Homebuilding Pty Ltd v Cappello (No 2)
[2023] FedCFamC2G 493
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Homebuilding Pty Ltd v Cappello (No 2) [2023] FedCFamC2G 493
File number(s): SYG 1827 of 2021
SYG 1828 of 2021Judgment of: JUDGE CAMERON Date of judgment: 16 June 2023 Catchwords: PRACTICE & PROCEDURE – COSTS – whether refusal of offers was unreasonable – whether proceeding brought for an improper purpose. Legislation: Federal Circuit and Family Court of Australia Act 2021 (Cth) s 214
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) r 13.01 div 13.2
Federal Court Rules 2011 (Cth) pt 40
Cases cited: Calderbank v Calderbank [1975] 3 All ER 333
Cappello v Homebuilding Pty Ltd (formerly known as Hammond & Simonds NSW Pty Ltd) [2021] FCA 981
Homebuilding Pty Ltd v Cappello [2022] FedCFamC2G 576
Mariconte v Nobarnni [2020] FCA 1485
Martin v Carlisle [2008] NSWSC 1276
Nobarani v Mariconte [2021] FCAFC 96
Wills v Chief Executive Officer of the Australian Skills Quality Authority (Costs) [2022] FCAFC 43
Division: General Number of paragraphs: 29 Date of last submissions: 19 December 2022 Date of Hearing: On the papers Place: Sydney Solicitor for the Applicant: Adams & Partners Lawyers Counsel for the Respondents: Mr N. Simone Solicitor for the Respondents: Hall Partners ORDERS
SYG 1827 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: HOMEBUILDING PTY LTD
Applicant
AND: ROSARIO CAPPELLO
Respondent
order made by:
JUDGE CAMERON
DATE OF ORDER:
16 June 2023
THE COURT ORDERS THAT:
1.The parties pay their own costs of the proceeding.
2.The Registrar’s order for costs made on 21 December 2022 be set aside.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
ORDERS
SYG 1828 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: HOMEBUILDING PTY LTD
Applicant
AND: MARIA CAPPELLO
Respondent
order made by:
JUDGE CAMERON
DATE OF ORDER:
16 June 2023
THE COURT ORDERS THAT:
1.The parties pay their own costs of the proceeding.
2.The Registrar’s order for costs made on 21 December 2022 be set aside.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE CAMERON
INTRODUCTION
On 1 October 2021 the applicant, Homebuilding Pty Ltd (Homebuilding), presented creditor’s petitions seeking sequestration of the estates of the respondents, Mr and Mrs Cappello, on the ground that they had failed to comply with a bankruptcy notice issued on 22 April 2021 (Bankruptcy Notice) requiring payment of $50,097.32. The Bankruptcy Notice was based on judgments in the Supreme Court of New South Wales in favour of Homebuilding (Supreme Court Proceedings). The first instance judgment of $76,510.68 was reduced on appeal to $50,097.32. Mr and Mrs Cappello were also ordered to pay the costs of the Supreme Court Proceedings, later certified in the total sum of $203,131.54.
Although the $50,097.32 judgment debt remained outstanding, on 19 July 2022 the creditor’s petitions were dismissed on the basis that Mr and Mrs Cappello were not insolvent: Homebuilding Pty Ltd v Cappello [2022] FedCFamC2G 576 (First Judgment).
Mr and Mrs Cappello now seek orders that Homebuilding pay their costs of and incidental to these proceedings and do so on an indemnity basis. Homebuilding opposed that application and seeks orders that:
(a)Mr and Mrs Cappello pay its costs of these proceedings up to and including 31 January 2022; and
(b)each party bear their own costs from 31 January 2022.
LEGISLATION & RULES
The Federal Circuit and Family Court of Australia Act 2021 (Cth) relevantly provides:
214 Costs
(1) This section does not apply to:
(a) family law or child support proceedings; or
(b) proceedings in relation to a matter arising under:
(i) the Fair Work Act 2009; or
(ii) section 14, 15 or 16 of the Public Interest Disclosure Act 2013.
(2)The Federal Circuit and Family Court of Australia (Division 2) or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs must not be awarded.
(3)Except as provided by the Rules of Court or any other Act, the award of costs is in the discretion of the Federal Circuit and Family Court of Australia (Division 2) or Judge.
The Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) (Bankruptcy Rules) relevantly provide:
13.01 Basis for costs
(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.
Division 13.2 of the Bankruptcy Rules does not apply in this case. Part 40 of the Federal Court Rules 2011 (Cth) is concerned with costs, including the taxation of costs.
BACKGROUND FACTS
On 31 August 2020, ie before the Bankruptcy Notice was issued, Homebuilding’s solicitors emailed Mr and Mrs Cappello requiring that the first instance judgment debt be paid immediately.
On 2 September 2020 the parties exchanged the following emails:
(a)at 9:15am Mr Cappello advised Homebuilding’s solicitors that a notice of intention to appeal had been filed and that a notice of appeal was being finalised. He sought 7 days’ notice of any intention by Homebuilding to enforce the first instance judgment;
(b)at 9:22am Homebuilding’s solicitors advised Mr Cappello and his solicitors of their client’s intention to commence enforcement action the following day if the first instance judgment debt was not paid immediately;
(c)at 11:13am Mr Cappello advised Homebuilding’s solicitors that he would seek a stay and would rely on his email on the question of costs; and
(d)at 11:50am Homebuilding’s solicitors advised Mr Cappello and his solicitors that they might lodge a caveat against Mr and Mrs Cappello’s Haberfield properties if the judgment debt was not paid that day.
As noted earlier, the Bankruptcy Notice issued on 22 April 2021. On 18 August 2021 Katzmann J dismissed Mr and Mrs Cappello’s application to set the Bankruptcy Notice aside and extended the time for compliance with it to 25 August 2021: Cappello v Homebuilding Pty Ltd (formerly known as Hammond & Simonds NSW Pty Ltd) [2021] FCA 981. On 23 August 2021 Homebuilding’s solicitors emailed a copy of the Bankruptcy Notice to Mr and Mrs Cappello’s solicitors and advised that if Mr and Mrs Cappello did not pay the appellate judgment debt of $50,097.32 by 25 August 2021 Homebuilding would initiate recovery action.
Mr and Mrs Cappello failed to comply with the Bankruptcy Notice by 25 August 2021.
On 1 October 2021 these proceedings were commenced. Mr and Mrs Cappello filed various affidavits deposing to their assets and liabilities which are detailed in the First Judgment.
Settlement Offers
Mr and Mrs Cappello made offers to settle these proceedings on the following terms and on the basis of the principles in Calderbank v Calderbank [1975] 3 All ER 333 (“Calderbank”):
(a)on 9 December 2021: dismissal of the proceedings with no orders as to costs; and
(b)on 18 January 2022: dismissal of the proceedings upon payment of the $50,097.32 judgment debt, interest and costs, as well as the costs of the Supreme Court Proceedings at first instance and on appeal.
Homebuilding made its own Calderbank offers to settle these proceedings as follows:
(a)on 24 January 2022: to, in broad terms, accept in settlement of these proceedings $247,729.11 (being the judgment debt of $50,097.32, interest of $4,514.44 and a total of $195,117.35 in respect of assessed costs of the Supreme Court Proceedings) plus $96,340.78 for as yet unassessed costs incurred in other proceedings including these; and
(b)on 1 April 2022: to settle these proceedings and certain costs assessment proceedings in the Supreme Court of New South Wales on terms similar to those offered on 24 January 2022.
SUBMISSIONS
Respondents
Mr and Mrs Cappello submitted that there were two reasons why Homebuilding should be required to pay their costs of the proceedings and to do so on the indemnity basis. The first was said to be that the result of the proceedings was less favourable to Homebuilding than their rejected Calderbank offers had been.
The second asserted basis for an award of indemnity costs was said to be that the proceedings had each been an abuse of process for having been commenced for an illegitimate and improper purpose, namely debt collection. Mr and Mrs Cappello relied in this regard on the decision at first instance in Mariconte v Nobarnni [2020] FCA 1485, which considered whether a bankruptcy notice had been an abuse of process because it had been issued as a debt collection mechanism.
It was submitted that an illegitimate and improper purpose of that sort underlay these proceedings and that this was evidenced by the following matters:
(a)Homebuilding’s settlement offers, which sought to use the proceedings to extract payment of debts other than the appellate judgment debt;
(b)Homebuilding’s refusal of “generous” offers of benefits beyond those available to it in the proceedings;
(c)Homebuilding’s seeking payment of sums additional to the appellate judgment debt, while also refusing a bank cheque tendered in payment of that judgment debt;
(d)Homebuilding’s prosecution of the creditor’s petitions following the service of evidence of Mr and Ms Cappello’s extensive property portfolio which was said to have gone beyond what was reasonably required to test the defence of solvency;
(e)Homebuilding’s threat to place, and actual placement of, a caveat on the title of Mr and Mrs Cappello’s home; and
(f)referring to the transcript of a proceeding before the District Court of NSW annexed to the affidavit in support of the application for costs, Homebuilding’s counsel’s statement to that court to the effect that the Bankruptcy Notice had been issued as enforcement proceedings.
Mr and Mrs Cappello submitted, citing Martin v Carlisle [2008] NSWSC 1276, that an indemnity costs order was doubly justified because Homebuilding had refused to withdraw its caveat.
Applicant
Homebuilding submitted that Mr and Mrs Cappello’s application for costs ought to be dismissed and that the appropriate order was that they pay its costs of the proceeding up to when they filed their further evidence as to insolvency and that the parties bear their own costs thereafter. It submitted that the correct position on the question of indemnity costs was whether failure to accept an offer warranted departure from the ordinary rules as to costs, citing Wills v Chief Executive Officer of the Australian Skills Quality Authority (Costs) [2022] FCAFC 43 at [22]. It submitted that its rejections of Mr and Mrs Cappello’s offers of settlement on 9 December 2021 and 18 January 2022 had not been unreasonable because the entirety of their evidence of solvency had not yet been served.
Homebuilding contested the contention that the proceedings had been abuses of process, submitting that the parties’ negotiations sought to resolve all issues between them, not just the bankruptcy proceedings. It observed that the first offers were those of Mr and Mrs Cappello and that the second of those offers sought to settle all outstanding obligations arising out of the Supreme Court Proceedings. Homebuilding submitted that these proceedings were distinguishable from Mariconte v Nobarini as it had not had “an obvious order” to enforce the judgment debt, as had been the situation in that case. It also argued that, as an unpaid creditor, it had been entitled to issue the Bankruptcy Notice.
Homebuilding submitted that there was no special feature in this proceeding which would enliven the Court’s jurisdiction to set aside or dismiss the Bankruptcy Notice as an abuse of process. Homebuilding further submitted that it had legally and validly lodged the caveat against Mr and Mrs Cappello’s property in accordance with their building contract and the applicable legislation and it could not be relied on as a basis for making the indemnity costs order sought.
EVIDENCE
The parties filed affidavits setting out their costs of the proceedings.
CONSIDERATION
Abuse of process
In their submissions, the parties were focussed on the Bankruptcy Notice and whether it was in some way an abuse of process. That was an argument that, if it was not, should have been raised before Katzmann J who dismissed the application to set the Bankruptcy Notice aside. These proceedings, however, concern two creditor’s petitions for sequestration orders based on Mr and Mrs Cappello’s acts of bankruptcy.
In Nobarani v Mariconte [2021] FCAFC 96 it was said, on appeal from Mariconte v Nobarani, that:
32… The present weight of authority favours the view that the allegation of an abuse of process is a serious one which cannot be made without a sufficient factual foundation and the party alleging it bears a “heavy onus” in establishing its existence: Williams v Spautz [1992] HCA 34; 174 CLR 509 at 529; Prentice v Fewin Pty Ltd, in the matter of Prentice [2017] FCA 490 at [48]–[49] … ; Royal v Nazloomian at [37].
33It is also not in doubt that the time at which to ascertain whether a bankruptcy notice is an abuse of process is the time when it is issued: Killoran v Duncan, in the matter of Killoran [1999] FCA 1574 at [13] … ; Royal v Nazloomian at [30].
By analogy, the time at which to ascertain whether a creditor’s petition is an abuse of process, at least when the allegation is that it was brought for an improper purpose, is the time when it was presented.
In circumstances where both Mr and Mrs Cappello had committed an act of bankruptcy, it is difficult to see how it could be concluded that the presentation of the creditor’s petitions amounted to an abuse of process. Once an act of bankruptcy had occurred it was open to any of Mr and Mrs Cappello’s creditors to rely on it to present a creditor’s petition and so the enforcement of the judgment debt by writs for the levy or property or by garnishee orders would not have been the “obvious orders” to seek in the circumstances. Further, there is no evidence that Homebuilding knew when it presented the creditor’s petitions that a sufficient reason existed for sequestration orders not to be made. Compelling evidence of solvency was not served until much later, when Mr Cappello provided a more comprehensive overview of his and Mrs Cappello’s financial positions than had previously been available.
The matter is taken no further by the inclusion in Homebuilding’s settlement offers of references to sums owed to it by Mr and Mrs Cappello beyond the judgment debt. As Homebuilding pointed out, that particular door had been opened by Mr and Mrs Cappello themselves in their offer of 18 January 2022 and it seems that Homebuilding did no more than keep it open. It is also unsurprising that the parties might have wanted to resolve all issues at the same time, if possible. To the extent that the proceedings remained on foot beyond the point when it was reasonable to expect that sequestration orders would be made, costs are an adequate remedy.
Finally, these were not proceedings to remove the caveat from the title of Mr and Mrs Cappello’s home. The implicit contention is that a defective caveat was placed on the title of that property but such a contention was not supported by evidence led by Mr and Mrs Cappello. Absent evidence of that sort, the contention that it was wrong of Homebuilding to lodge the caveat and that doing so was an abuse of process of some relevance for these proceedings is not made out. It should also be noted that there was no evidence that Mr and Mrs Cappello had asked for the removal of the caveat, notwithstanding a submission to that effect. The possible alternative argument that lodging a valid caveat was an abuse of process in the context of these proceedings implies that Homebuilding should not have been able to protect its interests pending an outcome in these proceedings. As there was no evidence of the caveat having inconvenienced Mr or Mrs Cappello in any practical way, for instance by preventing a sale of the property in question in order to secure funds to pay their debts, I am not prepared to conclude that it amounted to an abuse of process material to these cases.
Offers
Mr and Mrs Cappello’s offers of settlement were both made before compelling evidence of their solvency was served. Until that point, and in circumstances where both Mr and Mrs Cappello had committed acts of bankruptcy by not complying with the Bankruptcy Notice, it was not unreasonable of Homebuilding to have rejected those offers.
CONCLUSION
As Homebuilding was entitled to bring these proceedings, it is entitled to its costs of having done so. However, it was unreasonable for it to have pressed on after Mr and Mrs Cappello demonstrated that they were solvent and Mr and Mrs Cappello should have their costs from that point. Homebuilding has proposed 31 January 2022 as the relevant date and I accept that. These orders supersede the order made by Registrar Colbran on 21 December 2021 that Mr and Mrs Cappello pay Homebuilding’s costs of and incidental to a hearing before her on 15 December 2021 and, for administrative clarity, that order will be set aside.
Mr and Mrs Cappello sought costs on a lump sum basis and Homebuilding did not argue against that. However, the level of detail provided in the parties’ affidavits as to costs is not sufficient to determine with confidence the amounts that ought to be paid. Nonetheless, the parties’ claims in respect of the periods of their entitlement to costs are not so different that, as they ought to be set off against each other in any event, they justify the time and expense of a taxation. On balance the appropriate order in both cases is that the parties bear their own costs.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Cameron. Associate:
Dated: 16 June 2023
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