUNNING:   Thank you, your Honour, I will not.

MR SOFRONOFF:   Addressing the Court, your Honours, is a little like going to heaven; we all want to do it but not yet.

KIRBY J:   Yes, well, we might not be able to oblige having regard to the four elements that have been mentioned.  What do you say about them?

MR SOFRONOFF:   Your Honours, we would submit that there are two problems with the applicant’s case that renders it one in respect of which special leave ought not to be granted.  The first is that the applicant’s case ignores the distinctive aspect of an application for costs, namely, that it depends upon the exercise of discretion.  In all States, in the Federal Court and in the High Court itself, the provisions governing the order ‑ ‑ ‑

KIRBY J:   Yes, but it is not a palm tree discretion, it is a discretion according to law and it is a discretion which must be exercised in a way comfortably with the surrounding law and in this case that surrounding law happens to be federal law and that is the Bankruptcy Act, so it is not uncontrolled.

MR SOFRONOFF:    No, but the discretion as to whether or not to grant costs does not depend upon the bankruptcy law; it depends simply upon the circumstances obtaining before the judge who has asked to make the order as to costs.

HAYNE J:   But what are we to do about these apparently conflicting decisions of the Court of Appeal, Mr Sofronoff?

MR SOFRONOFF:    Your Honour, the conflict is non-existent.  Could I ask your Honours to go to Fraser Property Developments Pty Ltd v Sommerfeld.

KIRBY J:   Yes, we have that.

MR SOFRONOFF:   If your Honours have the Queensland report at page 404 could I start with headnote paragraph (3), the conclusion of the court was:

That a debtor’s potential or contingent liability for the costs . . . was not a “provable debt” in the sense of s. 58(3)(b) as such costs were in the discretion of the court 

That is our case.  If your Honours go to paragraph [12] of Justice McPherson’s reasons, your Honours will see that his Honour states the proposition in this way after citing the reasons of Lord Justice Mummery in Glenister v. Rowe, a decision to the identical effect.  His Honour said, if we read from line 25:

As can be seen from Glenister v Rowe [2000] Ch. 76, 84, the underlying reason –

why post bankruptcy costs are not a provable debt –

is that costs of legal proceedings are in the discretion of the court;  and until an order is made there is no obligation or liability to pay them.  On this footing the Council could not prove its debt or claim for its costs of the appeal in the present case 

because it occurred after the bankruptcy.  The other two judges agreed, your Honours.  If one comes to the decision in this case, that is precisely what Justice Chesterman found, indeed, he referred to paragraph [12] of Justice McPherson’s reasons.  Your Honours will see that at application book, page 9.

KIRBY J:   I just have a problem with this because the whole theory of bankruptcy is to gather together the debts, collect them, freeze them and then allow the bankrupt a new start, whereas the theory that is propounded by you and accepted in this case by the Court of Appeal is that you do that but subject to some bits added on which are new impediments to the bankrupt starting again.

MR SOFRONOFF:   Your Honour, the problems with that observation is two.  The first is that the Bankruptcy Act does not gather up all liabilities of a bankrupt with the result that a bankrupt is thereafter free of all liabilities that preceded.  There are some notable exceptions, for example, section 82(3), I think it was, of the Bankruptcy Act excludes from provable debts claims for unliquidated damages subject to certain ‑ ‑ ‑

KIRBY J:   That is true, but all of these are very specific and particular and Parliament has considered them.  You do not contest that that is the overall policy of the Bankruptcy Act.  An overall policy is a new start, that is the overall policy.

MR SOFRONOFF:   Your Honour, the overall policy of the Bankruptcy Act is simply to define categories of claims and debts and render them provable in the bankruptcy.  As the majority said in Coventry v Charter Pacific, paragraph [70], “What is revealed by the analysis” ‑ ‑ ‑

KIRBY J:   Just a moment, I must go back to that case, I enjoyed it so much.

MR SOFRONOFF:   Yes, your Honour.

KIRBY J:   Yes.

MR SOFRONOFF:   Paragraph [70], your Honour. 

What is revealed by the analysis of decided cases . . . is that s 82(2) and its legislative predecessors stopped short of providing that “the bankrupt is to be a freed man – freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind” (emphasis added).  Some claims stand outside –

In order, your Honours, in our submission, to determine whether a claim stands inside or outside, it would be wrong to assume the existence, as the applicant does, of general principles of bankruptcy law and then require the statute to be reconciled to those principles or to conform to those principles.  What one has to do, in our respectful submission, is look at section 82(1).  Section 82(1) defines the provable debts, the debts that can be proved, they are:

all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy –

So that is the first port of call and, in our submission, the applicant does not suggest that an order for costs made after bankruptcy was a debt or liability, contingent or future:

to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred –

There is no argument before the Court, there was not below, that an application for costs giving rise to an order for costs results in a debt which exists “by reason of an obligation incurred before”.  That is particularly so in the case of orders for costs made, for example, in the Federal Court and I think in all States of the Commonwealth where the discretion is unfettered.  We know it is fettered in a sense by judicial decision and by precedent, but it is otherwise unfettered.

One does not need a judgment against somebody in order to get a cost order against that person.  One can get in an extreme case a cost order against the person who was successful in a case.  So that demonstrates that it is very true to say that there is no pre‑existing obligation which gives rise to an order for costs so that it can be said that a post‑bankruptcy order for costs is a debt to which a person may become subject by reason of an obligation incurred prior to the date of the bankruptcy.  So there are no general principles of bankruptcy of the kind that our learned friends seek to rely upon. 

If your Honours would go to our learned friends’ outline in‑chief at page 71 of the application book.  If your Honours look at paragraph 17, our learned friends first say that if “it applies with equal force to any discretionary relief” it will be a consequence for other forms of discretionary relief.  Then they go on at paragraph 18 to say:

Bankruptcy has never been administered in this way in Australia –

Well, that is contentious:

It would have a shambolic effect on the due administration of bankruptcy, contrary to the very principles which underpin the modern laws of bankruptcy –

In our respectful submission, in the same way as Justice Gummow observed in the Sons of Gwalia Case, which is on our list, there are no general principles which underpin the modern laws of bankruptcy to which the statute must be reconciled; one looks at the statute.  Our learned friends do not contend that when one looks at the statute they come within it.  They contend that if one has regard to a 19th century decision by Lord Justice Lindley and if one has recourse to other English decisions, it follows that the application of what they call “rules” mean that they win but they never relate what they call the “rules” to the language and it is plain to see why not because it cannot be done.

HAYNE J:   Taking the force of that proposition, we come back to, do we not, this contention in paragraph 11 on pages 68 and 69 of the application book that there is some tension between the two decisions of the Court of Appeal.

MR SOFRONOFF:   Your Honour, that is not true.  I would invite your Honours, if you are in any doubt, to read Justice McPherson’s reasons, with whom Justices Williams and Philippides agree, in full.  But the question in that case was whether an appeal commenced before bankruptcy which resulted in an order for costs post‑bankruptcy meant that the post‑bankruptcy costs could or could not be proved in the bankruptcy. 

Could I just digress for a moment, your Honours.  In terms of the evident justice of the position, what Justice Mullins in dissent said was a logical and fair result, there is no necessary logic or fairness in either result, there is just a cut-off date for proving debts.  In some cases a creditor in the position of my client might be very disappointed not to be able to prove the costs.  In other cases, like this one, Mr Foots, the applicant, is agitating very hard to establish that the debts ought to be within the bankruptcy, perhaps because he anticipates that in the future he might have the means to pay those costs.  But there is no evident justice in one position or the other with respect to when the cut off ought to be.

When one has regard to the only true basis upon which the decision can be made, the statute, one sees that in Sommerfeld Justice McPherson, having regard to the older cases also, but having regard to the statute, concluded in the terms that your Honours have seen in paragraph [12], the analysis which supported that set of reasons.  His reference to Glenister v Rowe is extremely informative in that respect because in the passage which he quotes, which is the most important one in that case, Lord Justice Mummery – appears at page 408 of Sommerfeld – observed that an order for costs does not find its origin in anything that occurred prior to bankruptcy within the meaning of the English Bankruptcy Act.

HAYNE J:   Do you contend that the seeking of the order for costs after bankruptcy was a fresh step requiring leave?

MR SOFRONOFF:   Only if it was a provable debt, your Honour.  Is your Honour referring to the point that Justice Jerrard raised?

HAYNE J:   Yes.

MR SOFRONOFF:   Your Honour, that issue was agitated before Justice Chesterman.  It does not appear in his reasons as a separate matter, but it was agitated by us obviously before Justice Chesterman.  There were authorities put before his Honour with respect to that and his Honour evidently accepted our submission to that effect.  The parties were invited to take the point, at least the applicant was invited to take the point in the Court of Appeal but did not wish to do so and it is not a matter that is of concern to this Court on this particular application even if we are wrong.  If his Honour was wrong about that, your Honours are not being asked to consider as a point of general importance whether or not this was a matter which required leave of the Federal Court before proceeding.

KIRBY J:   I thought I saw that raised in the applicant’s case.  Is that a mistake on my part, is it?

MR SOFRONOFF:    I think it might be, your Honour, because if your Honour looks at Justice Jerrard’s reasons at page 40 of the application book, it begins at 39, paragraph 51.

KIRBY J:   It does arise in the argument though does it not, because it is an issue that would arise in sorting out whether this is a matter that falls under the Bankruptcy Act or a matter that stands outside of it?  Part of the armoury of protecting the bankrupt and the bankruptcy system is the requirement of leave of the Federal Court.

MR SOFRONOFF:    Yes, your Honour, but if it is not a provable debt, the question does not arise.

KIRBY J:   I understand that argument but the issue is still relevant to working out how the Bankruptcy Act is supposed to operate, because ‑ ‑ ‑

MR SOFRONOFF:    But, your Honour, in a most peripheral way the sense that what your Honours are asked to engage upon is the question whether a post‑bankruptcy order made in the exercise of the discretionary power to order costs ‑ ‑ ‑

KIRBY J:   Anyway, your point is that no ground is raised in the proposed grounds of appeal to this Court that challenges the fact that the applicant did not seek leave and obtain leave of a Federal Court on pages 62 and 63.

MR SOFRONOFF:    Yes.  Your Honours, if you would go back to pages 8 and 9 of the application book, your Honours will see in summary form Justice Chesterman’s treatment of Glenister v Rowe at page 8 and Sommerfeld on page 9 in ways that demonstrate, or at least reveal, that those two decisions are completely consistent with the decision in this case, namely, that post‑bankruptcy cost order, irrespective of the nature of the judgment obtained pre‑bankruptcy, results in a debt that is not provable for the reasons that the cost proceedings are in the discretionary court. 

KIRBY J:   Anyway, all of this examination of recent English cases would not be determinative of the meaning and operation of the Australian Bankruptcy Act.

MR SOFRONOFF:    Your Honour, that is our submission, and if your Honours would go to Justice Mullins’ reasons, at page 50, the reasons that our learned friends rely upon as supportive begin at page 50 and, in summary, your Honours will see in paragraph [92] in the second last line, her Honour considered that it was proper to consider authoritative 19th century English decisions.  If your Honours then go over to paragraph [94], her Honour had regard to British Gold Fields, which is the decision principally relied upon by our learned friends, in which Lord Lindley summarised the decisions.  If you come down to paragraph [96], her Honour then having looked at that case in the fifth line observes that:

The rationale for allowing the costs of the proceeding that has resulted in the provable debt is that the costs were incidental to proving that debt and should therefore themselves be provable.

In our respectful submission, that simply does not arise from the language of the statute.  Her Honour then says, “That can be seen as a logical and fair result.”  In our submission, with all due respect, it is neither logical nor fair.  It might be fair or unfair in a particular situation. 

KIRBY J:   In fairness to Justice Mullins, as I note from [91], the course she adopted and perhaps the course Justice Jerrard took was because in Coventry this Court the joint reasons pointed out that because of the high similarity of the Australian legislation, indeed, I think it was the exact words of the 19th century English statute, it was relevant to look at the English cases and that is why presumably the judges of the Court of Appeal did that.  That was a proven course for them to take.

MR SOFRONOFF:   Of course it was relevant to do that and reasonable to do so.  I did not mean to suggest the contrary.  But the point that I wish to make, your Honours, is that by paragraph [97] we are now treating what Lord Lindley said in the second line as a set of rules and then by [98] we are speaking of the necessity to displace the application of the rules for our side to win, paragraph [98] the second and third lines, a certain matter “does not displace the application of the rules” and then the rest of the analysis is concerned with looking at the cases in the light of those rules.

KIRBY J:   At paragraph [106], Justice Mullins refers over the page on page 54, to:

That means that the order for costs could not be made in this Court without the respondent first obtaining the leave of the Federal Court or the Federal Magistrates Court under s 58(3) of the Act.

That is where I got the idea that that issue is presented by the question raised by the applicant in this application.  It is bound up in the relationship between the federal and State courts. 

MR SOFRONOFF:   Only because, if, as Justice Mullins thought this was a provable debt, section 58(3) of the Bankruptcy Act provides that:

it is not competent for a creditor:

(a)      to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or

(b)      except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.

So that is uncontroversial that if it is a provable debt we have to go to the Federal Court and seek leave, for obvious reasons. 

KIRBY J:   But you could not deny that this is an issue that would arise in many, many cases where the bankrupt, defending his position, has commenced litigation, then the supervening bankruptcy and then the

application for an order for costs against the bankrupt.  It would be a very common situation and in that sense the point raised by the applicant, who is well represented, is an important point and we would be asked to decide it with the help of Mr Dunning rather than on an application by an unrepresented bankrupt.  I know you do not want to get into a test case but it does have all the hallmarks of an important bankruptcy question.

MR SOFRONOFF:   But for one thing; there is no error.  Your Honours would need to be satisfied that there is an arguable case of error but your Honours will not find ‑ ‑ ‑

KIRBY J:   We have a dissenting opinion from Justice Mullins.

MR SOFRONOFF:   Of course, that is why I took your Honours to that in an attempt to demonstrate that the conclusion, paragraph [105], “Sommerfeld in no way detracted from the rules”, so your Honours are being invited to embrace reasons which have at their heart not an analysis of the text of the statute but a consideration of ‑ ‑ ‑

KIRBY J:   Anyway, I think I have encouraged you by saying we always like to hear you; you are going past your time.

MR SOFRONOFF:   I will sit down, your Honour.

KIRBY J:   Yes, thank you.

MR SOFRONOFF:   Do I have a right of reply, your Honour?

KIRBY J:   We will see whether we are going to call on Mr Dunning.  You may not have anything to reply to.  Mr Dunning, we are concerned about your suggestion in your written arguments that there is a conflict in the Court of Appeal.  That does not seem to be so.

KIRBY J:   Mr Dunning, we are concerned about your suggestion, in your written arguments, that there is a conflict in the Court of Appeal.  That does not seem to be so.

MR DUNNING:   With respect, your Honours, in our respectful submission, it is.  Might I ask your Honours please to go to the decision in Fraser Property Developments v Sommerfeld which your Honours will find at page 407 of the report.  It is page 49 of the applicant’s list of cases.  Can I ask your Honours, please, to go to paragraph [10]. 

The authorities go some way back in time.  In Vint v Hudspith (1885) 30 Ch.D. 24, 27, Lindley L.J. said that he doubted “very much” whether the possibility of having to pay costs is a provable debt, although it might in some cases be a contingent liability. An opportunity for his Lordship to expand on his views arose in Re British Gold Fields of West Africa [1899] 2 Ch. 7, which concerned an order for costs in favour of a shareholder for the rectification of the share register . . . The proceedings were initiated before winding up –

gives a description of what then happened.  Then at about line 35:

that if an action was brought against a person, who afterwards became bankrupt, to recover a sum of money, and the action was successful, the costs were regarded as an addition to the sum recovered and so provable if the debt was provable “but not otherwise”.  If the sum recovered is not provable, said his Lordship, “neither are the costs of recovering it”.  Speaking of a case in which no verdict is given and no order was made for payment of costs until after bankruptcy, Lindley M.R. continued (at p. 12):

“In such a case there is no provable debt to which the costs are incident, and there is no liability to pay them by reason of any obligation incurred by the bankrupt before bankruptcy;  nor are they a contingent liability –

Then, in paragraph [11], if I could just direct to your Honours’ attention the first three lines:

What was said by Lord Lindley there has since been followed and applied in a number of English decisions, of which the most recent is Glenister v Rowe [2000] Ch. 76.

Then may I take your Honours please to paragraph [12] on the next page.  Our learned friends have already taken you to the introductory words that dealt with the specific factual situation with which Justice McPherson was concerned, but can I take your Honours, please, to about line 35:

The case is not one in which it can be said that there is a provable debt to which an order for costs is or would be incidental in the sense laid down in Re British Gold Fields of West Africa.  The “proceeding” instituted by Sommerfeld was not to recover a sum of money, but for an order that the plaintiff Fraser Property Developments discontinue its action in the Supreme Court and re‑institute it before the Tribunal.

Your Honour, in our respectful submission, in terms, Justice McPherson draws the dichotomy between costs that are incidental to a provable debt and costs which are not.  The latter are not provable debts for the purposes

of the Bankruptcy Act, the former are.  His Honour could not have in more emphatic terms embraced the reasoning in Re British Gold Fields. 

KIRBY J:   We do not need any more help from you, Mr Dunning.

MR DUNNING:   Thank you, your Honours.

KIRBY J:   Because of his insistence, we might give Mr Sofronoff a minute. 

MR DUNNING:   Like your Honours, I always enjoy hearing Mr Sofronoff as well.

MR SOFRONOFF:   Your Honours, I do not think I need to say anything more.

KIRBY J:   Yes, we think there is enough there, Mr Sofronoff, and we are inclined to grant special leave which we now do.

MR SOFRONOFF:   As your Honours please.

KIRBY J:   Justice Hayne reminds me that both of you should be ready for hearing in the June list of the Court in Brisbane.

MR SOFRONOFF:   Thank you, your Honours.

MR DUNNING:   Thank you, your Honours.

AT 10.42 AM THE MATTER WAS CONCLUDED