Kempsey Local Aboriginal Land Council v Donnelly
[2022] FedCFamC2G 149
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Kempsey Local Aboriginal Land Council v Donnelly [2022] FedCFamC2G 149
File number(s): SYG 3393 of 2019 Judgment of: JUDGE DRIVER Date of judgment: 18 March 2022 Catchwords: COSTS – bankruptcy – creditor’s petition dismissed when debtor established an offsetting claim – lengthy proceedings – proceedings in the NSW Supreme Court – petition about to expire when dismissed – no costs order Legislation: Aboriginal Land Rights Act 1983 (NSW)
Bankruptcy Act 1966 (Cth) ss 32, 52
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth)
Federal Court Rules 2011 (Cth)
Cases cited: Donnelly v Kempsey Local Aboriginal Land Council [2019] FCCA 3152
Donnelly v Kempsey Local Aboriginal Land Council [2020] NSWSC 1548
Donnelly v Kempsey Local Aboriginal Land Council [2021] NSWSC 1699
Latoudis v Casey (1990) 170 CLR 534
Principal Strategic Options Pty Ltd, Re Coshott v Coshott [2001] FCA 664
Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622
Division: Division 2 General Federal Law Number of paragraphs: 76 Date of last submissions: 14 March 2022 Date of hearing: Decided without oral hearing Place: Sydney Counsel for the Applicant: Mr M Maconachie Solicitor for the Applicant: Maher Legal Counsel for the Respondent: Mr P Batley Solicitor for the Respondent: Johnson Winter Slattery ORDERS
SYG 3393 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: KEMPSEY LOCAL ABORIGINAL LAND COUNCIL
Applicant
AND: LYNETTE DONNELLY
Respondent
ORDER MADE BY:
JUDGE DRIVER
DATE OF ORDER:
18 MARCH 2022
THE COURT ORDERS THAT:
1.There be no order as to costs of the creditor’s petition presented on 20 December 2019.
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 DRIVER:
INTRODUCTION AND BACKGROUND
This judgment concerns competing costs claims arising from a dismissed creditor’s petition. The history of these proceedings is lengthy and unfortunate. In broad terms, it concerns land at South Kempsey which is owned by the Kempsey Local Aboriginal Land Council (the Land Council) and occupied by Ms Donnelly. For many years, she treated the land as her own and made improvements to it. The Land Council sought to recover the land from her, which she resisted.
For the purposes of the competing costs claims now made by the parties, I have received two affidavits by Anthony Patrick Maher made on 3 July 2020 (First Maher Affidavit) and 21 February 2022 (Second Maher Affidavit) and the affidavit of Angus Hannam made on 4 March 2022 (Hannam Affidavit).
The creditor’s petition is part of a series of disputes between Ms Donnelly and the Land Council that arise from the construction of a dwelling and other improvements by Ms Donnelly, with the permission of Land Council, on land owned by it. At the time of making the improvements, Ms Donnelly understood that she had been granted a 99 year lease of the land by the Land Council.
In 2013 Ms Donnelly commenced unsuccessful proceedings in the Supreme Court of NSW seeking specific performance of an agreement to grant her a 99 year lease of the land (2013 Supreme Court proceedings). By operation of the Aboriginal Land Rights Act 1983 (NSW) the agreement to grant a 99 year lease was void and unenforceable.
Ms Donnelly was ordered to pay the Land Council’s costs of the 2013 Supreme Court proceedings. That costs order is the debt underlying the creditor’s petition.
The costs of the 2013 Supreme Court proceedings were assessed in 2016 and registered as a judgment of the Local Court of New South Wales.
In April 2018 the Land Council served a bankruptcy notice founded on the Local Court judgment and interest, with a total claimed debt of $78,770.13.
Ms Donnelly applied to set aside the bankruptcy notice on the ground that she had an offsetting claim against the Land Council in an amount exceeding the judgment debt. On 5 November 2019 Judge Barnes dismissed Ms Donnelly’s application to set aside the bankruptcy notice.[1]
[1] Donnelly v Kempsey Local Aboriginal Land Council [2019] FCCA 3152
The creditor’s petition was signed on 18 December 2019 and filed on 20 December 2019.
On 21 August 2020, Ms Donnelly commenced further Supreme Court proceedings seeking a declaration of constructive trust or equitable compensation from the Land Council on the basis that her improvements to the land had increased the value of the land and it was unconscionable of the Land Council not to account to her for that increased value.
On 28 August 2020, the Land Council made an urgent application for summary dismissal of the 2020 Supreme Court proceedings before Parker J (sitting as the duty judge), which was dismissed with costs.
On 4 September 2020, on the hearing of the creditor’s petition, I made the following orders:
THE COURT NOTES THAT:
A.The respondent debtor concedes that the only basis upon which she resists a sequestration order is on the basis of the asserted offsetting claim the subject of proceedings in the Supreme Court of New South Wales (NSWSC).
THE COURT ORDERS THAT:
1. These bankruptcy proceedings be adjourned until resolution of the NSWSC proceedings subject to the proviso that those proceedings are pursued diligently by the respondent debtor.
2. The parties are to inform the court within 7 days of the outcome of the NSWSC proceedings with a view to these bankruptcy proceedings being listed for resolution.
3.The parties have liberty to apply for further directions or orders on 3 days’ notice.
4. Costs of today’s hearing are reserved.
The petition was also extended for 12 months.
On 18 September 2020, Ms Donnelly filed an amended statement of claim in the 2020 Supreme Court proceedings adding a claim for restitution on the ground that the Land Council was unjustly enriched by failing to pay her the amount by which her improvements to the land had increased its value. The fact that Ms Donnelly amended her claim to add this further ground is said by Ms Donnelly to be irrelevant to the question of the costs of these proceedings.[2]
[2] cf Land Council’s submissions at [25]
On 4 November 2020, Williams J dismissed with costs the Land Council’s motion for summary dismissal of the 2020 Supreme Court proceedings.[3]
[3] Donnelly v Kempsey Local Aboriginal Land Council [2020] NSWSC 1548
On 26 November 2020 the Land Council filed a cross-claim in the 2020 Supreme Court proceedings alleging trespass to the land by Ms Donnelly.
On 19 October 2021, following the hearing of the 2020 Supreme Court proceedings, Henry J made orders by consent requiring Ms Donnelly to remove her personal belongings from the land by 4.00pm on 14 January 2022 and restraining Ms Donnelly from entering the land after 4.00pm on 14 January 2022 except with express written permission of the Land Council.
On 29 November 2021 the creditor’s petition was listed before this Court for directions and I noted that judgment in the 2020 Supreme Court proceedings was pending.
On 13 December 2021 Henry J gave judgment to Ms Donnelly on her claim in the amount of $115,000 and judgment to the Land Council on its cross-claim for trespass to land in the amount of $800.[4] As noted above, judgment on costs in that case is reserved following the filing of written submissions by the parties.
[4] Donnelly v Kempsey Local Aboriginal Land Council [2021] NSWSC 1699
On 16 December 2021 this Court made orders dismissing the creditor’s petition and reserving the question of costs.
Through the course of the creditor’s petition proceedings and the 2020 Supreme Court proceedings, Ms Donnelly has corresponded with the Land Council through her solicitors in connection with the resolution of the issues between the parties:
(a)on 11 August 2020, Ms Donnelly’s solicitor emailed the Land Council’s solicitor with a copy of Ms Donnelly’s Supreme Court statement of claim, which had been lodged for filing, and invited the Land Council to consent to an adjournment of the creditor’s petition pending resolution of the 2020 Supreme Court proceedings;[5]
(b)by email on 13 August 2020, the solicitor for the Land Council rejected that proposal;[6]
(c)on 21 August 2020, Ms Donnelly’s solicitor responded to the 13 August 2020 email in detail, concluding with a proposal that the parties engage in discussions to reach a negotiated settlement;[7]
(d)on 25 August 2020, Ms Donnelly’s solicitor wrote to the Land Council’s solicitor with a settlement offer;[8] and
(e)on 12 November 2020, following the 4 November 2020 dismissal of the Land Council’s application for summary dismissal of the 2020 Supreme Court proceedings, Ms Donnelly’s solicitor wrote to the Land Council proposing settlement discussions.[9]
[5] Annexure “O” to the Hannam Affidavit, page 4
[6] Annexure “O” to the Hannam Affidavit
[7] Annexure “P” to the Hannam Affidavit
[8] Annexure “Q” to the Hannam Affidavit
[9] Annexure “R” to the Hannam Affidavit
The Land Council made no response to Ms Donnelly’s letters of 21 August 2020, 25 August 2020 and 12 November 2020.[10] As recorded at [27] of the Hannam Affidavit, the only time that the parties have engaged in a settlement discussion was at my instigation in these proceedings on 4 September 2020.
[10] see [24]-[26] of the Hannam Affidavit
Grounds of opposition
Ms Donnelly filed grounds of opposition to the creditor’s petition on 2 March 2020. Those grounds were supported by the affidavit of Ms Donnelly dated 28 February 2020 (Donnelly Affidavit). Ms Donnelly relied also on a report of Damien Burley, dated 20 April 2020.
The grounds upon which Ms Donnelly opposed the creditor’s petition were:
1.The Respondent has a genuine and arguable claim against the Applicant for an amount exceeding the amount of the debt upon which the creditor’s petition is founded.
2.There is other sufficient cause why a sequestration order should not be made. Namely, that it would be unconscionable for the Applicant to retain the benefit of the improvements that the Respondent has made to the value of its property in the circumstances set out in the accompanying affidavit
A third ground sought a declaration that the Land Council holds a dwelling and other improvements to the Land on constructive trust for Ms Donnelly, or alternatively, a declaration and orders that the Land Council pay compensation to Ms Donnelly for the value of the dwelling and other improvements.
On 2 April 2020 I listed the creditor’s petition for hearing on 4 September 2020.
Commencement of the 2020 Supreme Court proceedings
As noted above, on 21 August 2020 proceedings were commenced by Ms Donnelly in the Supreme Court of New South Wales[11], asserting equitable or restitutionary remedies in an amount said to wholly off-set the judgment debt. The statement of claim was apparently lodged for filing some time earlier, however was not filed so as to commence the proceedings until 21 August 2020, apparently due to an application by Ms Donnelly for waiver of the Supreme Court filing fee.
[11] Second Maher Affidavit at [4], annexure “A”, pages 5-13
Hearing in this Court
During the hearing of the creditor’s petition in this Court on 4 September 2020 Ms Donnelly conceded that all requirements for the making of a sequestration order had been satisfied by the Land Council. Ms Donnelly sought an adjournment based upon her then recently commenced Supreme Court claim. As noted above, that was granted.
Resolution of Supreme Court proceedings
On 19 October 2021 the Supreme Court made the following orders by consent[12]:
1.[Ms Donnelly] is ordered to remove all of her personal belongings from the Land by no later than 4:00pm on 14 January 2022.
2.[Ms Donnelly] is restrained by herself, or by any agent, from entering upon or using the Land by any means or for any purpose after 4:00pm on 14 January 2022, except with express written permission from the [Land Council].
3.The Court notes that the [Land Council] requires an undertaking from [Ms Donnelly], as a condition to permitting her to enter upon the Land and remove her personal items, that she remove only her personal items, and that she cause no harm to the Land or any structure upon it. The Court notes the [Land Council’s] position that the noted condition of entry and removal of items is not an admission of any value in the structures on the Land, but merely a desire to preserve the status quo and prevent any environmental or other issue arising given the unknown construction methods and materials.
4.The Court notes [Ms Donnelly’s] undertaking that she will remove only personal items owned by her from the Land, and will not cause any damage to the Land, or the structures thereon.
5. Remaining issues reserved for decision.
[12] Second Maher Affidavit at [7], annexure “C”, pages 27-28
The Supreme Court proceedings were not heard until 5 and 6 October 2021.[13] Henry J delivered judgment on 13 December 2021.[14] Her Honour made the following orders:
1.On [Ms Donnelly’s] amended statement of claim, judgment in favour of [Ms Donnelly] in the sum of $115,000 (judgment sum).
2.On the [Land Council’s] cross-claim, judgment in favour of the [Land Council] in the sum of $800 for trespass to the [Land Council’s] land.
3.Payment of the judgment sum is to be made to [Ms Donnelly] within 21 days of [Ms Donnelly] complying with the orders made on 19 October 2021 that [Ms Donnelly] remove her personal belongings from the [Land Council’s] land.
4. Reserve costs.
5.Grant liberty to apply to approach my Associate to advise whether the issue of costs has been agreed or whether it is to be determined by submissions and on the papers.
[13] Second Maher Affidavit at [6]
[14] Second Maher Affidavit at [8], annexure “D”, page 29
To date Ms Donnelly is said to have failed to comply with the Supreme Court’s orders of 19 October 2021 to remove her personal belongings from the land.[15]
[15] Second Maher Affidavit at [9]-[14], annexures “E”-“I”, pages 30-50
Costs in the Supreme Court remain reserved.
Resolution of proceedings in this Court
On 16 December 2021 this Court made orders, by consent, that:
1. The creditor’s petition dated 18 December 2019 is dismissed.
2. The costs of the proceedings are reserved.
The only issue outstanding in the bankruptcy proceedings is the issue of costs. Following the dismissal of the creditor’s petition, the parties agreed that I should deal with the issue of costs on the papers.
Legislation and case law
The Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) (Bankruptcy Rules) provide, by rule 13.01(1):
(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.
Division 13.2 applies to short form costs that may be charged by a legal practitioner asking for a creditor. That division is not at least for present purposes relevant to the issue of liability for costs as between parties, not least because the Land Council would not be content with a short form costs order. Accordingly, Part 40 of the Federal Court Rules 2011 (Cth) (Federal Court Rules) applies.
Rule 40.01 of the Federal Court Rules provides to the effect that unless otherwise specified, any costs order is to be as between party and party.
Rule 40.03 provides that if the Court reserves costs, and no further order is made, costs follow the event.
In Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin[16] McHugh J stated at 624-625:
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. (Footnotes omitted).
[16] (1997) 186 CLR 622
Section 32 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) provides:
The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit.
In Principal Strategic Options Pty Ltd, Re Coshott v Coshott[17] at [18] Branson J noted that the Court has a very wide discretion with respect to the making of costs orders under s 32 of the Bankruptcy Act, but observed that the discretion must be exercised judicially. Her Honour continued at [19]-[20]:
[17] [2001] FCA 664
The general rule in bankruptcy proceedings, as in proceedings before the Court generally, is that costs should follow the event (Re Skase; ex parte Donnelly (1992) 37 FCR 509 per Drummond J at 522). In Re Skase , Drummond J treated as applicable to bankruptcy proceedings certain propositions propounded by Wilcox J in Cummings v Lewis [1992] FCA 334. Drummond J in Re Skase set out those propositions as follow:
“(a)The Court has an unfettered discretion as to its costs order: here see s 32 of the Bankruptcy Act.
(b) But, because of the usual practice of the court, a successful respondent has a reasonable expectation of recovering costs, in the absence of special circumstances.
(c) In considering the matter of costs, the court is entitled to look beyond the actual conduct of the case and have regard to the circumstances out of which it arose.
(d) However, there must be a limitation on the weight to be put on pre-litigation conduct, lest the exception overwhelm the rule. If too much emphasis is placed upon the circumstance that the litigation would not have arisen but for an action of the defendant, few successful defendants would recover their costs.
(e) The court may take into account the conduct of the litigation by the successful party. Where a successful party has put the opposing party to significant expense in connection with an issue on which that party failed, it may be reasonable to take that matter into account by awarding something less than full party-party costs.
(f) There is no difference in principle between the case of a successful plaintiff and that of a successful defendant.”
I am also of the view that the above propositions provide useful guidance in bankruptcy matters as in other matters.
Re Coshott was a case where the debt that founded the creditor’s petition was set aside as a result of a successful appeal by Mr Coshott against the judgment at first instance. The parties agreed that the creditor’s petition could not proceed and it was dismissed.
Branson J noted at [22] that the operation of the general rule as to costs would result in a costs order in favour of the successful respondent, Mr Coshott. After consideration of argument to the contrary, Branson J held that Mr Coshott was entitled to his costs of defending the creditor’s petition.
The purpose of an order for costs is to compensate the successful party, not to punish the unsuccessful party.[18]
[18] Latoudis v Casey (1990) 170 CLR 534 per Mason CJ at 543, per Toohey J at 563, per McHugh J at 567
As noted above, Lai Qin at 624 addresses the situation where there has not been a hearing on the merits.
It is important to keep in mind that the costs discretion is broad and that McHugh J’s comments and decision in Lai Qin related to the particular case he was dealing with, where the migration decision the subject of the appeal had been rendered moot by Ministerial intervention before the hearing of the appeal.
Correspondence between the parties in January and February 2022
Ms Donnelly submits that the post judgment conduct of the parties in the 2020 Supreme Court proceedings is not relevant to the exercise of the Court’s discretion with respect to costs of the creditor’s petition. Any issues between the parties regarding compliance with the Supreme Court’s orders can, if necessary, be dealt with by the Supreme Court.
Accordingly, [9]-[14] of the Second Maher Affidavit and annexures “E” to “I” of the Second Maher Affidavit are objected to by Ms Donnelly because they are said to be irrelevant. I have received that evidence, but in light of the submissions,[19] give it limited weight.
[19] Including the Land Council’s reply submissions filed on 14 March 2022
The Maher Affidavits provide a partial, not a full account of what passed between the parties. The balance of the correspondence is referred to in [5]-[22] of (and corresponding annexures to) the Hannam Affidavit.
Ms Donnelly submits that the issues about her removal of personal belongings from the property could have been dealt with promptly, effectively and with minimal cost, if the Land Council had engaged with her about those issues in a common-sense constructive manner. Ms Donnelly submits that it is not simply the case that Ms Donnelly has failed to comply with the Supreme Court’s orders. Rather, the totality of the correspondence annexed to the Hannam Affidavit is said to demonstrate that Ms Donnelly has made every effort to comply with court orders in good faith.
CONSIDERATION
Applicant creditor’s contentions
At the hearing of the creditor’s petition Ms Donnelly conceded that the Land Council had made good on every formal requirement for a sequestration order.
This Court exercised its discretion to allow Ms Donnelly an indulgence, and adjourned the proceedings in order to allow Ms Donnelly to press an offsetting claim in the Supreme Court.
The statement of claim had only been filed in the Supreme Court on 21 August 2020, two weeks prior to the hearing of the creditor’s petition. By that time the parties had prepared their evidence, and had largely prepared their cases for hearing. The Land Council was in no position to abandon its preparation for the hearing, as parties do not have the capacity to adjourn or vacate a hearing date simply by consent. By the time Ms Donnelly filed her claim in the Supreme Court the Land Council in these proceedings was well and truly committed to the hearing.
In any event, the claim that was ultimately run by Ms Donnelly in the Supreme Court was in the form of an amended statement of claim that was filed on 18 September 2020, two weeks after the hearing in this proceeding was adjourned.
The bankruptcy notice relied upon to found the creditor’s petition was issued on 11 April 2018. Ms Donnelly had over two years within which to formulate her claim in the Supreme Court proceedings, and yet she waited until weeks before the hearing of the creditor’s petition to commence her claim. Prior to her doing that, any suggestion of an offsetting claim is said to have been just that, a mere suggestion.
Ms Donnelly might argue that she was ultimately vindicated by an order for judgment in an amount greater than the judgment upon which the creditor’s petition was founded. However, any such suggestion is said to ignore the fact that Ms Donnelly’s judgment was conditional upon compliance with court orders in respect of which Ms Donnelly is in default.
The Land Council submits that, had it not been for the expiration of the creditor’s petition, by reason of an effluxion of time created by Ms Donnelly’s late filing of an offsetting claim, the Land Council would be entitled to a sequestration order.
In any event, the Land Council satisfied the requirements for a sequestration order, having been put to proof by Ms Donnelly at a final hearing.
In all of those circumstances, the Land Council submits there should be an order that Ms Donnelly pay the Land Council’s costs of this proceeding.
Respondent debtor’s contentions
The consent dismissal of the creditor’s petition is an event the consequence of which is that Ms Donnelly has not had a sequestration order made against her. This was not merely the result of effluxion of time.[20] At the time of the dismissal of the creditor’s petition, she had a judgment against the Land Council in her favour that exceeded the amount of the debt upon which the creditor’s petition was founded.
[20] cf Land Council’s submissions at [28]
The unresolved issues between the parties that were present when the bankruptcy notice was issued and continued when the creditor’s petition was filed, were finalised by the 2020 Supreme Court proceedings in which her claims were vindicated. While the Court’s power to make a sequestration order was enlivened, as Ms Donnelly conceded, she had a strong case at the conclusion of the 2020 Supreme Court proceedings for the exercise in her favour of the Court’s discretion given by s 52(2)(b) of the Bankruptcy Act to dismiss the petition for “other sufficient cause”.
The Land Council declined Ms Donnelly’s invitation to consent to an adjournment of the creditor’s petition pending resolution of her 2020 Supreme Court proceedings. At the hearing of the petition on 4 September 2020, the Land Council opposed the adjournment of the creditor’s petition.
Ms Donnelly contends that it is reasonable to assume that, had the 2020 Supreme Court proceedings concluded with sufficient time before the expiry of the creditor’s petition, she would have had very good prospects of success given that the purpose of the adjournment of the creditor’s petition was to allow the merits of her offsetting claim to be determined.
This is said to bring the matter within the category of cases, referred to by McHugh J in Lai Qin at 625, “where a judge may feel confident that … one party was almost certain to have succeeded if the matter had been fully tried.”
It is said to be inappropriate for the Land Council[21] to criticise Ms Donnelly as having “waited” to commence the 2020 Supreme Court proceedings. As Henry J observed in her judgment at [263], referring to the whole course of proceedings after the dismissal of Ms Donnelly’s claims in the 2013 Supreme Court proceeding:
I accept that there has been a significant delay in Ms Donnelly bringing her claims in this proceeding and the finality of litigation is an important object which tends in favour of [the Land Council’s] position. However, Ms Donnelly’s delay in bringing this proceeding can, in my view, be explained to some extent by the parties’ attempts to reach a resolution of their disputes, Ms Donnelly’s lack of funds and her reliance on pro bono legal advice, which has resulted in multiple lawyers representing her throughout the relevant period.
[21] Land Council’s submissions at [26]
There is no suggestion that Ms Donnelly failed to pursue the 2020 Supreme Court proceedings diligently as required by the order of this Court on 4 September 2020. Ms Donnelly successfully defended two motions for summary judgment initiated by the Land Council and succeeded in her substantive claims at the final hearing. The Land Council, as was its right, defended Ms Donnelly’s claims vigorously. The time it took the matter to be heard and determined was not the fault of Ms Donnelly.
The proposition at [27] of the Land Council’s submissions that Ms Donnelly’s entitlement to payment of the judgment in her favour in the 2020 Supreme Court proceeding commences 21 days after her removal of her personal belongings is correct, but it remains the case that Ms Donnelly’s claim was successful. The critical matter is that Ms Donnelly’s assertion of an offsetting claim has been upheld.
If the Court is concerned in this case as to whether both parties have acted reasonably in commencing and defending the matter in the sense referred to by McHugh J in Lai Qin, Ms Donnelly submits that the Land Council unreasonably refused to consent to an adjournment of the creditor’s petition, unreasonably refused to engage with proposals for a settlement of all issues between the parties, and unreasonably persisted with the creditor’s petition in the face of Ms Donnelly’s offsetting claim.
Ms Donnelly’s submissions about the unreasonableness of the Land Council’s stance is not to suggest that they should be punished by an award of costs. Rather, this unreasonableness is said to have caused Ms Donnelly to incur costs and enlivens the compensatory principle that underlies the Court’s power to award costs.
Resolution
If I was to apply the general principle that costs follow the event, I would make a costs order in favour of Ms Donnelly and against the Land Council. The creditor’s petition was dismissed. If it had not been dismissed, it would have almost immediately expired. However, the Bankruptcy Rules envisage the possibility that a petitioning creditor may recover costs (at least in short form) where a creditor’s petition is dismissed. This recognises that petitioning creditors are put to time, trouble and expense in instituting bankruptcy proceedings which are frequently resolved by payment or some other mutually acceptable outcome at the “last gasp”.
That is not this case. The essential elements of the underlying dispute between the parties were always well known and concerned two things:
(a)title to the land and a related right to occupancy; and
(b)the improvements carried out on the land by Ms Donnelly.
Ms Donnelly failed in her attempts to obtain legal recognition of a long term tenancy. It was always known, however, that she had carried out improvements and, as a general proposition, if she was required to vacate the land, she was entitled to some compensation for those improvements. That is, in essence, the outcome she achieved in the Supreme Court.
It is unfortunate that bankruptcy proceedings were necessary. It might be argued that they were not necessary. The parties are regrettably hostile to one another after pursuing an intractable dispute over many years. The courts can establish legal rights and liabilities and give judgments but they cannot salve the feelings of the parties. It is by no means clear that the orders made in the Supreme Court and this Court will bring the legal dispute to an end. That will require Ms Donnelly to vacate the premises and receive the compensation she has been awarded by the Supreme Court.
The parties need to understand that the orders in the proceedings to date should bring the legal dispute to an end and, if they do not, there will no doubt be further expensive legal proceedings representing a drain on the finances of the Land Council and, potentially, Ms Donnelly.[22]
[22] Ms Donnelly has apparently been represented in whole or part on a pro bono basis.
I have come to the conclusion that the costs in these bankruptcy proceedings should lie where they fall. It is up to the parties to decide whether those costs will be limited at this point or added to by the prolongation of the dispute.
I will order that there be no order as to costs.
I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Driver. Associate:
Dated: 18 March 2022
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