Henderson v National Australia Bank Ltd (No.2)
[2012] FMCA 66
•17 February 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HENDERSON v NATIONAL AUSTRALIA BANK LTD (NO.2) | [2012] FMCA 66 |
| BANKRUPTCY – Application to set aside Bankruptcy Notice – application successful – costs. |
| COSTS – Bankruptcy – whether evidence of settlement and other correspondence admissible – whether indemnity costs to be awarded – whether costs to be apportioned. |
| Evidence Act 1995 (Cth), ss.131, 134, 135(a) and (b), Dictionary, Part 2, cl.8 Federal Court Rules 2011 (Cth), Part 40 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.13.01 |
| Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No.3) [2007] FCAFC 119 Cann v Commonwealth Bank of Australia (No.6) [2011] FMCA 912 Cirillo v Consolidated Press Property Ltd (No.2) [2007] FCA 179 Granitgard Pty Ltd v Termicide Pest Control Pty Ltd [2008] FCA 865 Henderson v National Australia Bank Ltd [2012] FMCA 14 Mareva Building Consultants v Zevon (No.2) [2012] ACTSC 24 Pierson’s Pro-Health Pty Ltd & Ors v Silvex Nominees Pty Ltd & Anor (No. 3) [2010] FMCA 250 Skouloudis v St George Bank Ltd (2008) 173 FCR 236; [2008] FCA 1765 |
| First Applicant: | KIM HENDERSON |
| Second Applicant: | SUSAN JANE HENDERSON |
| Respondent: | NATIONAL AUSTRALIA BANK LTD |
| File Number: | PEG 50 of 2011 |
| Judgment of: | Lucev FM |
| Hearing date: | Written submissions |
| Date of Last Submission: | 6 February 2012 |
| Delivered at: | Perth |
| Delivered on: | 17 February 2012 |
REPRESENTATION
| The Applicants: | In person |
| Counsel for the Respondent: | Mr D Butler |
| Solicitors for the Respondent: | Lavan Legal |
ORDERS
Absent agreement within 14 days between the First Applicant, the Second Applicant and the Respondent as to costs, the Respondent is to pay the costs of the First Applicant and the Second Applicant, including reserved costs, as taxed by a Registrar of this Court under Part 40 of the Federal Court Rules 2011 (Cth), in accordance with r.13.01 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), provided that the Respondent is to only pay three-fifths of any costs associated with preparation for and appearance at the hearing of 22 July 2011.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 50 of 2011
| KIM HENDERSON |
First Applicant
| SUSAN JANE HENDERSON |
Second Applicant
And
| NATIONAL AUSTRALIA BANK LTD |
Respondent
REASONS FOR JUDGMENT
Introduction
On 23 January 2012 in Henderson v National Australia Bank Ltd[1] this Court set aside Bankruptcy Notice No. 427 dated 24 January 2011, and, thereby, the applicants, Mr and Mrs Henderson, succeeded in the application filed in this Court on 24 February 2011.[2] With respect to the costs of the Bankruptcy Notice Proceedings the parties were ordered to file written submissions, with costs to be determined on the written submissions. This judgment concerns the costs of the Bankruptcy Notice Proceedings.
[1] [2012] FMCA 14 (“Henderson”).
[2] “Bankruptcy Notice Proceedings”.
Mr and Mrs Henderson’s submissions
Mr and Mrs Henderson’s submission on costs concentrated on:
a)the personal impact on them of the requirement to dispose of property built up as a consequence of a lifetime of work;
b)a potential damages claim related to an apparently mishandled subdivision of property previously held by them in Denmark on the south coast of Western Australia; and
c)their attempts to reach an overall settlement with National Australia Bank.
Mr and Mrs Henderson’s submissions:
a)referred to costs for legal fees:
i)in relation to the potential damages claim in respect of the alleged mishandling of the Denmark subdivision; and
ii)of $30,637 in relation to “demands” from National Australia Bank; and
b)conclude with a claim for the “full recovery of the full indemnity cost of $30,637”.
The costs in relation to the Denmark subdivision are irrelevant to the costs incurred in the Bankruptcy Notice Proceedings in this Court. The other costs of $30,637 may have some relevance to the cost of the Bankruptcy Notice Proceedings, but this is clouded by the unexplained reference to “demands”, and its lack of particularisation. It is not apparent:
a)to what extent the “demands” related to the Bankruptcy Notice Proceedings; and
b)how the sum of $30,637 was calculated.
Mr and Mrs Henderson attached to their submissions the following correspondence:
a)a without prejudice letter dated 24 November 2010 sent by Mr and Mrs Henderson’s then solicitors to National Australia Bank’s solicitors, containing a proposal to settle the proceedings in the Supreme Court of Western Australia which gave rise to the judgment debt, and all of National Australia Bank’s claims against Mr and Mrs Henderson;[3]
b)a draft of a letter dated 13 January 2011, by way of facsimile, from Mr and Mrs Henderson’s then solicitors to National Australia Bank’s solicitors concerning a settlement proposal by Mr and Mrs Henderson;[4] and
c)a letter dated 25 January 2012 sent by Mrs Henderson, on behalf of Mr and Mrs Henderson, to the Receivers and Managers of Bonthorpe Pty Ltd (ACN 087 984 414) (Receivers and Managers appointed)[5] which is primarily related to discussions involving Mr and Mrs Henderson, Bonthorpe and the National Australia Bank, and their respective legal representatives, in relation to litigation concerning the Denmark subdivision.[6]
[3] “Without Prejudice Letter”.
[4] “Draft Letter”.
[5] “Bonthorpe”.
[6] “25 January 2012 Letter”.
National Australia Bank’s submissions
National Australia Bank submit that:
a)the Without Prejudice Letter ought not be considered in determining costs, as the law excludes evidence of admission by word or conduct made by parties in the course of negotiations to settle litigation, and the joint privilege attaching to the Without Prejudice Letter had not been waived, and could not be waived without the consent of the negotiating parties;
b)in any event, the settlement discussions occurred in the context of the proceedings giving rise to the judgment debt, and there is no indication that they were renewed in the course of the Bankruptcy Notice Proceedings;
c)this is an appropriate case for apportionment of costs because:
i)an application by Mr and Mrs Henderson to adjourn the Bankruptcy Notice Proceedings pending resolution of a complaint to the Financial Ombudsman Service,[7] was abandoned, without notice to National Australia Bank, at the hearing on 22 July 2011; and
ii)the argument with respect to the FOS Complaint was a distinct argument which occupied a significant portion of National Australia Bank’s submissions for the hearing on 22 July 2011, going as it did, to the jurisdiction of the Financial Ombudsman Service to deal with the FOS Complaint in circumstances where the Bankruptcy Notice Proceedings had already been commenced in this Court;
d)the matter is not one which is appropriate for an award of indemnity costs, as the Court made no adverse findings as to the conduct of National Australia Bank, and there was nothing in the circumstances, conduct or dealings between the parties in the Bankruptcy Notice Proceedings, which warranted any award of indemnity costs; and
e)the amount of costs ought to be determined in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth),[8] and be taxed, given the apportionment issue.
[7] “FOS Complaint”.
[8] “FMC (Bankruptcy) Rules”.
Issues
In light of the submissions there is no dispute that Mr and Mrs Henderson should be awarded costs. What remains to be determined is:
a)whether in dealing with costs the Court ought to have regard to the correspondence attached to Mr and Mrs Henderson’s submissions;
b)on what basis the quantum of costs ought to be determined;
c)whether costs ought to be awarded on an indemnity basis; and
d)whether costs ought to be apportioned.
The correspondence
Without Prejudice Letter
A party is not entitled to adduce evidence of a:
a)communication made; or
b)a document prepared (whether delivered or not),
in an attempt to negotiate a settlement of a dispute,[9] unless it is relevant to determining liability for costs.[10]
[9] Evidence Act, 1995 (Cth), s.131(1) (“Evidence Act”). A “document” includes a copy of a document: Evidence Act, Dictionary, Part 2, cl.8, and, therefore, includes the Without Prejudice Letter.
[10] Evidence Act, s.131(2).
The Without Prejudice Letter, dated 24 November 2010, relates to proceedings, in another or other jurisdictions, which predate the Bankruptcy Notice Proceedings, and which are not relevant to the costs of the Bankruptcy Notice Proceedings, which emanate from a bankruptcy notice dated 24 January 2011 served after the orders for default judgment on 2 December 2010 gave rise to the judgment debt.[11] The amount of the default judgment, $9,196,341.79, was not disputed in the Bankruptcy Notice Proceedings, and the case was not one which required the Court to go behind the default judgment.[12] The ultimately unsuccessful attempts to settle the dispute between Mr and Mrs Henderson and the National Australia Bank prior to default judgment cannot therefore be relevant to the Bankruptcy Notice Proceedings, which relate to an undisputed default judgment. Further, were it not for determination in favour of Mr and Mrs Henderson of the presumption in relation to the timing of payment issue which arose in Henderson, the bankruptcy notice would have been valid, and would not have been set aside.[13]
[11] The relevant factual background is set out in Henderson at para.4 per Lucev FM.
[12] Henderson at para.35 per Lucev FM.
[13] Henderson at para.20(a) per Lucev FM.
The Without Prejudice Letter is therefore not relevant to determining liability for the costs of the Bankruptcy Notice Proceedings, and cannot be adduced in these proceedings,[14] and is, therefore, not admissible as evidence[15] in support of Mr and Mrs Henderson’s application for costs.
[14] Evidence Act, s.131(1).
[15] Evidence Act, s.134.
Draft Letter
There is no certainty that the Draft Letter was sent, or sent in the form in which the Draft Letter appears attached to the submissions. In the Court’s view there is therefore a real and substantial possibility that, were the Court to have regard to it, otherwise assuming admissibility, the Court might be mislead as it cannot be known if the Draft Letter was sent, or, if it was, what its actual content was. In those circumstances, the Court will exercise its discretion not to admit the Draft Letter as evidence.[16]
[16] Evidence Act, s.135(b).
25 January 2012 Letter
The 25 January 2012 Letter postdates the judgment in Henderson.
It cannot therefore be relevant to the costs of the Bankruptcy Notice Proceedings, and the Court will disregard it. Further, it is entirely self-serving, and a curious mix of cri de coeur, comment, assertion and submission, such that any probative value it may have, which it does not have in the Court’s view, would be outweighed by its potential to be confusing, and unfairly prejudicial to National Australia Bank.
In those circumstances, the Court would, in any event, exercise its discretion not to admit the 25 January 2012 Letter as evidence.[17]
[17] Evidence Act, s.135(a) and (b).
Basis for quantum of costs
Rule 13.01 of the FMC (Bankruptcy) Rules provides as follows:
(1) Subject to Division 13.2, a person who is entitled to costs in a proceeding to which the Bankruptcy Act applies is entitled to costs in accordance with Part 40 of the Federal Court Rules 2011 unless the Court otherwise orders.
(2) In making an order for costs, the Court may fix the amount of the costs.
(3) If the Court fixes the amount of the costs, Part 40 of the Federal Court Rules 2011 does not apply to a bill of costs submitted for the costs, except for the issue of a certificate of taxation.
The general practice of the Court to award costs in bankruptcy matters on the basis of the relevant Federal Court scale[18] has diminished in frequency in recent years,[19] but it remains the primary basis for an award of costs in bankruptcy matters in this Court. There is nothing in the circumstances of this matter to warrant the awarding of costs on other than the normal basis for bankruptcy matters, that is, the relevant Federal Court scale.
[18] Now under Part 40 of the Federal Court Rules 2011 (Cth) (“FC Rules”).
[19] Pierson’s Pro-Health Pty Ltd & Ors v Silvex Nominees Pty Ltd & Anor (No. 3) [2010] FMCA 250 at para.42 per Lucev FM (“Pierson’s (No. 3)”); Cann v Commonwealth Bank of Australia (No. 6) [2011] FMCA 912 at para.10 per Lucev FM (“Cann (No. 6)”).
Indemnity costs
There is a reference to indemnity costs in Mr and Mrs Henderson’s submissions, but, as set out above,[20] it is a fleeting reference. The Court has taken that reference to be, in context, an application for an award of indemnity costs.
[20] See para.3(b) above.
In Cann (No. 6) the Court said as follows:
13. In determining whether to award indemnity costs the Court has a very wide discretion, to be exercised judicially. What is an appropriate costs or indemnity costs order depends on the circumstances of the case. The normal practice, not to be lightly departed from, is to provide for costs to be on a party – party basis. There are however certain issues to which the Court will give consideration, and weigh, when determining whether to make an indemnity costs order, and the extent of any such order. The issues must establish special or unusual circumstances warranting an indemnity costs order.[21]
[21] Cann (No. 6) at para.13 per Lucev FM, and the cases there cited. See also Granitgard Pty Ltd v Termicide Pest Control Pty Ltd [2008] FCA 865 at para.45 per Collier J; Cirillo v Consolidated Press Property Ltd (No. 2) [2007] FCA 179 at para.6 per Finn J (“… application was a hopeless one …”).
Mr and Mrs Henderson do not, on the evidence, make out a case for indemnity costs. The actual conduct of National Australia Bank in the Bankruptcy Notice Proceedings was appropriate at all times. National Australia Bank did omit to give credit in the Bankruptcy Notice for an amount paid, but that is the not uncommon failing which gives rise to proceedings of this type, and is insufficient to warrant an award of indemnity costs. There was an evidentiary hiatus with respect to the timing of relevant events,[22] but that was a hiatus which both parties might have assisted to fill, at least in part. Again, this is insufficient to warrant an award of indemnity costs. Ultimately, the Bankruptcy Notice Proceedings were determined by reference to the effect of a legal presumption with respect to the timing of judicial and non-judicial acts.[23] That is not a circumstance which affords a proper basis for the award of indemnity costs.
[22] Henderson at paras.21, 22 and 31 per Lucev FM.
[23] Henderson at paras.20-35 per Lucev FM.
There will therefore be no award of indemnity costs.
Apportionment
The apportionment issue arises in the context of the abandoned application to adjourn the Bankruptcy Notice Proceedings pending resolution of the FOS Complaint.
In Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No. 3)[24] the Full Court of the Federal Court was dealing with the question of apportionment of costs in circumstances where grounds of appeal were abandoned prior to the hearing of an appeal before the Full Court. The following observations were made in Cadbury Schweppes:
… It is appropriate that, where one party, although successful overall, raised and pursued unsuccessful grounds or abandoned grounds that the other party was expected to meet in preparation of and in the course of the hearing, and as a consequence costs have been thrown away or incurred, such costs should be paid by the successful party.
12 Whilst it is true that the abandoned grounds and the substantive issues did not occupy much hearing time, those issues were raised as questions of substance and needed to be dealt with by Darrell Lea. Darrell Lea obviously needed to prepare in anticipation of the arguments being presented to the Court. On this basis, it is appropriate that there be an apportionment between the grounds abandoned or lost and those that were won by Cadbury.
13 It is sometimes preferable in these circumstances to avoid leaving the quantification and fixing of costs to taxation. An allocation of costs in the case of a mixed result can rarely be achieved with mathematical precision and such is not necessary: Dodds 26 IPR at 272 per Gummow, French and Hill JJ. We do not have all the appropriate material to estimate the amount of costs or time spent on the preparation and consideration of each relevant ground of appeal, and so cannot make any percentage apportionment of the costs. Therefore, we must leave the quantification and fixing of costs to taxation in default of agreement between the relevant parties.[25]
[24] [2007] FCAFC 119 (“Cadbury Schweppes”).
[25] Cadbury Schweppes at paras.11-13 per Black CJ, Emmett and Middleton JJ.
More recently, in Mareva Building Consultants v Zevon (No. 2),[26] the Supreme Court of the Australian Capital Territory said:
13. The task of determining costs where apportionment is appropriate does not call for mathematical precision. As the Full Court of the Federal Court said in Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272, mathematical precision is illusory. The exercise depends on impression and evaluation. The result should be one that best reflects the interests of justice in the overall circumstances of the case: EMI Songs Australia Pty Ltd v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 at [9].[27]
[26] [2012] ACTSC 24 (“Mareva Building Consultants”).
[27] Mareva Building Consultants at para.13 per Katzmann J.
It is therefore necessary for the Court to examine what happened in this case.
The application to set aside the Bankruptcy Notice was filed on 24 February 2011. The Bankruptcy Notice was attached to the application. The application was supported by an affidavit from Mrs Henderson of five pages and 41 pages comprising seven Annexures. The application and Mrs Henderson’s affidavit did not raise any issue related to the FOS Complaint, or the possibility of same being made.
By consent, a hearing date was eventually set for 16 June 2011.
On 15 June 2011 an affidavit from Mr and Mrs Henderson’s then solicitor was filed annexing correspondence relating to the FOS Complaint which had, by then, been made. In light of the FOS Complaint, the National Australia Bank sought, and obtained, Mr and Mrs Henderson’s consent to adjourn the Bankruptcy Notice Proceedings sine die pending the outcome of the FOS Complaint. Also on 15 June 2011 National Australia Bank had filed:
a)a notice stating grounds of opposition to Mr and Mrs Henderson’s application to set aside the Bankruptcy Notice;
b)affidavits in support of the grounds of opposition from Mr Fudge and Mr Oehme; and
c)an outline of submissions,
none of which addressed the FOS Complaint. That is not exceptional given that the FOS Complaint had just been raised, and both parties consented to the adjournment of the hearing.
At the hearing on 16 June 2011, when the parties sought to have the matter adjourned sine die, the Court raised the question as to whether the Financial Ombudsman Service had jurisdiction or power to deal with the FOS Complaint. It was evident that that was a matter which had not exercised the minds of the parties. Consequently, orders were made for further affidavits and submissions to be filed on both the application, and the application to adjourn pending resolution of the FOS Complaint. The hearing on 16 June 2011 would have been adjourned by consent of the parties, sine die, but for the Court’s intervention with respect to the issue of jurisdiction. Neither party sought to argue the matter on the day. However, it was inappropriate to argue the set aside application without first dealing with the application to adjourn on the basis of the pending FOS Complaint, and the related jurisdictional issue. The hearing was a short one, lasting 22 minutes according to the Court sheet, and was therefore more akin to a directions hearing than a hearing proper. The preparation which had been done by the parties related to the issue of the set aside application, and not the adjournment pending resolution of the FOS Complaint. Given that the set aside application was ultimately argued at the hearing on 22 July 2011, neither party was overly, if at all, disadvantaged in terms of preparation in relation to that issue. Given that both sides were prepared to adjourn the matter on that day, the Court is of the view that costs should follow the event for that hearing.
On 6 July 2011 Mr and Mrs Henderson filed an outline of submissions which addressed the application to set aside the Bankruptcy Notice, but not the application to adjourn pending resolution of the FOS Complaint. On 12 July 2011 National Australia Bank filed:
a)a further affidavit, which did not address the FOS Complaint; and
b)a supplementary outline of submissions, which:
i)essentially adopted its previous outline of submissions concerning the application to set aside the Bankruptcy Notice, and made some further observations with respect to the Federal Court judgment in Skouloudis v St George Bank Ltd;[28] and
ii)dealt with the FOS Complaint, observing that it was:
(A)an attempt to dispute the outcome of earlier Supreme Court proceedings (which gave rise to the judgment debt); and
(B)a matter that the Financial Ombudsman Service was expressly excluded from considering under its Terms of Reference because it could not consider a complaint where there were already existing legal proceedings, and the Bankruptcy Notice Proceedings were commenced approximately three months prior to the FOS Complaint being lodged.
[28] (2008) 173 FCR 236; [2008] FCA 1765.
At the hearing on 22 July 2011, after appearances were taken, Counsel for Mr and Mrs Henderson indicated that this was an application to set aside the Bankruptcy Notice, and in response to a question from the Court indicated that the application for adjournment pending resolution of the FOS Complaint had been abandoned.[29] No more was said by either Counsel at the hearing concerning the application for adjournment pending resolution of the FOS Complaint, other than Counsel for National Australia Bank submitting that a costs issue arose, which the Court indicated was more appropriately dealt with following determination of the set aside application.[30]
[29] Transcript, page 2.
[30] Transcript, page 12.
The Court notes that the submissions of Mr and Mrs Henderson did not address the application to adjourn pending resolution of the FOS Complaint. National Australia Bank’s supplementary submissions did address the application to adjourn pending resolution of the FOS Complaint, in some detail. Mr and Mrs Henderson abandoned the application to adjourn pending resolution of the FOS Complaint at hearing. National Australia Bank’s submissions with respect to the FOS Complaint made the pertinent, but straightforward, point, that under the Financial Ombudsman Service Terms of Reference it could not deal with a complaint where legal proceedings in respect of the same matter had already been commenced.[31] In the circumstances, the argument about whether there ought to have been an adjournment pending resolution of the FOS Complaint would:
a)have been short;
b)have been decided at hearing; and
c)not have been granted, because under the Financial Ombudsman Service Terms of Reference the Financial Ombudsman Service could not have dealt with a complaint where the subject matter of the complaint related to proceedings which, as here, had already commenced. It was probably that realisation which led to the application to adjourn pending resolution of the FOS Complaint being abandoned by Mr and Mrs Henderson.
[31] National Australia Bank’s Supplementary Outline of Submissions, paras.9, 11 and 12.
If the application to adjourn pending resolution of the FOS Complaint had been proceeded with, the argument, and its determination, would not in the Court’s view have occupied more than one-fifth of the time for the hearing on 22 July 2011. The argument was short, and its determination would have been equally short, bearing in mind that the point was first raised by the Court, and the Court had given preliminary consideration to the issue before the 16 June 2011 hearing, for the purposes of raising it at that hearing.
That leaves the question of whether or not apportionment of costs is appropriate. In this case, Mr and Mrs Henderson have otherwise been successful. They did however, raise an issue, the FOS Complaint, and sought to have the hearing adjourned because of it. National Australia Bank ultimately filed detailed supplementary submissions opposing any adjournment pending resolution of the FOS Complaint. Those submissions were prepared and filed in accordance with the Court’s orders, and on an issue which the National Australia Bank was entitled to meet and oppose. Those submissions were not utilised because the application to adjourn pending the resolution of the FOS Complaint was abandoned without notice by Mr and Mrs Henderson. National Australia Bank’s submissions opposing the adjournment pending the resolution of the FOS Complaint reflect, to some degree, the issues raised by the Court with the parties at the hearing on 16 June 2011. Costs were incurred in the preparation of the submissions by National Australia Bank. In the circumstances, where an otherwise successful party has dealt with an issue which is then abandoned at hearing, costs should be apportioned having regard to that issue.[32] Having regard to:
a)the nature of the submissions:
b)the circumstances in which the issue was raised; and
c)the Court’s previously expressed view that the issue, had it been argued, would not have occupied more than one-fifth of the time of the eventual hearing,
the Court considers that it is appropriate to apportion costs in relation to the hearing on 22 July 2011.
[32] Cadbury Schweppes at paras.11-13 per Black CJ, Emmett and Middleton JJ; Mareva Building Consultants at para.13 per Katzmann J.
In the circumstances, the Court considers that Mr and Mrs Henderson should receive three-fifths of any costs associated with preparation for, and appearance at, the hearing on 22 July 2011. Otherwise, unless costs are agreed within 14 days, costs ought to be taxed by a Registrar of the Court, under Part 40 of the FC Rules.[33]
[33] FMC (Bankruptcy) Rules, r.13.01.
Conclusion and order
Mr and Mrs Henderson are entitled to costs. Unless costs are agreed within 14 days, costs ought to be taxed by a Registrar of the Court, under Part 40 of the FC Rules, provided that Mr and Mrs Henderson should only receive three-fifths of any costs associated with preparation for, and appearance at, the hearing on 22 July 2011. There will be an order accordingly.
I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Lucev FM
Date: 17 February 2012
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