Holbrook v Symes - [2004] FMCA 798

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HOLBROOK v SYMES

[2004] FMCA 798

BANKRUPTCY – Trustees fees – whether debtor estopped from proceedings with counterclaim against Trustee on grounds that issues of Trustee’s conduct and breaches of duty previously decided in an earlier application – whether counterclaim should be permanently stayed as abuse of process.

Bankruptcy Act 1966, ss.153B, 154

Symes v Holbrook (2003) FCA 96
Symes v Holbrook [2002] FMCA 26

Symes v Holbrook (No 2) [2004] FMCA 6
Symes v Holbrook (No 3) [2004] FMCA 71
Dissidomino v Butcher Paull & Calder [2004]WASC 122 (4 June 2004)
State Bank of New South Wales v Stenhouse Ltd (1997) Aust Tort Reports 81-423
Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198
Borck v Williamson (1994) 49 FCR 16
Rogers v R (1994) 181 CLR 251
Walton v Gardiner (1993) 177 CLR 378
Jago v District Court (NSW) (1989) 168 CLR 23

Applicant:

KIM DAVID HOLBROOK

Respondent:

FREDERICK KEITH SYMES

File No:

PEG 31 of 2004

Delivered on:

12 November 2004

Delivered at:

Perth

Hearing Date:

26 August 2004

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr A.F. Carles

Solicitors for the Applicant:

Carles Solicitors

Counsel for the Respondent:

Mr A.O. Karstaedt

Solicitors for the Respondent:

Leask & Co

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

PEG31 of 2004

KIM DAVID HOLBROOK

Applicant

and

FREDERICK KEITH SYMES

Respondent

REASONS FOR JUDGMENT

In this matter orders were made by the registrar on 19 July 2004 that by consent the following issues be tried as preliminary issues:
(a)whether the respondent is estopped from proceeding with his counterclaim against the applicant on the grounds that the issues of the applicant’s alleged conduct and breaches of duty raised therein have previously been decided by this court in proceedings WZ86 of 2001 between the same parties, or alternatively, should have been raised by the current respondent in those proceedings;
(b)whether the respondent’s counterclaim should be permanently stayed as an abuse of process on the grounds set out above;
(c)further or alternatively, whether the respondent’s points of defence and counterclaim dated 5 July 2004 be struck out in their entirety.
Although the minute of orders made on 19 July 2004 purports to set out the scope of the preliminary issue, it is noted that in the applicant’s Amended Outline of Submissions on the preliminary issue filed on 11 August 2004 pursuant to orders made by this Court on 29 July 2004 the applicant therein concedes that an issue estoppel would not arise but maintains a claim of abuse of process in relation to the respondent’s counterclaim.
By way of background, it is noted the applicant’s claim is payment of the sum of $48,022.36 as costs, charges and expenses of the applicant as controlling trustee and trustee of the bankrupt estate of the respondent. The amount claimed comprises controlling trustee’s fees and disbursements and trustee’s fees and disbursements totalling $37,664.98 and legal fees of $8250.
The respondent denies liability for the claims and contends that such costs, fees and charges as may have been properly incurred have already been paid out of the respondent’s property. The respondent further counterclaims for damages arising out of breach of contractual, statutory and common law duties allegedly owned by the applicant to the respondent.
The proceedings have had a somewhat lengthy and protracted history. By orders made on 20 February 2002 an application for annulment of bankruptcy pursuant to s.153B of the Bankruptcy Act 1966 (the Act) was dismissed and an order made that Frederick Keith Symes (the debtor) pay the then respondent namely Kim Holbrook (the trustee) costs. That decision was the subject of an appeal to the Federal Court and in a decision delivered on 28 February 2003 (Symes v Holbrook (2003) FCA 96) where orders were made allowing the appeal, setting aside the orders made by this Court on 20 February 2002 and remitting the matter to the Court for determination in accordance with the law.
A further judgment of this Court was delivered on 8 January 2004 (Symes v Holbrook (No 2) [2004] FMCA 6). On that occasion the Court made an order that the debtor’s bankruptcy be annulled pursuant to s.153B of the Act. The further issue of costs arising from that decision was then the subject of an ex tempore decision of the Court delivered on 4 February 2004 (Symes v Holbrook (No 3) [2004] FMCA 71). An order was made in relation to costs that the trustee’s costs of the proceedings pursuant to the Federal Court Scale be an expense in the estate pursuant to s.54 of the Act to be taxed in default of agreement pursuant to Order 62 of the Federal Court Rules.
By orders made on 29 July 2004 I ordered that parties to attend mediation. In the event that mediation did not resolve the matter, then the applicant was directed to file an amended outline of submissions in relation to the preliminary issue with the respondent to reply within seven days of receipt of the applicant’s further submissions. Regrettably, the matter did not resolve at mediation despite the obvious commercial benefits to the parties which may have been achieved by a successful and sensible resolution of the dispute.

Applicant’s submissions

As indicated, the applicant concedes that issue estoppel would not arise, though maintains that in the points of defence and counterclaim dated 5 July 2004 the respondent in denying liability in the claim for damages or liability to pay fees and expenses of the applicant as controlling trustee and bankruptcy trustee has done so essentially based upon alleged breaches of duties resulting in an alleged failure to properly advise the respondent.
It was submitted that having regard to the judgments to which reference has been made and affidavit material otherwise relied upon in earlier proceedings that the factual issue, according to the applicant’s submissions, relating to the conduct and advice of the trustee has been exhaustively canvassed by the relevant witnesses in the affidavits prior to proceeding WZ86 of 2001.
Reference was made to paragraph 39 of the judgment of this Court delivered on 8 January 2004 (Symes v Holbrook (No2)) where I stated the following:
“…The Applicant contests liability for the Trustee’s fees and refers to earlier affidavit material and asserts that there is a real issue on the material before the court as to whether the Applicant should be liable for the Trustee’s fees. That is a separate issue which the court should not be asked to resolve and that should be left to the Trustee if he so wishes to utilise the procedure under s.154(2) of the Bankruptcy Act to recover his charges.”
It was submitted on behalf of the applicant that at that point it would appear that the issues relating to negligence and breaches of duties on the part of the trustee were left open. It was submitted, however, that such findings were ultimately made in the subsequent judgment delivered on 4 February 2004 in relation to costs (Symes v Holbrook (No 3)). Those findings it was submitted were made, and probably had to be made, as counsel for the debtor had argued in substance that the trustee should be deprived of his costs of the annulment proceedings due to the trustee’s negligence in advising the debtor. Reference was made to the following extracts from paragraphs 7, 8, 9 and 12 of the judgment of this Court delivered on 4 February 2004 as follows:-
“7.… It would be unfair to retrospectively impose upon the trustee knowledge of the facts and circumstances now known to the court which were then only superficially known to the parties and specifically the trustee.
8.In my first decision I had drawn a conclusion, based on the material then before me, as to the role of the trustee and indeed had drawn conclusions as to whether or not he had acted in a manner which would be considered unprofessional or irresponsible. In that decision, at paragraph 59, I stated the following:
“I do not believe on the material presently before me that there is any basis upon which it could be said that the respondent has acted in a manner which would be considered to be unprofessional or irresponsible. I do accept however that the applicant's dealings with the respondent have caused the applicant and his family great stress though in the circumstances that would appear to be inevitable given the extraordinary financial circumstances and the tragic death of the applicant's wife.”
9. The comments I made in paragraph 58 of my earlier decision in my view are still appropriate, notwithstanding the additional material that has now been provided to the court. On a proper assessment of the facts which were then available to the trustee, I cannot see anything in the conduct of the trustee which would lead the court to conclude that there is some culpability or liability on the part of the trustee in terms of giving what might be described as improper advice. In my view it is clear that what has occurred in the application both at first instance and on the remitted matter, and indeed on my reading of the material and the judgment of his Honour Nicholson J before the Federal Court on the material presented to that court, that throughout the trustee had indeed not opposed the application.
…
12.I am satisfied that on a proper analysis of the trustee’s submissions that they do no more than provide submissions on matters of relevant issues before the court and bring to the attention of the court authorities which the court needs to consider in its deliberations on the application for annulment. In my view, having heard the submissions and considered the material, I cannot see anything in the conduct of the trustee which would support the view that at the relevant time advice to present a debtor's petition should not have been given, nor can I see on the material before me anything which would lead me to conclude that the trustee in this application has not acted in a neutral or bipartisan manner.”
The applicant submits that by virtue of the above extracts the Court had already found in substance that there is no culpability or liability on the part of the trustee in terms of any improper advice, and in particular, that the advice to the present a debtor’s petition should not have been given.
Reliance was placed upon the decision of Dissidomino v Butcher Paull & Calder [2004]WASC 122 (4 June 2004) where Commissioner Odes QC of the Supreme Court of Western Australia noted at paragraph 43 that one needs to look to “the substance of the action as distinct from its form”. The case dealt with both estoppel and abuse of process and at paragraph 52 of the judgment the following passage of the joint judgment of Mason CJ, Deane and Dawson JJ in Walton vGardiner was quoted in relation to abuse of process:
“… if notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings.”
Reliance was placed upon paragraph 55 of the Dissidomino decision where reference is made to English authority distinguishing between causes of action and issue estoppel and the abuse of process doctrine as follows in paragraph 55:
“55.In Johnson v Gore Wood and Co (a firm) (supra) the House of Lords refer to the differences between the doctrines of cause of action estoppel and the abuse of process stating that: ‘The latter, which may arise where there is no cause of action or issue estoppel, is not subject to the same test, the task of the court being to draw the balance between the competing claims of one party to put his case before the court and the other not to be unjustly hounded given the earlier history of the matter.’”
The applicant further relied upon paragraph 59 of the Dissidomino decision as follows:-
“… by now attempting to relitigate the issue of the firm’s breach of duty of care (albeit it be relying on different particulars of negligence) she is seeking to ventilate issues which she could have ventilated in the counterclaim of the costs action but chose not to do. … I conclude therefore that even if the parties in the costs action and the present proceedings are not the same or even if the causes of action are not identical so far as they give rise to a defence of res judicata or issue estoppel, the present proceedings should nevertheless be permanently stayed as an abuse of process.”
The applicant submitted that all of the complaints as to the trustee’s conduct and advice have been thoroughly ventilated in the prior proceedings, and to the extent that any new particulars of negligence are now raised, those matters should have been raised in the earlier proceedings. Given the comprehensive affidavit material by both sides in relation to the trustee’s conduct and absence of any evidence of any new material, the trustee would be “unjustly hounded” if the respondent was permitted to raise the same allegations again in these proceedings. It was submitted that it has already been found that there was no liability or culpability in the part of the trustee in giving any improper advice which should disentitle him from his legal costs of the annulment proceedings.
If that be the case, then it should also follow, according to the applicant’s submissions, that there has been no liability or culpability on the part of the trustee in terms of giving improper advice which should disentitle him to be paid the remuneration and expenses to which he would otherwise be entitled.
In relation to the abuse of process, reliance was placed upon a decision of Giles CJ in State Bank of New South Wales v Stenhouse Ltd (1997) Aust Tort Reports 81-423 at 64,089 where the court stated the following:
“… whether proceedings are, or an aspect of proceedings is an abuse of process because a party seeks to relitigate an issue already decided depends very much on the particular circumstances.”
It was submitted from that reference the Court has a wide discretion. Principles relating to striking out pleadings or causes of action as an abuse of process are summarised, according to the applicant’s submissions, in Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198 at 204-205.
It was submitted that in applying relevant considerations to the present application the court should have regard to the following:
a)The issue of the applicant’s conduct and advice to the respondent was important in the earlier proceedings, in particular the costs proceedings, as it was one of the two grounds upon which the respondent argued that the trustee should be deprived of its costs. The court had little choice but to make a finding on the issue given the manner in which the respondent argued the costs issue;
b)The opportunity was available and was taken to fully litigate the issue as detailed affidavits were filed by both sides and detailed submissions were made by both sides. The respondent could have cross-examined the trustee but chose not to do so;
c)It is submitted that the terms of the finding on the issue are clear, ie that the trustee did nothing wrong in advising the bankrupt;
d)The substantive issue is the same in the two proceedings, namely whether the trustee failed to properly advise the bankrupt;
e)There is no suggestion of any fresh evidence having become available;
f)The trustee has had to defend allegations as to his conduct and advice in the annulment proceedings and costs proceedings as a result of these issues being raised by the respondent. The trustee has suffered substantial delay in having his fees and expenses paid;
g)In the overall balancing of justice as between the applicant and the respondent it is submitted that the balance favours the applicant;
h)The issue is one which the respondent is the party propounding it in the latter proceedings, not in the former proceedings;
i)The issue of the trustee’s advice was necessarily determined in the earlier costs proceedings as it was raised by the respondent as one of the two bases upon which he argued that the trustee should be deprived of his costs. The issue was of importance to the costs decision;
j)The issue was properly argued and was regarded by the parties as one of importance;
k)The decision was a final one and there is no suggestion that some binding authority have been overlooked.
Again relying upon the decision of the Rippon case it was argued that in the present case there is oppression and unfairness to the applicant as the same parties are involved, and that furthermore, the prospect of conflicting judgments clearly arises.
It was submitted that s.154 of the Act in effect provides that upon the annulment the trustee is entitled to be paid the following three categories:
i)trustee’s remuneration;
ii)the trustee’s expenses which would include his or her legal costs of the annulment proceedings; and
iii)trustee’s other expenses.
It has already been decided, according to the applicant’s submissions in substance, that the trustee should not be deprived of his category (ii) entitlements as there was no negligent advice. To allow the respondent to continue with a defence and counterclaim of negligence advice to try to deprive the applicant of his category (i) and (iii) entitlements raises a clear possibility of conflicting judgments. It was submitted there is no logical basis upon which the trustee can or should be deprived of its entitlements under categories (i) and (iii) but not (ii).
Further, it was argued that paragraph 3 of page 1 of the respondent’s points of defence should be struck out in any event because that is pleaded, provided the respondent denies that the applicant trustee acted as his agent and denies liability accordingly. In Borck v Williamson (1994) 49 FCR 16 at 20 the Full Court of the Federal Court applied earlier authority to the effect that a controlling trustee acts solely as agent for the debtor. At the same page the court went on to say:
“A debtor is liable to pay the reasonable fees and disbursements incurred by a trustee in connection with a Part X proposal not accepted by the creditors.”
Accordingly, it was submitted the first sentence of paragraph 3 should be struck out based upon that authority. That first sentence provided as follows:-
“The respondent denies that the services and expenses referred to in paragraph 7 of the points of claim were provided and incurred by the applicant as agent for the respondent and the respondent is accordingly liable to pay the applicant for those services as alleged in paragraph 8 of the points of claim.”

Respondent’s submissions

It was argued on behalf of the respondent that the amount claimed by the applicant for payment of $48,022.36 being the costs, charges and expenses as controlling trustee and trustee of the bankrupt estate of the respondent including fees and disbursements totalling $37,664.98 and legal fees of $8,250.00. Of the last amount, that is, $8,250.00, only a portion relates to the costs of the annulment proceedings and it is noted that in respect of that the applicant claims full solicitor and client costs. In relation to that, the applicant sought and obtained an order that the taxed costs of the annulment proceedings be an expense recoverable by the trustee pursuant to s.154 of the Act. It was claimed that notwithstanding that fact the applicant has now sought to recover full solicitor and client costs of the annulment proceedings.
The respondent denies liability for the claims and contends that such costs, fees and charges as may have been properly incurred have already been paid out of the respondent’s property and notes the responding counterclaims for damages arising out of an alleged breach of the contractual, statutory and common law duties owed by the applicant to the respondent.

In relation to the considerations relevant to abuse of process, reference was made to the decision of the High Court in Rogers v R (1994) 181 CLR 251 per Mason CJ at 256 and Walton v Gardiner (1993) 177 CLR 378 at 392-396. In particular, it was noted that in the Walton case reference was made to the judgment of Deane J in Jago v District Court (NSW) (1989) 168 CLR 23 at 58 where the court referred to the continuation of proceedings being “so unfairly and unjustifiably oppressive that it would constitute an abuse of the court’s process.”
Reference was made to the chronology of proceedings before this court and decisions of this court already referred to by the applicant. It was argued that the issue of the trustee’s fees, charges and expenses generally and the issue of the costs of the annulment proceedings were “clearly distinguished and were to be dealt with in separate ways.” The former issue of the trustee’s fees generally was one which the court expressly left open and did not decide. The question of the costs of the annulment proceedings were adjourned for submissions and determination. It was argued that the issues in the points of defence and counterclaim go to the former matter which the court expressly did not decide. Submissions made subsequently and any findings in relation thereto are only in relation to the different, separate and much narrow issue of costs of the annulment application.
It was submitted that having regard to the principles of law in relation to abuse of process it would be difficult for the trustee to contend that it was bringing the administration of justice into disrepute to allow the respondent to raise matters which were expressly left open which were ruled by the court to be properly the subject of another hearing before another court and which were expressly distinguished from the issue of costs of the annulment proceedings that were subsequently argued. It was claimed that situation could not be said to give to oppression and unfairness.
It was noted that in the present application the court annulled the bankruptcy on the basis the petition for bankruptcy should not have been presented. The trustee is now suing for his fees and charges. It was submitted the court could not be satisfied that allowing the respondent to defend the trustee’s claim would bring the administration of justice into disrepute or would give rise to an unacceptable level of oppression or unfairness merely because the respondent previously argued, albeit unsuccessfully, that the trustee should not be awarded the costs of the annulment proceedings.
It was argued the defence and counterclaim raised wider issues then simply the issue of costs to the annulment previously dealt with and that the decision of this court on 4 February 2004 was different from the issues that arise under the defence and counterclaim. On

4 February 2004 the issues decided was purely that of costs of the annulment and not the entitlement of the trustee to its fees, charges and expenses generally. Further, it was argued the matter raised in the costs proceedings was merely whether the trustee should have advised the respondent to present a bankruptcy petition. Issues raised by the defence and counterclaim are much wider it was argued as issues are now raised concerning the trustee’s role as controlling trustee and whether the respondent’s affairs should have been dealt with under Part X of the Act, together with issues concerning whether the trustee complied with the contractual, statutory and common law duties and whether he has already been paid out of the respondent’s property those costs, fees and charges as were properly incurred. Those matters it was argued go well beyond the question of whether the trustee should have advised the respondent to present a debtor’s petition for bankruptcy.
It was further noted that the applicant’s present claim includes payment for the period both prior to and subsequent to the presentation of the petition. The costs proceedings before the court did not make any determination as to the trustee’s contractual or statutory entitlement to fees and no inquiry was made as to the duties owed by the applicant to the respondent, whether such duties had been breached and as to the consequences of such breach.
Issues of agency are also claimed to arise under the defence and counterclaim and the issues taken together, it was argued, are more extensive than those issues which arose in relation to the costs of the annulment proceedings.
It was further argued that in relation to the costs of the annulment proceedings the issue of whether the trustee should have advised the applicant to present a petition for bankruptcy was a “subsidiary one”.
It was essentially argued that the earlier decision in relation to costs of the annulment proceedings was not in respect of an ultimate issue between the parties. The respondent in submissions dealt extensively by way of reply with the matter raised by the applicant and it is sufficient to note that apart from referring to the authorities which are relevant in consideration of whether there is an abuse of process, it was argued that applying those principles the court should not find that there is in fact an abuse of process in this proceeding.
It was specifically argued that a reference to “action” in the applicant’s submissions points to the inapplicability of the doctrine of abuse of process in the present matter as it was argued by the respondent that the earlier proceedings were not in respect of an “action but related only to costs”. In passing, I have to comment that it was difficult to understand the basis of this submission and it seems to be without foundation. To suggest that a decision in relation to costs is not a respective action, in my view, is nonsensical. Further attempts were made to distinguish the substantive proceedings on the one hand and the costs proceedings on the other. To a large extent the submissions for and on behalf of the respondent, albeit in reply to the applicant’s submissions, became repetitive.

Reasoning

I accept that had this Court’s decision remained with the findings referred to in paragraph 39 of its judgment delivered on 8 January 2004 in Symes v Holbrook (No2) then it would be difficult to contemplate any argument that the counterclaim founded on negligence and/or breach of duty on the part of the Trustee would not be left open to be argued by the debtor in this application. However, it is clear to me that the findings in Symes v Holbrook (No 3) on the issue of costs did require the Court to consider as a substantive issue in my view a question of whether or not the Trustee had been negligent in advising the debtor to lodge a petition. Though I had tentatively drawn a conclusion in Symes v Holbrook (No 2) on the material then before me I was not satisfied that there was any basis upon which it could be said the respondent trustee had acted in a manner which could be considered unprofessional or irresponsible. I did not proceed further and after reciting that finding in Symes v Holbrook (No 3) on the issue of costs I then had the opportunity to consider additional material.

I considered the additional material and proceedings and then clearly found that I could not see anything in the conduct of the trustee which would lead the Court the conclude that there is some culpability or liability on the part of the Trustee in terms of giving what might be described as improper advice.
I accept the submissions for and on behalf of the Applicant that as a result of those findings that I have found already in substance that there is no culpability or liability on the part of the trustee in terms of any improper advice especially the advice to present a debtor’s petition. Whilst that decision related to the issue of cots the general substantive issue as to the conduct of the Trustee was clearly raised for and on behalf of the debtor. I made findings accordingly. It would be artificial in my view to now proceed to entertain a counterclaim which essentially must seek to challenge that substantive finding, albeit in relation to the costs issue dealt with separately on the previous occasion. Whilst I accept the concession that issue estoppel may not arise in the present case, even though it is perhaps arguable, I do accept that the issue of the trustee’s conduct and advice was previously agitated in the earlier proceedings with an appropriate finding including consideration of significant affidavit material. Hence, the current counterclaim based as it is upon an attack on the Trustee’s conduct could properly be regarded as an abuse of process in the particular circumstances of this case.
I otherwise accept the submissions made for and on behalf of the Applicant as set out in paragraph 20 of this judgment. In my view it would be oppressive and unfair to the Applicant to entertain the counterclaim as expressed against the Trustee and the only issue outstanding in my view is the issue of the quantum of the Trustee’s claim. Having decided that preliminary issue against the Respondent it seems more appropriate to me that the assessment of the quantum of the Trustee’s claim should properly be a matter for further mediation subject to the submissions made for and on behalf of the parties arising out of this judgment.
Whilst I have some sympathy for the submissions made for and on behalf of the Respondent and in particular the attempt to distinguish the substantive finding from the finding associated with the costs application, it seems to me that that distinction in the present circumstances is somewhat artificial. The attack on the Trustee by the Respondent in the course of the submissions made and material presented in relation to the costs issue was a substantial and clear attack of a kind similar to the material now sought to be advanced for and on behalf of the Respondent of support of the counterclaim. Whilst it is true that the costs proceedings before the Court did not determine the Trustee’s contractual or statutory entitlement, the decision clearly addressed the issue of the conduct of the Trustee and made findings of a kind which could stand it any or any parts of the counterclaim bow presented were to be upheld. There would be a clear inconsistency having regard to the earlier findings I had made in dealing with the costs issue. I do not accept that issues of agency arise in the context of this application or has any particular relevance in deciding whether or not the counterclaim could be regarded as an abuse of process.
For those reasons it is my view that the counterclaim is an abuse of process to the extent that it seeks to re-agitate issues of the Trustee’s alleged conduct and claimed breach of duty which has been previously decided by this Court in the earlier proceedings and accordingly it should be permanently stayed as an abuse of process with the Points of Defence and Counterclaim dated 5 July 2004 to be struck out in their entirety.
I shall hear counsel in relation to any further directions which may be required in this matter.

I certify that the preceding forty-three (43) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 12 November 2004